SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16663 / August 28, 2000
Accounting Auditing Enforcement Rel. No. 1296 / August 28, 2000
SECURITIES AND EXCHANGE COMMISSION v. JEFFREY P. SUDIKOFF, EDWARD CHERAMY AND RUDY WANN, Civil Action No. 97-7207 DDP (RCx) (C.D. Cal.)
The Securities and Exchange Commission ("Commission") announced that on August 21, 2000, United States District Judge Dean D. Pregerson of the Central District of California entered final judgments of permanent injunction and other relief against all three defendants in this case, Jeffrey P. Sudikoff ("Sudikoff"), Edward Cheramy ("Cheramy") and Rudy Wann ("Wann"). The judgments were entered pursuant to the consents of the defendants, who neither admit nor deny the allegations of the Commission's Complaint.
The defendants are former officers of IDB Communications Group, Inc. ("IDB"), a telecommunications company formerly headquartered in Los Angeles, California. Sudikoff was IDB's former Chairman and Chief Executive Officer; Cheramy was IDB's former President; and Wann was IDB's former Chief Financial Officer. Sudikoff and Wann reside in Los Angeles, and Cheramy now resides in Wyoming.
The Commission's Complaint alleged that Sudikoff, Cheramy and Wann fraudulently inflated IDB's 1994 first quarter earnings from $9 million to $15 million in order to meet analysts' projections. Sudikoff, Cheramy and Wann then publicly disseminated these overstated earnings in a press release and a Form 10-Q quarterly report filed with the Commission. The Complaint further alleged that Sudikoff, Cheramy and Wann concealed the fraud by fabricating documents, knowingly making false adjusting entries on IDB's books and records in circumvention of IDB's internal controls and lying to IDB's independent auditors. The Complaint also alleged that Sudikoff engaged in insider trading in IDB stock, and tipped his parents, who also traded IDB stock.
In addition to enjoining the defendants from future violations of various antifraud and other provisions of the federal securities laws, as set forth below, Sudikoff was ordered to disgorge $522,505.50, representing his alleged losses avoided on certain insider trades in IDB stock, plus prejudgment interest of $130,060.86, and an Insider Trading and Securities Fraud Enforcement Act penalty of $100,000. Additionally, based upon their alleged financial fraud, all three defendants were ordered to pay civil penalties pursuant to the Securities Enforcement Remedies and Penny Stock Reform Act of 1990. Sudikoff and Cheramy were each ordered to pay the maximum penalty of $100,000, and Wann was ordered to pay $50,000. Sudikoff and Cheramy were also barred from acting as officers or directors of public companies for periods of twelve years and ten years, respectively. Finally, Cheramy and Wann, both formerly licensed as certified public accountants, have agreed to institution of administrative proceedings against them pursuant to Commission Rule of Practice 102(e) based upon entry of the injunctions against them. Cheramy has consented to be denied the privilege of appearing or practicing before the Commission; Wann has consented to be denied that privilege with a right to reapply for reinstatement after five years.
Each of the defendants consented to entry of a judgment permanently enjoining him from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"); the quarterly reporting provisions of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13; the internal control and books and records provisions of Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder; and the prohibition against lying to accountants of Exchange Act Rule 13b2-2. Additionally, Sudikoff was permanently enjoined from violating the antifraud provisions of Section 17(a) of the Securities Act of 1933; Sudikoff and Cheramy were permanently enjoined from violating the stock ownership reporting provisions of Section 16(a) of the Exchange Act and Rule 16a-3 thereunder; and Cheramy and Wann were permanently enjoined from violating the reporting provisions of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-11. The Commission dismissed allegations that Cheramy had engaged in insider trading of IDB stock.
In the related criminal action brought against them by the United States Attorney's Office for the Central District of California, Sudikoff and Cheramy pled guilty to various crimes in 1999. Sudikoff pled guilty to two counts of securities fraud for insider trading and one count of failing to disclose his IDB stock trades to the Commission. On December 3, 1999, Judge Pregerson sentenced Sudikoff to twelve months incarceration, a $3 million criminal fine, and a period of three years of supervised release. Cheramy pled guilty to one count of securities fraud. On December 16, 1999, Judge Pregerson sentenced Cheramy to three years probation, 500 hours community service and a $250,000 criminal fine.
For further information, see Litigation Release No. 15522 (October 1, 1997).