UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16714 / September 20, 2000
SECURITIES AND EXCHANGE COMMISSION V. JAMES A. NIES, JEFFREY DENE LEADER AND HOWARD DALTON DAVLIN, Civil Action No. 3: 00-CV- 465-MU (W.D.N.C.)
The Securities and Exchange Commission announced that a complaint for injunctive and other relief was filed by the Commission on September 20, 2000, in the United States District Court for the Western District of North Carolina against defendants James A. Nies ("Nies"), Jeffrey Dene Leader ("Leader") and Howard Dalton Davlin ("Davlin"). The complaint seeks to permanently enjoin the defendants from further violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission also seeks an order requiring accountings by the defendants and disgorgement of all ill-gotten gains with pre-judgment interest and civil penalties.
The Commission's complaint alleges that from early 1995 through early 1997, Nies and Leader, aided and abetted by Davlin, all registered representatives of broker-dealers registered with the Commission, orchestrated the fraudulent exercise of stock subscription rights in connection with at least seventeen mutual thrift conversions in eleven states. Under applicable federal and state banking regulations, when a savings and loan association, savings bank, or thrift converts to a publicly traded company, account holders are given the first opportunity to purchase stock, but are prohibited from transferring their stock purchase rights or entering into pre-issuance arrangements to sell the stock. The complaint alleges that Nies, Leader and Davlin developed an elaborate scheme to purchase shares in converting mutual thrifts for themselves or certain of their customers who were not legally entitled to do so, by submitting Stock Order Forms to the thrifts in the names of eligible thrift depositors. The Stock Order forms did not disclose the fact that ineligible persons were funding the stock purchase and would retain sole discretion to sell the stock.
The complaint alleges, among other things, that Nies and Leader contacted account holders of converting thrifts and encouraged them to give up their subscription rights, paying some of the account holders ten cents a share or a percentage of the profits earned after conversion. The complaint alleges that, in at least two instances, Nies and Leader forged account holders' names on the Stock Order Forms without their knowledge or consent; collected money from individuals who were ineligible to purchase the stock, and transferred the money together with the Stock Order Form to the converting thrift. The complaint also alleges that Nies and Leader accomplished the scheme by using nominee bank and brokerage accounts in the names of personal friends, but over which Nies and Leader exercised control, by establishing brokerage accounts for fourteen of their customers at a broker-dealer in another state, and by transferring the stock, issued by the bank in the name of the eligible depositor, to their nominee brokerage accounts or the accounts of their ineligible customers. The complaint further alleges that Nies and Leader processed the stock by means of Letters of Authorization instructing the broker-dealer to disperse the stock to the various nominee or customer brokerage accounts, as well as sell the stock and wire the proceeds to various of their nominee or customer bank accounts.
The complaint alleges that Nies, Leader and Davlin profited by approximately $300,000, $193,000 and $17,000, respectively, as well as the goodwill of their customers who profited from the scheme.