SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 16741 / September 29, 2000
SECURITIES AND EXCHANGE COMMISSION v. CHARLES ANTHONY FERRACONE, JAMES W. FARRELL, JAMES L. ERICKSTEEN, GARY L. MOORE, JILL HALL, AND GUIDO BENSBERG, 97cv1684H(POR) (S.D. Cal.)
COMMISSION ANNOUNCES SETTLED JUDGMENTS AGAINST FIVE FRAUD DEFENDANTS AND RELATED ENFORCEMENT PROCEEDINGS AGAINST FOUR OTHER PERSONS
The Securities and Exchange Commission announced that the United States District Court for the Southern District of California has entered final judgments against defendants Charles Anthony Ferracone, James W. Farrell, James L. Ericksteen, Gary L. Moore, and Jill Hall. Each of these defendants consented to entry of the judgments against them without admitting or denying the allegations of the Commission's complaint. The judgments permanently enjoin the defendants from violating Section 17(a) of the Securities Act of 1933 (the "Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 thereunder. The judgments also require Ferracone to disgorge $72,000 in illicit gains; Farrell to disgorge $7,400 in illicit gains; Ericksteen to disgorge $2.8 million in illicit gains; Moore to disgorge $24,175 in illicit gains; and Hall to disgorge $4,315 in illicit gains and pay a $10,000 civil penalty. However, the Court waived Ferracone's disgorgement obligation and all but $100,000 of Ericksteen's disgorgement obligation, and the Court did not impose a civil penalty against Ferracone, Farrell, Ericksteen, or Moore, based on their demonstrated inability to pay. The litigation is proceeding against the remaining defendant, Guido Bensberg.
In its complaint, filed on September 17, 1997, the Commission alleged that the defendants engaged in a fraudulent stock leasing scheme in violation of the antifraud provisions of the federal securities laws. According to the complaint, the defendants acquired hundreds of millions of shares of restricted stock in at least 18 publicly-traded companies by falsely promising the issuing companies that they would pay the issuing companies large monthly rental fees for the stock, that they would not sell, pledge, or otherwise transfer the stock in any way, and that the companies could take the stock back after a year. The complaint alleged that after acquiring the stock certificates, the defendants repeatedly attempted to transfer the stock to third parties without disclosing the many restrictions that encumbered the shares, in order to fraudulently obtain property, money, or credit, resulting in losses to such third parties of at least $9.5 million. (See LR-15499)
In related proceedings, the Commission issued separate administrative orders against Victor Caron of New York, Hugh D. Cooper of Georgia, and Larry H. Weltman of Ontario, Canada. Caron, Cooper, and Weltman formerly served as executive officers, respectively, of Blue Chip Computerware, Inc., Surgimetrics USA, Inc., and Laser Friendly, Inc. three of the publicly-traded issuers from whom defendants Ferracone, Farrell, Ericksteen, Moore, and Hall obtained restricted stock. Caron, Cooper, and Weltman consented to entry of the administrative orders without admitting or denying the matters set forth therein. In the orders, the Commission finds that Caron, Cooper, and Weltman caused violations of Securities Act Section 17(a), Exchange Act Section 10(b)(5), and Exchange Act Rule 10b-5 by having their respective companies engage in transactions that allowed millions of shares of stock to enter the stream of commerce and be used by others to commit fraud. (See Release Nos. 33-7906/34-43398; 33-7907/34-43399; 33-7908/34-43400.)
Finally, in another related matter, the Commission announced the institution of cease-and-desist proceedings pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934 against William J. Bosso of Georgia, who was formerly the President and Chairman of the Board of Affinity Entertainment, Inc. In the order instituting proceedings, the Commission's Division of Enforcement alleges that Bosso was a cause of violations of Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5 thereunder. The Division alleges that Bosso caused these violations by issuing two million shares of Affinity stock to Bensberg, in exchange for Bensberg's promise to pay $10 million, without adequate legends or other safeguards to put third parties on notice of the contractual restrictions on the stock, which prohibited sale, transfer or disposal for a year. The Division alleges that Bensberg falsely represented to Lehman Brothers that he owned the stock outright and that it was freely tradeable, and on that basis received $6.5 million in credit from the firm. A public hearing will be held at a time and place to be determined by an Administrative Law Judge. (See Administrative Release No.3-10338.)