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U.S. Securities and Exchange Commission


Litigation Release No. 16787 / November 1, 2000

Securities and Exchange Commission v. David Morgenstern, Fred Morgenstern, Bernadette Stevens, and Amquest International, Ltd. Civil Action No. 98-7044-CIV-Seitz (S.D. Fla.)

The Securities and Exchange Commission ("SEC") announced today that on October 18, 2000, the Honorable Patricia A. Seitz of the U.S. District Court for the Southern District of Florida entered an order of permanent injunction and other relief against Amquest International, Ltd. ("Amquest"), a Fort Lauderdale, Florida "financial services" firm and two affiliated individuals for engaging, throughout 1996, in an offering fraud and an attempted "pump and dump" scheme, which gave rise to violations of Section 17 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934. The Court ordered that the three defendants pay $3,750,000 in disgorgement within 30 days and appointed a Special Master to conduct a pro-rata distribution of the funds to investors. Judge Seitz also ordered that the individuals David Morgenstern ("D. Morgenstern") and Fred Morgenstern ("F. Morgenstern"), both aged 51 and of Boca Raton, Florida, each pay a civil penalty of $20,000 within 30 days. Amquest and the two individuals consented to the entry of the order without admitting or denying the allegations of the Commission's complaint.

The Commission alleged in its complaint that Amquest, D. Morgenstern, F. Morgenstern and defendant Bernadette Stevens ("Stevens"), engaged in securities fraud in connection with a private offering of common stock by Amquest, which resulted in approximately $4.1 million in losses to investors. The Court's order did not resolve the relief sought from Stevens. In its complaint, the Commission alleged that, in the offer and sale of Amquest's securities, Amquest, D. Morgenstern, F. Morgenstern and Stevens used fraudulent offering documents calculated to deceive prospective investors through misleading representations and omissions. According to the SEC's complaint, Amquest's offering documents contained the following misrepresentations:

  • that Amquest had "total assets" in excess of $408 million, including certain "Brazilian bonds" claimed as an Amquest asset and valued at more than $250 million;

  • that certain successful individuals were directors and "full-time" employees of Amquest;

  • that Amquest had a "firm commitment" contract for $10 million in funding;

  • that a certain mortgage company had been acquired by Amquest;

  • that Amquest had "mortgage warehousing lines" worth $100 million.

The SEC further charged in its suit that D. Morgenstern, F. Morgenstern and Stevens misappropriated the bulk of the Amquest offering proceeds, including approximately $700,000 in proceeds from a related offering of stock issued by SleepSource International, Ltd. As alleged in the Commission's complaint, D. Morgenstern and F. Morgenstern used the offering proceeds to fund an attempted scheme to inflate artificially the price of Amquest stock by engaging in pre-arranged trades in nominee brokerage accounts.