SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 16804 / November 20, 2000
SECURITIES AND EXCHANGE COMMISSION v. BRIAN JACKSON, JEREMIAH HEGARTY, LAURI HEGARTY AND MICHAEL BOSSE, Civil Action No. 00-12388-PBS (D. Mass.)
SEC SUES FOUR MASSACHUSETTS RESIDENTS FOR UNLAWFUL RESALE OF UNREGISTERED SECURITIES; SEEKS TO RECOVER $7.5 MILLION FOR VICTIMS OF SYSTEMS OF EXCELLENCE FRAUD
The Securities and Exchange Commission announced that on November 17, 2000 it filed a complaint in the United States District Court for the District of Massachusetts alleging that four Massachusetts residents -- Brian Jackson ("Jackson"), Jeremiah Hegarty ("Mr. Hegarty"), Lauri Hegarty ("Ms. Hegarty") and Michael Bosse ("Bosse") -- resold unregistered shares of Systems of Excellence, Inc. ("SOE"). The complaint alleges that, collectively, Defendants reaped ill-gotten gains (i.e., net trading profits) in excess of $7.5 million when they resold unregistered SOE securities into an artificially inflated market that was being manipulated by others.
The Commission's complaint alleges that in multiple transactions from February through August 1996, Jackson, Ms. Hegarty and Bosse acquired a total of 4,925,499 newly-issued unregistered shares of SOE common stock in a series of so-called "private placements." Without exception, shares acquired in these private transactions with SOE were neither registered, nor exempt from registration. The distribution of unregistered shares was part of a massive fraud perpetrated by SOE, its chairman Charles O. Huttoe ("Huttoe") and others. Monies raised through Defendants' private purchases of unregistered securities provided SOE with needed cash and allowed Huttoe and others to carry on the operations of SOE and to further manipulate the market for SOE stock.
On October 4, 1996, the Commission suspended trading in the securities of SOE for a ten-day period pursuant to Section 12(k) of the Securities Exchange Act of 1934, in part, because of questions regarding the illegal distribution and resale of millions of unregistered SOE shares. Prior to the trading suspension, Defendants had illegally resold almost all of the shares they had acquired directly from SOE.
The complaint alleges the following specific conduct by each defendant:
Because none of the shares acquired in these various transactions were registered or exempt from registration, Defendants violated the strict liability registration provisions of the federal securities laws when they resold their shares or, in the case of Mr. Hegarty, when he directed the resale of shares held by others. In its complaint, the Commission seeks a permanent injunction against future violations of Sections 5(a) and 5(c) of the Securities Act of 1933, disgorgement with prejudgment interest, and a civil penalty against each Defendant.
To date, the Commission has collected approximately $12 million in disgorgement as a result of five separate enforcement actions stemming from its investigation of the SOE fraud. These funds, together with amounts eventually recovered from Jackson, the Hegartys and Bosse, will be distributed by a Court-appointed receiver to victims of the SOE fraud.
The Commission previously has made several announcements concerning these matters. See Lit Rel. 16695 (September 11, 2000), Lit Rel. 16632a (July 21, 2000), Securities Exchange Act Rel. 42616 (April 4, 2000), Lit Rel. 16343 (October 27, 1999), Lit. Rel. 15996 (December 9, 1998); Lit. Rel. 15906 (September 24, 1998); Lit. Rel. 15888 (September 18, 1998); Lit. Rel. 15617 (January 14, 1998); Lit. Rel. 15600 (December 22, 1997); Lit. Rel. 15571 (November 25, 1997); Lit. Rel. 15490 (September 12, 1997); Lit. Rel. 15286 (March 12, 1997); Lit. Rel. 15237 (January 31, 1997); Lit. Rel. 15185 (December 12, 1996); Lit. Rel. 15153 (November 7, 1996); Securities Exchange Act Rel. No. 33791 (October 7, 1996).
The Commission's investigation in this matter is continuing.
This enforcement action is part of the Commission's four-pronged approach to attacking Microcap abuses: enforcement, inspections, investor education and regulation. For information about the SEC's response to Microcap fraud, visit the SEC's Microcap Fraud Information Center at http://www.sec.gov/divisions/enforce/microcap.htm.