SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16855 / January 5, 2001
SEC v. TIMOTHY S. VASKO, EDWARD B. WILLIAMSON, AND MICHAEL J. SCHUCHARD, U.S. District Court for the District of Colorado, C.A. No. 00-M-2592 (December 29, 2000)
SEC SUES STOCK PROMOTER AND TWO FORMER OFFICERS
The Securities and Exchange Commission announced that it filed a civil injunctive action alleging that Timothy S. Vasko, the former chairman and CEO of VIP Global Capital, Inc., made materially misleading disclosure in VIP's filings with the Commission, particularly with respect to VIP's credit arrangement with its major source of financing; that Vasko and Edward B. Williamson, a stock promoter who published an investment newsletter, engaged in a scheme to tout VIP and manipulate the market for VIP's securities; and that Michael J. Schuchard, a former senior vice president and member of VIP's board who also worked as a registered representative of a broker-dealer, fraudulently sold securities of VIP to his brokerage customers. VIP, a now-defunct holding company based in Denver, Colorado, was in the business of acquiring distressed businesses and trying to make them profitable.
The Commission's complaint alleges that, from December 1995 through February 1996, Vasko materially overstated VIP's accounts receivable when presenting them to VIP's major source of financing, an asset-based lender. According to the complaint, Vasko directed VIP employees to submit invoices to the lender for goods that had not been sold and shipped to customers, thereby causing VIP to obtain funds from the lender in violation of the agreement. The complaint alleges that in 1996 Vasko caused VIP to file a Form 10-KSB and an Amended Form 10-KSB with the Commission containing materially false and misleading statements concerning, among other things, VIP's credit arrangement with the lender. The complaint also alleges that Vasko knowingly caused false invoices to be created, recorded sales that had not yet occurred, overstated accounts receivable, and circumvented VIP's internal accounting controls by refusing to allow VIP employees to write off the overstated accounts receivable.
The complaint further alleges that in 1995 VIP entered into an agreement with Williamson, the owner and operator of a financial public relations firm, that called for Williamson to be paid for touting VIP to the investing public through the "Williamson Report," his financial newsletter. According to the complaint, Williamson enthusiastically recommended VIP to his readers from July to November 1995, telling them that VIP's stock price would double within the next twelve months. The Commission's complaint further alleges that during this time period Williamson bought and sold VIP stock through nominee accounts at three different brokerage firms for the purpose of creating artificial activity in the stock and to support its price. According to the complaint, Williamson did not disclose to his readers that VIP was paying him to publicize the stock, and that he was engaged in a pattern of manipulative trading in VIP stock. The complaint further states that Williamson kept Vasko regularly informed about his purchases and sales of VIP stock, including that he was making the purchases and sales for the purpose of supporting VIP's stock price.
The Commission's complaint alleges that Schuchard formerly worked as a registered representative at a broker-dealer while at the same time serving as VIP's vice president and on its board of directors. According to the complaint, Schuchard sold VIP securities to numerous elderly, financially unsophisticated clients living on modest incomes, for whom VIP was not a suitable investment. The complaint alleges that Schuchard made some of the sales to his broker-dealer clients for the purpose of supporting VIP's stock price. Moreover, the complaint alleges that Schuchard sold VIP stock to some of his customers in 1996 without disclosing to them that VIP's most important subsidiary had declared bankruptcy and that VIP's auditors had issued a "going concern opinion" for VIP. Finally, the complaint states that Schuchard recommended and sold more than $300,000 worth of unsuitable, restricted VIP securities to several clients over a three-year period.
The Commission's complaint seeks an order enjoining Vasko from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 and from aiding and abetting violations of Section 13(a) of the Exchange Act and Rule 13a-1, and imposing civil monetary penalties pursuant to Section 21(d)(3) of the Exchange Act.
Williamson, without admitting or denying the allegations of the complaint, has agreed to a settlement whereby he would be permanently enjoined from violating Sections 17(a) and 17(b) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5, and would pay a $10,000 civil penalty. Schuchard, without admitting or denying the allegations of the complaint, has agreed to a settlement whereby he would be permanently enjoined from violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5, and from aiding and abetting violations of Section 13(a) of the Exchange Act and Rule 13a-1. Schuchard has consented to pay $11,558 in disgorgement, representing illegal profits arising from his conduct, plus $4,784.58 in prejudgment interest. Schuchard also has agreed, upon entry of the final judgment in this action, to the issuance of a Commission order pursuant to Sections 15(b)(6) and 19(h) of the Exchange Act that would bar him from association with any broker or dealer.