SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 16901 / 2001 February 15, 2001
Securities and Exchange Commission v. Maria Iacovelli, Richard Morrisey, Jerry Thornthwaite, and Marvin Kogod, Civil Action No. 1:01CV00344(GK) (D.D.C.)
SEC CHARGES FOUR INDIVIDUALS WITH RESELLING UNREGISTERED SYSTEMS OF EXCELLENCE SECURITIES; SETTLEMENTS INCREASE RECOVERY FOR VICTIMS TO OVER $15 MILLION
The Securities and Exchange Commission filed a lawsuit today against four defendants to recover ill-gotten gains they realized when they resold unregistered Systems of Excellence, Inc. ("SOE") securities into an artificially inflated market that was being manipulated by others. Three of defendants were also charged with insider trading in connection with those same transactions. The Commission has now filed nine separate enforcement actions, assisted in obtaining four criminal convictions, deregistered the securities of SOE, and - with the settlements announced today - will have recovered in excess of $15 million for defrauded investors.
The Commission's complaint charged three defendants with both insider trading and the unregistered resale of SOE securities:
The Commission also charged a fourth defendant with the unregistered resale of SOE securities:
According to the complaint, each Defendant unlawfully resold Software of Excellence, Inc. a.k.a. Systems of Excellence, Inc. securities through unregistered, non-exempt transactions in violation of the strict-liability registration provisions contained in Sections 5(a) and 5(c) of the Securities Act of 1933 ("Securities Act"). Additionally, Defendants Iacovelli, Morrisey and Thornthwaite resold certain of their respective securities while in possession of material non-public information, violating the antifraud provisions contained in Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rule 10b-5. Collectively, Defendants reaped over $1.7 million in trading profits when they resold SOE securities into an artificially inflated market that was being manipulated by others.
The distribution of these shares in unregistered, non-exempt transactions was part of a massive fraud perpetrated by SOE, its chairman Charles O. Huttoe ("Huttoe") and others. Monies raised through Defendant Kogod's private purchases of these securities, for example, 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. Shares illegally issued to Iacovelli, Morrisey and Thornthwaite allowed SOE to compensate employees and consultants without having to tap precious cash resources.
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 Exchange Act, 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 858,517 shares (of the 2,496,515 SOE shares they had acquired) into a market manipulated by others.
Simultaneously with the filing of the Complaint, Iacovelli, Thornthwaite and Kogod, without admitting or denying the SEC's allegations, consented to the entry of court orders that: (i) permanently enjoin Iacovelli and Thornthwaite from violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 5(a) and (c) of the Securities Act; (ii) permanently enjoin Kogod from violating Sections 5(a) and (c) of the Securities Act; (iii) require Iacovelli to disgorge $519,057 plus prejudgment interest of $222,199, provided that all but $45,000 shall be waived and no penalties assessed based on her inability to pay; (iv) require Thornthwaite to disgorge $631,959 plus prejudgment interest of $270,530, provided that all shall be waived but for the payment of $83,500, the surrender of 100,000 shares of Periotec stock and 5,000 shares of Medium 4.Com Inc. stock, and the liquidation or assignment of a certain Merrill Lynch annuity to the Court-appointed Receiver, and no penalties assessed based on his inability to pay; and (v) require Kogod to disgorge $283,372.
With the forthcoming payment by the settling defendants, the Commission will have collected in excess of $15 million in disgorgement. These funds will be distributed by the Court-appointed receiver to victims of the SOE fraud in the coming months.
The Commission previously has made several announcements concerning these matters. See Lit. Rel. 16881 (January 31, 2001); Lit. Rel. 16804 (November 20, 2000); 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).
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.http://www.sec.gov/litigation/litreleases/lr16901.htm