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U.S. Securities and Exchange Commission


LITIGATION RELEASE NO. 16954 \ April 6, 2001

(U.S.D.C., Eastern District of Texas, Sherman Division, Civil Action No. CA 4:01CV117)

On April 6, 2001, at the Commission's request, Judge Paul Brown, United States District Court for the Eastern District of Texas, Sherman Division, issued Ex Parte Orders Freezing Assets, Directing the Repatriation of Funds and Surrender of Passport, Requiring an Accounting, Requiring Preservation of Documents and Authorizing Expedited Discovery against defendant Frank L. Harris, III ("Harris"). Harris was a registered representative at the Addison branch office of Josephthal & Co., Inc., a broker-dealer registered with the Commission.

In its action, the Commission accuses Harris of using three schemes to divert money from customer accounts to his own bank accounts:

  • Falsely representing that their funds would be used to purchase a particular security;

  • Borrowing against securities in customers' margin accounts without their authorization; and

  • Without customer authorization, liquidating their securities, typically mutual funds, money market shares or blue chip stocks.

Harris' scheme started in at least January 2000, and came to an abrupt halt in late March, when he failed to return to work. Harris is believed to have fled to Cancun, Mexico.

The Commission's complaint charges Harris with violating the antifraud provisions found in Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks preliminary and permanent injunctions, disgorgement with prejudgment interest and a civil money penalty against Harris, as well orders for an asset freeze, an accounting, the prohibition of the movement, alteration and destruction of books and records and expedited discovery.

The Commission acknowledges the assistance of the Federal Bureau of Investigation in this matter.