U.S. SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 17191 / October 16, 2001
Securities and Exchange Commission v. Steven H. Schiffer, Joann R. Schulz, Gary S. Kramer, Jonathan Solow, Frank J. Cannata, and Peter G. Mintz, 97 Civ. 5853 (RO) (S.D.N.Y.)
SUMMARY JUDGMENT ENTERED AGAINST ESTATES OF STEVEN SCHIFFER AND GARY KRAMER; FUNDS RECEIVED TO DATE AND TO BE RECEIVED IN THE FUTURE TO BE PAID TO U.S. TREASURY
The Securities and Exchange Commission ("Commission") announced today that summary judgment in Securities and Exchange Commission v. Steven H. Schiffer, Joann R. Schulz, Gary S. Kramer, Jonathan Solow, Frank J. Cannata, and Peter G. Mintz, 97 Civ. 5853 (RO) (S.D.N.Y.), was entered on May 10, 2001, by the United States District Court for the Southern District of New York against the estates of Steven H. Schiffer and Gary S. Kramer, the remaining defendants in the action. The court ordered (i) the Schiffer estate to pay disgorgement of $4,200,000, plus prejudgment interest of $2,996,980, representing profits Schiffer unlawfully derived from the direct sale of stock of Phoenix Laser Systems, Inc. ("Phoenix") in violation of Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 13(a) of the Securities Exchange Act of 1934, and Rules 10b-5 and 13a-1 thereunder; and (ii) the Schiffer and Kramer estates to pay disgorgement on the basis of joint and several liability of $11,578,250.00, plus prejudgment interest of $8,261,855.00, representing proceeds Schiffer and Kramer unlawfully derived from the sale of unregistered shares of Phoenix stock in violation of Section 5 of the Securities Act. On September 20, 2001, the court ordered that all funds now being held in the Court Registry in connection with the action, plus all interest thereon, as well as all funds the Commission may collect in the future in connection with the action, be paid to the United States Treasury.
The Commission's complaint included the following allegations: (i) from May-August 1992, Schiffer and Kramer, among others, manipulated the price of Phoenix's common stock (Phoenix, now defunct, was in the business of developing a laser workstation to perform eye surgery); (ii) from May 1990-April 1992, Schiffer caused Phoenix to make materially false and misleading statements in Commission filings concerning the number of orders received for Phoenix's product, the status of its Food and Drug Administration applications, and anticipated revenue from the sale of its product; (iii) from January 1991-July 1993, Schiffer engaged in unlawful insider trading while in possession of material, nonpublic information concerning the matters about which Phoenix made false statements in Commission filings; and (iv) from September 1992-July 1993, Schiffer and Kramer sold approximately two million shares of unregistered Phoenix stock in transactions that appeared to, but did not, comply with Regulation S, an exemption from the registration requirements of the Securities Act.
In entering summary judgment for the Commission, the court stated:
The evidence unequivocally demonstrates the defendants made material false and misleading statements and omissions regarding the status of Phoenix's applications to the Food and Drug Administration in conjunction with registration and periodic reports filed with the SEC.
The evidence also clearly proves Schiffer's and Kramer's insider trading violations based on their knowledge of the status of Phoenix's FDA application, the problems with the laser workstation, Phoenix's inability to fill orders and, while cognizant of all this, Schiffer's sale of more than 1.5 million shares of Phoenix stock, netting him approximately $4.2 million and indirectly with Kramer, the sale of approximately 2 million Phoenix shares through offshore entities from September 1992 to July 1993 for $11,578,250. The SEC also provides overwhelming proof tracing these and other ill-gotten gains flowing to Schiffer and Kramer.
The entry of summary judgment resolves this litigation as to all defendants. The Commission previously reached settlements with defendants Jonathan Solow, Joann R. Schulz, Frank J. Cannata, and Peter G. Mintz. See Lit. Rel. No. 16955 (April 9, 2001); Lit. Rel. No. 15435 (Aug. 7, 1997); Exchange Act Rel. No. 42416 (Feb. 11, 2000); Exchange Act Rel. No. 42880 (June 1, 2000); Lit. Rel No. 16827(Dec. 13, 2000).