UNITED STATES SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 17463 / April 8, 2002
SECURITIES AND EXCHANGE COMMISSION V. STAND-BY SYSTEMS, INC. AND KENNETH PALMER Civil Action No. 3:02-CV-0642-H, United States District Court for the Northern District of Texas, Dallas Division.
On March 27, 2002, the Commission filed a civil fraud action against Stand-By Systems, Inc. and Kenneth J. Palmer, of Dallas, Texas.
The Commission charges that throughout the 1990's Stand-By and Palmer, Stand-By's president, fraudulently sold Stand-By securities to 144 investors nationwide and raised approximately $1.6 million. Initially, defendants falsely claimed, among other things, that Stand-By was in the process of developing personal oxygen dispensers and inhalation masks. Subsequently, they represented that development was complete and manufacturing had begun. In reality, little work was ever conducted to develop the oxygen systems. In fact, a working prototype was never developed. The defendants also misrepresented the returns associated with the investment, and falsely claimed that investor funds would be used solely for operating expenses of Stand-By. Contrary to this representation, Palmer diverted a large portion of investor funds for unauthorized personal and business expenditures, including automobiles, maintenance of his boat, settlement of a personal judgment against him, club memberships and living expenses. Palmer also used investor funds to purchase a residence and an airplane, purportedly for Stand-By business use. However, Palmer personally held title to the residence and, shortly after its purchase, obtained a loan on the residence and used a large portion of the loan proceeds for personal expenses. Moreover, Palmer later sold the airplane and placed the proceeds into his personal account. Palmer also spent investor funds for expenses related to the residence, such as expensive interior decorations and landscaping.
The Commission's complaint charges that Stand-By and Palmer violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The Commission seeks a permanent injunction, disgorgement with pre-judgment interest, civil money penalties and an accounting.