UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17626 / July 23, 2002
SEC v. Robert E. Cohen, et al., 99 Civ. 5822 (NRB) (S.D.N.Y.)
U.S. DISTRICT COURT ISSUES ORDER IMPOSING FULL DISGORGEMENT, INTEREST AND CIVIL PENALTY AGAINST DEFENDANT FOR CONCEALING ASSETS IN SETTLEMENT NEGOTIATIONS
The Securities and Exchange Commission announced that on July 15, 2002 the Honorable Naomi Reice Buchwald, United States District Judge for the Southern District of New York, issued an order imposing disgorgement, prejudgment interest, and a civil penalty against a defendant who had misled the Commission in earlier settlement negotiations. After an evidentiary, hearing Judge Buchwald found that when the defendant negotiated his settlement with the Commission he concealed several material assets, including an option to buy a million-dollar piece of property in the Bahamas, a 41-foot sloop, a 1956 Ford Thunderbird, several Harley Davidson motorcycles, and a resort time-share. Based on these findings, Judge Buchwald imposed full disgorgement of $797,530, prejudgment interest of $467,623.77, and a civil penalty of $250,000.
The Commission originally sued the defendant, Robert E. Cohen of New York, New York, in July 1999. The Commission charged Cohen with fraud and evasion of the securities registration requirements for his part in a scheme to sell large blocks of unregistered penny stock into the United States from brokerage accounts purportedly held by foreign nationals. The Commission charged that in fact the foreign nationals were merely nominees, and that Cohen was the real principal in the transactions.
After the Commission filed its suit, Cohen entered into settlement negotiations with the Commission. As part of those negotiations, Cohen submitted a sworn financial statement to the Commission in October 1999. That financial statement showed Cohen to be insolvent. In April 2000, the parties agreed to the entry of a Judgment against Cohen, which permanently enjoined him from future violations. The Judgment further waived payment of all but $30,000 of the sought-after disgorgement and interest and did not impose a civil penalty, based on Cohen's sworn financial statements. The Judgment included a clause providing that if the Commission obtained information indicating that Cohen's sworn financial statement was fraudulent, misleading, inaccurate, or incomplete in any material respect, the Commission could petition the Court for an Order imposing the full amount of disgorgement originally sought against Cohen, together with prejudgment interest and a civil penalty.
Despite his settlement agreement, Cohen did not pay the $30,000 required of him under the Judgment. In attempting to collect on the Judgment, the Commission discovered that Cohen was living in the Bahamas and that he had frequently traveled between the Bahamas and New York. The Commission filed a motion for an order to show cause why Cohen should not be held in contempt for his failure to pay the $30,000 required of him under the Judgment. At a hearing on the show cause motion, Cohen admitted that he controlled several previously undisclosed bank accounts in the Bahamas and that he held an undisclosed option to buy resort real estate in the Bahamas. Cohen maintained, however, that his Bahamian accounts no longer held any funds and that he was in fact insolvent. At the conclusion of the hearing, the Court ordered Cohen to cooperate with the Commission in further discovery into his finances. Shortly after the hearing, Cohen filed for bankruptcy protection.
The Commission nevertheless pursued discovery into Cohen's finances and discovered that he had concealed numerous, material assets when he settled the Commission's suit against him, including an option to buy a million-dollar piece of property in the Bahamas, a 41-foot sloop, a 1956 Ford Thunderbird, several Harley Davidson motorcycles, and a resort time share. Based on this information, on April 15, 2002 the Commission moved for an order to show cause why the Court should not impose full disgorgement and interest as well as a civil penalty against Cohen. The Court held an evidentiary hearing on May 16, 2002.
At the hearing, Cohen offered explanations for his failure to disclose these assets to the Commission. Among other things, he claimed that one of his motorcycles had been stolen and that he had transferred his sloop, the Thunderbird, and two of the motorcycles to others in 1999. The Court, however, did not find Cohen's excuses credible. The Court concluded that Cohen's "property transfers were sham transactions designed to hide assets from the SEC and the Bankruptcy Court."
Accordingly, the Court reinstated the full disgorgement award of $797,530, along with prejudgment interest of $467,623.77, and imposed a civil penalty of $250,000.