Securities and Exchange Commission
Litigation Release No. 17727 / September 16, 2002
Securities and Exchange Commission v. Hollywood Trenz, Inc., Edward R. Showalter, Civil Action No. 98-1106 (RMU) (D.D.C. May 4, 1998).
Defendant Edward R. Showalter Held in Contempt for Failure to Pay SEC Judgment of Over $750,000; Showalter Imprisoned Until He Purges Himself of the Contempt Ruling
The Securities and Exchange Commission today announced that on September 12, 2002, the Honorable Ricardo M. Urbina, United States District Judge for the District of Columbia, entered an order of civil contempt and imposing sanctions against defendant Edward R. Showalter, of San Clemente, California, for not paying an outstanding judgment of over $750,000, entered against Showalter on May 15, 2001. The Court ordered that Showalter be imprisoned until he purges himself of the contempt. A hearing on these issues is scheduled for September 26, 2002. Additionally, the Order requires that Showalter and his controlled company, International Financial Group dba IFG Goldstar Cement Company (IFG), provide a sworn accounting of their finances. The Court also ordered that two banks holding funds of Showalter turn these monies over to the Court.
Previously, in entering a default judgment, the Court ordered Showalter to pay $900,000 (including a $150,000 penalty) after the Court found that Showalter had orchestrated two fraudulent schemes to raise capital illegally. In the first scheme, Showalter's company, Hollywood Trenz, Inc., materially overstated the value of the primary asset of a wholly-owned subsidiary, a portfolio of defaulted bank loans, in reports filed with the Commission and disseminated to the public. In the second scheme, Hollywood Trenz, Inc. fraudulently raised millions of dollars by issuing stock to nominee consultants pursuant to Form S-8 registration statements. Consequently, the Court's judgment also permanently enjoined Showalter from violating, among other things, the antifraud, registration, reporting, and internal control provisions of the federal securities laws, and barred him from serving as an officer or director of a public company. The Court also found that Showalter had "engaged in a pattern of repeated, willful violations of the court's orders," including failure "to appear for court-scheduled depositions and hearings," violations of the Court's order to provide discovery, and failure to pay court-ordered expenses to the SEC. See Lit. Rel. No. 17204.
On May 22, 2002, Judge Urbina, entered an order to show cause (i) why defendant Showalter should not be held in contempt of court for not paying the outstanding judgment of over $750,000, and (ii) why Showalter should not provide a sworn accounting of his finances. The Court also ordered a freeze of up to $750,000 of Showalter's assets including assets of IFG. In addition, the Court restricted Showalter's travel outside the U.S., and ordered him to surrender his passport to the Court immediately. A hearing on these issues was held on June 3-6, 2002.
The SEC based its contempt action on new information showing that Showalter was now living and operating in California, and trying to raise money purportedly for a cement import business, IFG. The SEC's contempt action alleges that Showalter claimed to have invested about $1.7 million of his own money in the business, and that Showalter was paying himself a salary while he was trying to start-up this new business.
Following the close of the Show Cause hearing, on June 6 and 18, 2002, the Court found Showalter was in civil contempt of the May 15, 2001 Order, and ordered Showalter to file sworn accountings for himself and IFG, and to submit to a deposition to answer questions about his assets and liabilities and his business affairs. Showalter did submit the accountings and was deposed by the Commission staff. In his opinion accompanying the September 12th Order, Judge Urbina found, among other things, that Showalter had "failed to provide anything close to a full and complete sworn accounting for his and IFG's finances, in violation of the June 6 and 18, 2002 orders." Further, the Court found "that Mr. Showalter intentionally misrepresented the truth during his testimony at the show cause hearing and when he swore to the accuracy of the accounting documents."
See Litigation Releases 17204 (October 25, 2001) and 17539 (May 30, 2002)