SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17808 / October 28, 2002
Securities and Exchange Commission v. J. Scott Eskind, Lorus Investments, Inc., and Capital Management Fund, Limited Partnership, United States District Court for the Northern District of Georgia, Civil Action No. 1:02-CV-2429-MHS
The Securities and Exchange Commission announced that an application for an order to show cause why defendants J. Scott Eskind (Eskind), Lorus Investments, Inc. (Lorus) and Capital Management Fund, Limited Partnership (Capital) (collectively, the defendants) should not be held in civil contempt was filed by the Commission on October 8, 2002, in the United States District Court for the Northern District of Georgia, based on the defendants' failure to provide an accounting, as required by the Court's September 12, 2002 preliminary injunction order. That order enjoined Eskind, Lorus and Capital from violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Eskind and Lorus from violations of Section 206 of the Investment Advisers Act of 1940. On October 11, 2002, the Honorable Marvin H. Shoob, United States District Judge for the Northern District of Georgia, entered an Order requiring Eskind, Lorus and Capital to show cause why they should not be held in civil contempt for their violation of the Court's September 12, 2002 order.
The Commission's complaint, filed on September 3, 2002, alleged that Eskind is a recidivist violator who was preliminarily enjoined in June 1997 and permanently enjoined on January 12, 1998 from violating the antifraud provisions of the federal securities laws. Eskind was subsequently barred by the Commission from association with any investment adviser. That case was based upon allegations of fraudulent conduct by Eskind which included misappropriating investors' funds, failing to disclose that Eskind had been suspended by the New York Stock Exchange (NYSE) in 1991, and inducing at least five investors to invest at least $500,000 in what was falsely represented to the investors to be a specified limited partnership. In fact, Eskind had been previously terminated from that partnership. The complaint further alleged that subsequent to being enjoined, and continuing until the filing of the complaint, Eskind raised at least $3 million through sales of limited partnership units in Capital. Capital purportedly does business by trading in securities through initial or secondary public offerings. The sales materials misrepresented to investors Eskind's broker-dealer experience, and did not disclose his 1991 NYSE suspension, the Commission's 1997 civil action or the Commission's 2000 order barring him from association with an investment adviser. The complaint alleged that investors were told that IRA accounts had been opened for them at a trust company which serves as an IRA custodian and had received statements from Lorus indicating their funds in those accounts. In fact, no such accounts have been opened. The sales materials falsely stated that a major law firm provided legal representation for Lorus. Finally, the complaint alleged that Lorus is an investment adviser and Eskind's continuing association with Lorus was a violation of the Commission's 2000 order.