Securities and Exchange Commission v. William L. Brotherton and International Business Consortium, Inc., Civil Action No. 01-MK-1340 (USDC D. Colo.)
The Securities and Exchange Commission announced that on March 4, 2003, the Honorable Marcia S. Kreiger, United States District Court Judge for the District of Colorado, entered an order granting the Commission's motion for summary judgment against defendant William L. Brotherton, an unlicensed chiropractor and the only executive officer of the company he founded, defendant International Business Consortium, Inc. (IBC). In separate orders, the Court also resolved other motions in favor of the Commission, as explained below.
The Commission's complaint, filed July 13, 2001, alleged that Brotherton and IBC raised over $300,000 by selling unregistered IBC stock to over 180 investors between January and July of 2001. Holding IBC out as a promising start-up preparing to offer discount workers' compensation insurance, IBC and Brotherton deceived investors about, among other things, IBC's true state of development and operations, a future initial public offering for IBC securities, the use of investment proceeds and the risks and returns associated with ownership of IBC stock. Brotherton misappropriated at least 25% of the offering proceeds for the personal benefit of himself and certain of his relatives. The complaint charged Brotherton and IBC with violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. Some of the proceeds of the defendants' illegal conduct are held in bank accounts that were frozen pursuant to the court's preliminary injunction on consent and order freezing assets and granting other relief filed July 23, 2001.
Finding no contested issue of material fact that Brotherton violated the federal securities laws, Judge Kreiger ordered him to disgorge his ill-gotten gains and pay prejudgment interest. The court, however, did not permanently enjoin Brotherton from future violations of the securities laws, concluding that the Commission had not shown a likelihood that Brotherton would again engage in illegal conduct if not enjoined. Judge Kreiger referred the matter to U.S. Magistrate Judge Patricia A. Coan for a recommendation regarding the amount of disgorgement and prejudgment interest and whether civil penalties should be assessed against Brotherton.
In another order entered on March 3, 2003, Judge Kreiger granted the Commission's Motion for Default Judgment against IBC and permanently enjoined IBC from future violations of the antifraud and registration provisions of the federal securities laws. The Court also ordered IBC to disgorge its ill-gotten gains and pay prejudgment interest, and referred the matter to Magistrate Judge Patricia A. Coan for a recommendation regarding the amount of disgorgement and prejudgment interest and whether civil penalties should be assessed against IBC.
On March 3, 2003, Judge Kreiger also entered an order and judgment adopting a recommendation of Magistrate Judge Coan filed December 24, 2002 and denying Brotherton's motion to name the Commission in a counterclaim, finding the proposed counterclaim barred by sovereign immunity and by Section 21(g) of the Exchange Act. Judge Kreiger's order also adopted the Magistrate Judge's recommendation to strike the Defendants' response to the Commission's complaint, and the court sua sponte struck a pending motion by the defendants to dismiss the Commission's action.
This enforcement action is part of the Commission's four-pronged approach to minimizing microcap fraud: enforcement, inspections, investor education, and regulation. For more information about the SEC's response to microcap fraud, visit the SEC's Microcap Fraud Information Center at: http://www.sec.gov/divisions/enforce/microcap.htm
See also Litigation Release No. 17067 (July 16, 2001).