Securities and Exchange Commission
Litigation Release No. 18077 / April 9, 2003
Court Enters Final Judgments Against
Defendants in Mini Tender Offer Case
Securities and Exchange Commission v. Jeffrey L. Leach, Hubert A. Leach and LMC Assets Corp., United States District Court for the Eastern District of Pennsylvania, Civil Action No. 00 CV 5928
The Securities and Exchange Commission today announced that the Honorable Timothy J. Savage, United States District Judge for the Eastern District of Pennsylvania, has entered final judgments against defendants Jeffery L. Leach, his brother, Hubert A. Leach, both of whom are residents of Philadelphia, Pennsylvania, and LMC Assets Corp., in a case in which the SEC alleged fraud in connection with three mini tender offers. Under the terms of the final judgments, each defendant is enjoined from violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934, and Rules 10b-5 and 14e-1 thereunder. The final judgments also order the defendants, jointly and severally, to pay disgorgement and prejudgment interest of $6,017,553. In addition, the Court imposed civil penalties of $330,000 against Jeffery Leach, $330,000 against Hubert Leach, and $1,650,000 against LMC. The defendants consented to the entry of the final judgments without admitting or denying any of the allegations in the Commission's Complaint.
The Commission's Complaint, filed November 21, 2000, alleged that Jeffery and Hubert Leach, president and former vice-president of LMC, respectively, made substantial unlawful profits and caused investors to suffer millions of dollars in losses, by making fraudulent mini tender offers for shares of Fleming Companies, Inc., Fruit of the Loom, Ltd., and Mattel, Inc. Mini tender offers are offers for less than five percent of a class of securities registered with the Commission. The fraudulent offers were made through two shell corporations that Jeffery Leach created and controlled - LMC and Carnegie Investment Management, Ltd., a Cayman Islands company that filed a petition for bankruptcy in March 2000.
The Complaint alleged that all three tender offers were fraudulent for several reasons, including:
- The offering documents contained false statements and omitted material information about the offeror's intent in making the offer, including its ability to pay for the tendered shares.
- The defendants made numerous false and misleading statements outside of the offering documents. In particular, they falsely promised to tendering shareholders that they would be paid for their shares, typically by a certain date. In fact, shareholders were never paid for many of the tendered shares.
- The defendants structured the offers without the use of any escrow account or independent receiving agent, and failed to disclose that they could not pay for the shares; thus, they gained control of the shares before payment and obtained the equivalent of an unsecured loan and a free call option on the tendered shares. The defendants then used the unpaid-for shares as collateral to receive millions of dollars in cash from margin loans and to engage in extremely risky margin trading schemes.
- The defendants engaged in other practices that are specifically unlawful in connection with tender offers. For example, the defendants unlawfully amended the Mattel offer when they changed the offering price, but failed to give shareholders sufficient time to consider the amended offer. The defendants also unilaterally and illegally amended the Fruit of the Loom offer five weeks after its purported closing, and coerced shareholders into accepting a significantly lower price or the return of their shares. And, in connection with all three offers, the defendants failed to pay for or return the shares promptly after the close of each offer.
The entry of the foregoing final judgments concludes the Commission's enforcement action arising from the mini tender offers made by Jeffery Leach, Hubert Leach and LMC Assets Corp.
[See Litigation Release No. 16807, dated November 21, 2000.]