U.S. Securities and Exchange Commission
Litigation Release No. 18251 / July 25, 2003
Securities and Exchange Commission v. Tecumseh Holdings Corporation, Tecumseh Tradevest LLC, S.B. Cantor & Co., Inc., John L. Milling, Gerard A. McCallion, Anthony M. Palovchik and Dale Carone, Defendants, and Tecumseh Alpha Fund LP, Tecumseh Alpha LLC, and Stracq, Inc., Relief Defendants, Civil Action No. 03 Civ. 5490 (SAS) (S.D. N.Y., filed July 24, 2003)
SEC Obtains Emergency Relief To Halt Ongoing Offering Fraud By Tecumseh Holdings Corporation And Others
On July 24, 2003, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the Southern District of New York and on July 25, 2003 obtained emergency relief to halt an ongoing fraud centered around Defendant Tecumseh Holdings Corporation ("Tecumseh"), a purported financial services company with offices in New Jersey and California. The Commission's complaint alleges that the fraud has taken place since June 2000 and involves the unregistered offer and sale of securities of Tecumseh and Tecumseh's subsidiary, Defendant Tecumseh Tradevest LLC ("Tradevest"). Tecumseh and Tradevest have conducted the fraud largely through the efforts of Defendant John L. Milling, a securities lawyer and Tecumseh's senior official. Tecumseh, Tradevest and Milling have acted with the assistance of Defendants S.B. Cantor & Co., Inc. ("Cantor"), a registered broker-dealer, Gerard A. McCallion, Cantor's President; Anthony M. Palovchik, Tecumseh's Vice President, and Dale Carone, manager of Tecumseh's California office; and others working with them. Through the unregistered fraudulent offerings, the Defendants together have raised approximately $10 million from about 500 investors nationwide. The Complaint also names as Relief Defendants three Tecumseh affiliates, Tecumseh Alpha Fund LP ("Alpha Fund"), Tecumseh Alpha LLC ("Alpha LLC"), and Stracq, Inc. ("Stracq").
The Complaint alleges that Defendants Tecumseh, Tradevest and Milling have induced investors to acquire securities of Tecumseh and Tradevest by means of a host of material misrepresentations. Through offering memoranda and other materials, these Defendants have (a) touted false and misleading profit projections; (b) promised some investors "returns on investment" ("ROI") or "dividends" without disclosing that Tecumseh and Cantor have no earnings to distribute and that any such payments necessarily come from capital, including funds raised from other investors; and (c) made materially misleading statements concerning NASD approval for Tecumseh's acquisition of Cantor. Defendants Tecumseh, Tradevest and Milling knew or acted in reckless disregard of the fact that their representations to investors concerning these matters were materially false and misleading.
The Complaint alleges violations by Tecumseh, Tradevest and Milling of the antifraud provisions of the securities laws, Section 17(a) of the Securities Act of 1933 ("Securities Act"), and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and charges McCallion and Palovchik with aiding and abetting Tecumseh's and Milling's violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, pursuant to Section 20(e) of the Exchange Act. It also alleges violations of the registration provisions, Sections 5(a) and 5(c) of the Securities Act, by Tecumseh, Tradevest, Milling, Cantor and Carone; violations by Cantor of the broker-dealer books and records provisions, Section 17(a) of the Exchange Act and Rules 17a-3 and 17a-4 thereunder; and violations by Carone of the broker registration provisions, Section 15(a) of the Exchange Act. The Complaint also alleges, pursuant to Section 20(a) of the Exchange Act. that Milling is liable as a control person of Tecumseh and Tradevest and that McCallion is liable as a control person of Cantor for their respective violations of the Exchange Act. It also charges Milling with aiding and abetting Cantor's violations of broker-dealer books and records provisions, pursuant to Section 20(e) of the Exchange Act.
The Complaint seeks disgorgement of ill-gotten gains, and prejudgment interest from all Defendants and the Relief Defendants; permanent injunctive relief against all Defendants prohibiting future violations of the provisions of the securities laws they are alleged to have violated, permanent penny stock bars, and civil money penalties. It also seeks temporary and preliminary injunctions and temporary and preliminary penny stock bars against Defendants Tecumseh, Tradevest Cantor and Milling; an asset freeze against the Relief Defendants and Defendants Tecumseh, Tradevest and Milling; appointment of a receiver for Defendants Tecumseh, Tradevest and Cantor; an accounting by the Relief Defendants and Defendants Tecumseh, Tradevest, Cantor and Milling; expedited discovery; and a order prohibiting the Defendants and Relief Defendants from destroying or altering documents.
On July 25, 2003, the Court granted the Commission's application for a temporary restraining order against Defendants Tecumseh, Tradevest, Cantor and Milling, temporarily enjoining them from further violations of the securities laws and temporarily prohibiting them from participating in any penny stock offering. The Court's order also freezes the assets of the Relief Defendants and Defendants Tecumseh, Tradevest and Milling; requires an accounting by the Relief Defendants and Defendants Tecumseh, Tradevest, Cantor and Milling; appoints Loretta Lynch, Esq., as temporary receiver for Tecumseh, Tradevest and Cantor; grants expedited discovery, and prohibits the Defendants and Relief Defendants from destroying or altering documents. The Court's order also directs the Relief Defendants and Defendants Tecumseh, Tradevest, Cantor and Milling to show cause at a hearing set for August 15, 2003 at 10:00 a.m. in Room 12C of the United States Courthouse, 500 Pearl Street, New York, NY, why a preliminary injunction granting the relief requested by the Commission should not be entered by the Court.
The Commission acknowledges the assistance of the Federal Bureau of Investigation, the U.S. Department of Justice and NASD, Inc., in connection with this matter.