Litigation Release No. 18256 / July 28, 2003
SECURITIES & EXCHANGE COMMISSION v. U.S. ENVIRONMENTAL, INC. ET AL., United States District Court for the Southern District of New York, Civil Action No. 94 Civ. 6608 (PKL)
The Securities and Exchange Commission announced today that, after a full trial on the merits, the United States District Court for the Southern District of New York issued an opinion and order providing the Commission with full relief against the remaining two defendants in this action: (1) Defendant Castle Securities, Corp., a broker-dealer located in Freeport, New York, that has been registered with the Commission since December 5, 1984; and (2) Defendant Michael T. Studer, age 50, a resident of Rockville Centre, New York, the President of Castle since its inception and a part owner of Castle's parent company. The Commission's Amended Complaint, filed on October 23, 1995, alleged that Studer, Castle, and other individuals, including defendant Mark D'Onofrio, defendant Ramon D'Onofrio, and Richard Kirschbaum ("the D'Onofrio Group") conducted in 1989 and 1990 a classic fraudulent blind pool offering, subsequent market manipulation and fraudulent sale of the underlying securities of U.S. Environmental, Inc. ("USE"), as well as in the public offering of the securities of USE's predecessor, Windfall Capital Corporation ("Windfall").
In its opinion and order, entered on July 21, 2003, the found that Castle and Studer violated various antifraud provisions of the federal securities laws. Among other things, the Court found that: (1) "Castle made the market for USE securities and oversaw the manipulations of the stock price from $0.05 to $5.50;" (2) "The D'Onofrio Group guaranteed Castle's market making profits for USE securities;" and (3) "Castle under Studer's oversight, allowed the D'Onofrio Group to employ Castle's market making services for purposes of executing D'Onofrio's matching orders and wash trades."
Regarding the Windfall offering, the Court found, among other things, that: "[w]hen Windfall was incorporated and before Windfall became a public company, Windfall's initial shares were issued to individuals and a corporation with pre-existing personal and business relationships with Studer, Castle and the D'Onforio Group." The Court further found that Castle, Studer and other defendants "made material misrepresentations of fact and omitted to disclose material facts" in Windfall's Form S-18 and amendments, including that (1) "Studer acted as an undisclosed promoter and Castle acted as an undisclosed underwriter;" (2) "[b]y prearrangement among the D'Onofrio [G]roup, Studer, Castle [and two other defendants], the Windfall Offering was acquired entirely by the D'Onofrio [G]roup, [two other defendants,] Studer, Castle, and their nominees;" and (3) [t]he D'Onofrio Group would commence a public offering through resales after the Windfall Offering purportedly closed, and after the stock price had been manipulated upwards to several dollars per USE share."
The final judgment permanently enjoins Castle and Studer from committing future violations of (1) 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; (2) Rule 101 of Regulation M; (3) Section 5(a) and 5(c) of the Securities Act; and (4) Section 15(c) of the Exchange Act and Rules 10b-3, 10b-5 and 15c1-2 thereunder. Further, the final judgments require Castle and Studer to jointly disgorge to the Commission within sixty days ill-gotten gains totaling $132,224 plus prejudgment interest from September 30, 1990 through the present.
See prior releases ## 14233, 14233A, 14249 and 16980.
