Securities and Exchange Commission
Litigation Release No. 18353 / September 17, 2003
SEC Obtains Preliminary Injunctive Relief Against Tecumseh Holdings Corporation and Affiliates
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)
At a hearing on August 22, 2003, the U.S. District Court for the Southern District of New York granted the Securities and Exchange Commission's application for a preliminary injunction and other relief against Tecumseh Holdings Corporation ("Tecumseh"), Tecumseh Tradevest LLC ("Tradevest"), S.B.Cantor & Co., Inc. ("Cantor"), and John L. Milling ("Milling"). The defendants filed no opposition to the Commission's motion and ultimately consented to the relief. Entered on September 5, 2003, the court's order continues in place various forms of interim relief initially ordered by the court on July 25, 2003, when the court granted the Commission's application for a temporary restraining order and other relief to halt the fraud perpetrated by Tecumseh and the other defendants. Among other things, the court's September 5, 2003 order preliminarily enjoins: (a) Tecumseh, Tradevest, Cantor and Milling from committing future violations of the registration provisions, Sections 5(a) and 5(c) of the Securities Act of 1933 ("Securities Act"); (b) Tecumseh, Tradevest and Milling from future violations of the antifraud provisions, Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder; (c) Cantor from future violations of the broker-dealer books and records provisions, Section 17(a) of the Exchange Act and Rules 17a-3 and 17a-4 thereunder; and (d) Milling from aiding and abetting future violations of the broker-dealer books and records provisions, Section 17(a) of the Exchange Act and Rules 17a-3 and 17a-4 thereunder. The order also: (a) continues a freeze over the assets of those defendants and relief defendants Tecumseh Alpha Fund LP ("Alpha Fund") and Tecumseh Alpha LLC ("Alpha LLC"); and (b) keeps in place Loretta E. Lynch as the court-appointed receiver for Tecumseh, Tradevest, and Cantor. At the request of defendant Milling, the order also imposes a limited stay of discovery and stays defendants' time to respond to the Commission's complaint pending resolution of a criminal investigation. The order allows the Commission, however, to take third-party discovery notwithstanding the stay.
The Commission's complaint, filed on July 24, 2003, alleges that, beginning in June 2000, the defendants engaged in a fraud arising out of the unregistered offer and sale of securities in Tecumseh, a purported financial services company with offices in New Jersey and California, and Tecumseh's subsidiary, Tradevest. Tecumseh and Tradevest conducted the fraud largely through the efforts of Milling, a securities lawyer and Tecumseh's senior official. According to the complaint, Tecumseh, Tradevest and Milling acted with the assistance of defendants 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. Through the unregistered fraudulent offerings, the defendants together raised approximately $10 million from about 500 investors nationwide. The complaint also names as relief defendants three Tecumseh affiliates: Alpha Fund, Alpha LLC, and Stracq, Inc.
The complaint alleges that Tecumseh, Tradevest and Milling 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 (a) touted false and misleading profit projections; (b) promised some investors "returns on investment" or "dividends" without disclosing that Tecumseh and Cantor had no earnings to distribute and that any such payments necessarily would come from capital, including funds raised from other investors; and (c) made materially misleading statements concerning NASD approval for Tecumseh's acquisition of Cantor. 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 litigation is pending.
See also Litigation Release No. 18251 (July 25, 2003).