U.S. Securities and Exchange Commission
Litigation Release No. 18533 / January 7, 2004
Securities and Exchange Commission v. Thomas T. Prousalis, Jr. and Robert T. Kirk, Jr., Civil Action No. 04-CV-00081 (S.D.N.Y.)
SEC Sues Washington, D.C. Attorney Thomas Prousalis and Florida Investment Banker Robert Kirk for IPO Fraud Scheme
The Securities and Exchange Commission today filed a complaint in the United States District Court for the Southern District of New York charging Thomas T. Prousalis, Jr. and Robert T. Kirk, Jr. with committing fraud in connection with the June 2000 initial public offering by busybox.com, Inc. Prousalis was securities counsel for busybox and Kirk was the majority owner and president of Barron Chase Securities, Inc., the lead underwriter for the offering. Prousalis is a resident of McLean, Virginia and is licensed to practice in Washington, D.C. Kirk is a resident of Parkland, Florida.
The complaint alleges that Barron Chase agreed to underwrite a firm commitment offering that would raise approximately $12.8 million for busybox. After informing busybox that Barron Chase was having difficulty selling the IPO securities to bona fide investors, Kirk and Prousalis devised and executed a fraudulent scheme to complete the offering. According to the complaint, Kirk and Prousalis arranged for busybox insiders to "purchase" IPO securities using undisclosed bonuses, and for Prousalis to receive an inflated and undisclosed legal fee that was to be paid using IPO securities. Barron Chase secretly financed these transactions and, during the IPO closing, Kirk and Prousalis caused busybox to repay Barron Chase out of the proceeds of the offering. The complaint further alleges that the scheme gave Prousalis and the insiders almost 20% of the securities offered in the IPO, and reduced the proceeds available to busybox by over $2.1 million. The IPO registration statement and prospectus did not disclose the insiders' stock purchases, the inflated legal fee paid to Prousalis, Barron Chase's financing of these transactions or the repayment to Barron Chase using IPO proceeds.
As set forth in the complaint, the fraudulent scheme misled investors as to the financial health and future viability of the company. The complaint alleges that Prousalis and Kirk's firm benefited financially from the scheme by receiving fees of approximately $1.25 million and $1.5 million, respectively. Finally, the Commission charged that, after the IPO was completed, Prousalis owned more than 5% of the company's outstanding stock, but failed to report his holdings on a Schedule 13D, as required by law. He also failed to report the subsequent sale of all of his busybox IPO stock.
The Commission charges that Prousalis and Kirk violated the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Prousalis is also charged with violating Section 13(d) of the Exchange Act and Rules 13d-1 and 13d-2 thereunder. The Commission is seeking permanent injunctions, disgorgement of defendants' ill-gotten gains, prejudgment interest, and the imposition of civil penalties against Prousalis and Kirk.
Also today, the United States Attorney's Office for the Southern District of New York announced the filing of related criminal charges against Prousalis and Kirk. The Commission thanks the United States Attorney's Office for the Southern District of New York and NASD Regulation for their cooperation. The Commission's investigation is continuing.