U.S. Securities and Exchange Commission
Litigation Release No. 18668 / April 16, 2004
SEC FILES EMERGENCY ACTION AGAINST SPEAR & JACKSON, INC., OBTAINS TEMPORARY RESTRAINING ORDER, ASSET FREEZES, AND REMOVES COMPANY CEO
Securities and Exchange Commission v. Spear & Jackson, Inc., et al.,
Case No. 04-CIV-80354 (S.D.Fla., filed April 15, 2004)
Securities and Exchange Commission v. Kermit Silva,
Case No. 04-20654-CIV-LENARD (S.D. Fla. March 19, 2004)
The Securities and Exchange Commission (Commission) announced that on April 15, 2004 it filed a complaint and obtained a temporary restraining order (TRO) and other emergency relief against Spear & Jackson, Inc., an OTC Bulletin Board company headquartered in Boca Raton, Florida, and its CEO Dennis P. Crowley. The SEC's complaint charges that for the last two years, Crowley has been secretly selling Spear & Jackson stock through brokerage accounts in the name of nominee companies based in the British Virgin Islands. To date, Crowley's illegal sales of Spear & Jackson stock total more than $3 million. At the Commission's request, Judge Donald P. Middlebrooks of the United States District Court for the Southern District of Florida also issued an Order temporarily barring Crowley from serving as an officer or director of any public company, and appointing a Corporate Monitor to oversee Spear & Jackson's affairs.
According to the Commission's complaint, Spear & Jackson is a household tool manufacturer and distributor with over 750 employees and operations around the world. For its fiscal year ended September 30, 2003, Spear & Jackson had revenues of more than $90 million, with a majority of those revenues coming from the United Kingdom and other European countries.
The Commission's complaint alleges that over the past two years, Crowley has orchestrated a pump-and-dump scheme to manipulate the share price of Spear & Jackson stock. Starting in 2002, Crowley, along with an Orlando, Florida-based stock promoter, defendant International Media Solutions (IMS), and IMS' two principals, defendants Yolanda Velazquez and Kermit Silva, used false information to tout Spear & Jackson stock to registered representatives and broker-dealers around the country. Between January 2002 and July 2003, Spear & Jackson's stock price increased from $2 to $16 per share.
Crowley profited from that increase in Spear & Jackson's stock price by selling stock that he secretly held in the names of nominee companies. According to the Commission's complaint, Crowley used nominee companies based in the British Virgin Islands illegally to obtain over 1.2 million shares of Spear & Jackson stock during 2002, some of which he obtained through the filing of a fraudulent Form S-8 registration statement. The Commission's complaint alleges that during the time that Crowley and IMS promoted Spear & Jackson shares, Crowley sold almost 650,000 of these shares, realizing over $3 million in profits. Crowley also transferred some of the illegally obtained Spear & Jackson shares to IMS, which sold them for approximately $1.6 million.
The Commission's complaint also alleges that Crowley has committed at least one similar scheme in the past. In 2001, the Commission's complaint alleges, Crowley secretly gained control of another public company. According to the Commission's complaint, that company issued over 1.4 million shares of its stock to the offshore nominee companies that Crowley controlled, which were sold for over $450,000 in profits.
In addition to the temporary officer and director bar and order appointing a Corporate Monitor for Spear & Jackson, the Court issued an order, among other things: (a) temporarily enjoining the defendants from violating the antifraud and other provisions of the federal securities laws; (b) freezing the assets of all of the defendants (except Spear & Jackson) and of the offshore nominee companies and certain other companies that Crowley controls; (c) requiring the defendants (except Spear & Jackson) to repatriate assets held abroad; (d) and requiring Crowley, Velazquez, and Silva to surrender their passports and prohibiting them from traveling outside the United States.
The complaint charges violations of Sections 5(a), 5(c), 17(a) and 17(b) of the Securities Act, Sections 10(b), 13(a), 13(d), 16(a), and 15(a) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-14, and 16a-3 thereunder. As final relief, the Commission seeks permanent injunctions, disgorgement of all ill-gotten gains plus prejudgment interest; civil penalties, and against Crowley a penny stock and officer and director bar and against Velazquez and Silva, a penny stock bar.
The Commission wishes to thank the National Association of Securities Dealers and the British Virgin Islands Financial Services Commission for its assistance in this investigation. The Commission's investigation is continuing.
The Commission also announced that earlier in this matter, it filed a subpoena enforcement action against Silva. That action, which the Commission filed on March 19, 2004, alleged that pursuant to a subpoena issued on January 29, 2004, Silva was obligated to appear for testimony before the Commission staff on numerous occasions between February 20, 2004 and March 17, 2004. On each of those occasions, however, Silva chose not to appear, and instead informed the Commission staff, through counsel, that he would need extensions of the testimony dates. The last of those requests for an extension occurred just days before his scheduled testimony date.