U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18718 / May 19, 2004
Securities and Exchange Commission v. LNB Bancorp, Inc., Gary C. Smith, Thomas P. Ryan, Gerald S. Falcon and Thomas H. Eschke, Civil Action No. 04 CV 0933 (N.D. Ohio)(filed May 19, 2004)
The SEC announced today that it filed in the United States District Court for the Northern District of Ohio a civil injunctive action against LNB Bancorp, Inc. (LNB Bancorp) 457 Broadway, Lorain, Ohio, Gary C. Smith (Smith) of Avon Lake, Ohio, Thomas P. Ryan (Ryan) of Vermilion, Ohio, Gerald S. Falcon (Falcon) of Solon, Ohio and Thomas H. Eschke (Eschke) of Elyria, Ohio. The SEC's Complaint alleges violations of the anti-fraud provisions of the federal securities laws and seeks an order of permanent injunction and civil penalties.
The Complaint alleges that from February 11, 2000 through July 16, 2001, LNB Bancorp, Smith, Ryan, Falcon and Eschke perpetrated a market manipulation scheme to artificially increase and stabilize the price of LNB Bancorp common stock on the Nasdaq National Market (Nasdaq). Specifically, on 285 separate days, at or near the close of the trading day, Defendants Ryan, Falcon and Eschke placed purchase orders for 100 or 200 shares of LNB Bancorp common stock during the last half-hour of the trading day for the Lorain National Bank employee benefit plans in an attempt to mark the close of trading in the stock with a purchase order. Of these 285 purchases, Lorain National succeeded in placing the last trade of the day for LNB Bancorp stock on 232 days. This manipulative trading practice is known as "marking the close." Defendant Smith maintained supervisory roles over Ryan, Falcon and Eschke and knew, or was reckless in not knowing of the marking the close scheme and failed to take timely action to stop the scheme. By marking the close, the Defendants artificially supported the price of LNB Bancorp common stock on Nasdaq. As a result, the Defendants fraudulently manipulated the closing price of LNB Bancorp common stock.
LNB Bancorp, Smith, Ryan, Falcon and Eschke consented, without admitting or denying the allegations of the Complaint, to the entry of a permanent injunction enjoining them from violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and imposing civil penalties in the amounts of $100,000 for LNB Bancorp, $100,000 for Ryan, $50,000 for Smith, $25,000 for Falcon and $10,000 for Eschke. Ryan also agreed to be permanently barred from acting as an officer and a director of a publicly held company.