U.S. Securities and Exchange Commission
Litigation Release No. 18827 / August 11, 2004
SEC v. Competitive Technologies, Inc., Chauncey D. Steele, John R. Glushko, Thomas C. Kocherhans, Richard A. Kwak, Sheldon A. Strauss, Stephen J. Wilson and Frank R. McPike,Civil Action No. 304 CV 1331 JCH (District of Connecticut)
The Securities and Exchange Commission filed a civil fraud action today in federal court in Hartford alleging that seven individuals engaged in a nationwide scheme to manipulate and fraudulently inflate the price of stock of Competitive Technologies, Inc. (CTT), a small technology company in Fairfield, Connecticut. The defendants include six current or former brokers at four different brokerage firms, and the former CEO of Competitive Technologies, as well as the company itself. Chauncey Steele, of Cohasset, Massachusetts, allegedly orchestrated the scheme while working as a broker at the Hyannis, Massachusetts office of Prudential Securities Inc., acting in concert with Richard Kwak, of Escondido, California, a broker at Morgan Stanley Dean Witter, John Glushko of Las Vegas, Nevada, a broker at Finance 500, Stephen Wilson of Pompano Beach, Florida, a broker at Shamrock Partners at the time, and former brokers Thomas Kocherhans of Orem, Utah and Sheldon Strauss of Beachwood, Ohio. Frank McPike of Ridgefield, Connecticut, while acting as CTT's CEO, allegedly made purchases in the company's stock repurchase plan at Steele's direction in order to further the manipulative scheme and CTT is named as a defendant due to his conduct.
According to the Commission's complaint, from at least 1998 through 2001, the defendants artificially raised the price of CTT stock, which is listed on the American Stock Exchange, through several manipulative practices, all designed to maximize the benefit to themselves. On almost every trading day, defendants "painted the tape," that is, made multiple small purchases at arranged times and prices in order to give the misleading appearance of investor interest in the stock Their favored "painting" technique was "marking the close," placing numerous orders at or near the close of the market in order to inflate the reported closing price. Defendants also allegedly made pre-arranged matched trades, so that any impact sales might have on CTT's price would be offset by simultaneous buys at the same price. The complaint alleges that, employing these devices, defendants placed hundreds of purchase orders in both their own and their customers' accounts, making the closing trade in the stock on almost 300 trading days during the period. On more than 90% of those days, they succeeded in raising the reported closing price of the stock. The complaint alleges that defendants' fraudulent scheme resulted in CTT's stock trading at far above its true value. Innocent investors bought the stock at inflated prices of over $20 per share at the stock's high point, which fell to $3 per share after the manipulation ceased.
The specific charges against the defendants in the federal court action are that they violated Section 17(a) of the Securities Act of 1933, Sections 9(a) and 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, which prohibit fraudulent conduct, and that Steele also violated Section 17(a) and Rule 17a-3 of the Exchange Act by falsifying order tickets to indicate that his customers had initiated orders to buy CTT when in fact he had solicited the purchases. TheCommission is seeking injunctive relief, disgorgement, and civil penalties, and an order permanently barring defendant McPike from serving as an officer or director of a public company.