U.S. Securities and Exchange Commission
Litigation Release No. 18916 / October 1, 2004
SEC v. DARMSTADTER, (United States District Court for the Northern District of Illinois No. 03-C-4166).
COURT ENTERS FINAL JUDGMENT AND ORDER OF PERMANENT INJUNCTION AND OTHER RELIEF AGAINST FORMER PRESIDENT AND CHIEF EXECUTIVE OFFICER OF THE CHILDREN'S BEVERAGE GROUP FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
The Commission announced today that on September 22, 2004, the United States District Court for the Northern District of Illinois entered by consent, a Final Judgment and Order of Permanent Injunction and other relief against Jon A. Darmstadter (Darmstadter), for unauthorized transfers and sales of unregistered Children's Beverage stock and for violations of the anti-fraud provisions of the federal securities laws.
The Commission's complaint alleged that from July 1998 through February 1999, Darmstadter transferred unregistered Children's Beverage stock into and out of the brokerage account of one of his employees, without the employee's knowledge or authorization. Specifically, the Commission alleged that Darmstadter conducted ten unauthorized stock transactions and ordered two wire transfers out of the account. The Commission alleged that Darmstadter accomplished these transactions by transferring shares of unregistered Children's Beverage stock into the employee's account from a Canadian brokerage account which Darmstadter controlled and then falsely advising the employee's brokerage account representative that the employee was physically incapacitated and unable to communicate by telephone. The Commission alleged that Darmstadter sent the account representative forged letters of authorization purporting to contain the employee's signature with transfer instructions. The letters instructed the account representative to transfer the unregistered Children's Beverage stock to friends, family and business associates of Darmstadter.
The Court entered an order of permanent injunction, enjoining Darmstadter from violating Sections 5(a), 5(c) and 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 and ordered Darmstadter to pay disgorgement of $11,557, plus prejudgment interest of $4,997 and a civil penalty of $55,000. The Court also entered an order prohibiting Darmstadter from serving as an officer and a director of a publicly held company for five years. Darmstadter consented to the entry of the injunction, disgorgement, civil penalty and officer and director bar without admitting or denying the allegations of the Commission's Complaint.