U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19052 / January 26, 2005
SEC V. HERMAN'S WORLD OF SPORTS, INC., THOMAS J. DZWILEWSKI, MICHAEL EISEMANN, AND LOUIS MONTAINO, 05 Civ. 438 (GLASSER, I.L.) (E.D.N.Y.)
SEC Charges Herman's World of Sports, Inc., Its Former CEO, and Two Individuals For Roles in a Fraudulent, Unregistered Offering
The Securities and Exchange Commission ("Commission") today filed a complaint in the Eastern District of New York, charging Herman's World of Sports, Inc. ("Herman's Sports"), Thomas J. Dzwilewski ("Dzwilewski"), Herman's Sports' former President and CEO, Michael Eisemann ("Eisemann"), Herman's Sports' former Vice President for Investor Relations, and Louis Montaino ("Montaino"), a formerly registered representative retained by Herman's Sports to solicit investors (collectively, the "Defendants"), with securities fraud for participating in the fraudulent, unregistered offering of Herman's Sports stock.
According to the complaint, from at least February 2001 through at least March 2003, the Defendants perpetrated a fraudulent stock offering related to Herman's Sports. Herman's Sports was a start-up sporting goods retailer that had acquired the trademarks of Herman's Sporting Goods, Inc., a storied band name. Specifically, Eisemann and Montaino solicited investors by making a series of false or misleading statements including, among other things, that Herman's Sports would be imminently conducting an IPO, with the assistance of certain banks, which would enable investors to earn a quick profit. In addition, investors were sent versions of a private placement memorandum and other documents containing misrepresentations about the Herman's Sports offering. Neither Eisemann nor Montaino were registered as, or affiliated with, a broker-dealer at the time they sold shares of Herman's Sports. In addition, according to the complaint, Dzwilewski, who drafted or approved some of the offering materials, also delegated most of the responsibility related to the offering to Eisemann and Montaino, even after learning that Eisemann had pled guilty to securities fraud in an unrelated matter.
As a result of their actions, the Defendants raised approximately $641,500 from at least 59 investors. Eisemann received at least $76,200 from the offering proceeds, Montaino received at least $62,500 from the offering proceeds, and Dzwilewski received at least $85,000 from the offering proceeds.
The Commission alleges that, as a result of the foregoing, the Defendants violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and that Montaino and Eisemann violated Section 15(a) of the Exchange Act.
Herman's Sports and Dzwilewski have agreed to a resolution of this matter, subject to the Court's approval. Without admitting or denying any of the allegations contained in the Commission's complaint, Herman's Sports and Dzwilewski have each consented to a permanent injunction from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act and Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder and to pay disgorgement, jointly and severally, of $641,500, which constitutes the entire proceeds of the fraudulent offering, plus pre-judgment interest of $22,185.65, for a total of $663,685.65, plus post-judgment interest thereon. In addition, Dzwilewski has consented to pay a civil penalty of $30,000. Under the terms of their respective consents, payment of the disgorgement, pre-judgment interest, and post-judgment interest by Herman's Sports and/or Dzwilewski, along with the civil penalty owed by Dzwilewski, will be made over a two-year period.
If approved by the Court, the settlement would fully reimburse injured investors.
The litigation against Eisemann and Montaino is continuing.