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U.S. Securities and Exchange Commission


Litigation Release No. 19222 / May 11, 2005

SEC v. Tecumseh Holdings Corporation, Civil Action No. 03 Civ. 5490 (SAS) (S.D.N.Y.)


On April 11, 2005, the U.S. District Court for the Southern District of New York entered a Final Consent Judgment against Stracq, Inc. The Commission's complaint, filed on July 24, 2003, alleges that, beginning in June 2000, the defendants engaged in a fraud arising out of the unregistered offer and sale of securities in Tecumseh, a purported financial services company with offices in New Jersey and California, and Tecumseh's subsidiary, Tradevest. Tecumseh and Tradevest conducted the fraud largely through the efforts of Milling, a securities lawyer and Tecumseh's senior official. According to the complaint, Tecumseh, Tradevest and Milling acted with the assistance of defendants Cantor, a registered broker-dealer; Gerard A. McCallion, Cantor's President; Anthony M. Palovchik, Tecumseh's Vice President; and Dale Carone, manager of Tecumseh's California office; and others. Through the unregistered fraudulent offerings, the defendants together raised approximately $10 million from about 500 investors nationwide. The complaint also names as relief defendants three Tecumseh affiliates: Alpha Fund, Alpha LLC, and Stracq, Inc.

The complaint alleges that Tecumseh, Tradevest and Milling induced investors to acquire securities of Tecumseh and Tradevest by means of a host of material misrepresentations. Through offering memoranda and other materials, these defendants (a) touted false and misleading profit projections; (b) promised some investors "returns on investment" or "dividends" without disclosing that Tecumseh and Cantor had no earnings to distribute and that any such payments necessarily would come from capital, including funds raised from other investors; and (c) made materially misleading statements concerning NASD approval for Tecumseh's acquisition of Cantor. Tecumseh, Tradevest and Milling knew or acted in reckless disregard of the fact that their representations to investors concerning these matters were materially false and misleading. The complaint also alleges that relief defendant Stracq, Inc., in which Tecumseh held a controlling interest, was a recipient, without consideration, of proceeds of the fraud.

Without admitting or denying the allegations of the complaint, Stracq, Inc. consented to the Final Consent Judgment ordering it to disgorge $660,000. The judgment provides that it will be deemed satisfied by payment of $500,000 in cash to the court-appointed receiver for Tecumseh and the delivery to the receiver of a secured note payable to the receiver in the original principal amount of $160,000 in connection with the receiver's sale of Tecumseh's controlling interest in Stracq to Stracq's current management. The Court entered an Order approving the sale on March 29, 2005.

For further information, see Litigation Release No. 18251 (July 25, 2003).v


Modified: 05/11/2005