U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19288 / June 28, 2005
Securities and Exchange Commission v. Robert R. Ross, et al., Civil Action No. 3:05CV01036(CFD) (D. Conn., filed June 28, 2005)
SEC CHARGES INDIVIDUALS WITH FRAUDULENT SCHEME TO OBTAIN STOCK IN THE NEWALLIANCE BANCSHARES IPO
On June 28, 2005, the Securities and Exchange Commission filed civil fraud charges against five individuals in connection with the initial public offering of NewAlliance Bancshares, Inc. The fraud arises out of a scheme orchestrated by Defendant Robert Ross, along with Defendants Chance Vought, George Kundrat, John Lucarelli, and Frederick Raila, in which they illegally purchased stock in the NewAlliance IPO in violation of the federal securities laws. The SEC's action was brought in the United States District Court for the District of Connecticut. The SEC is seeking to obtain permanent injunctions, full disgorgement plus prejudgment interest, and civil penalties against each of the defendants. The United States Attorney's Office for the District of Connecticut also brought related criminal charges in connection with the scheme.
According to the Commission's complaint, the actions arise out of the April 2004 conversion of New Haven Savings Bank, which was based in New Haven, Connecticut, from a mutual form of organization to a stock form of organization. Because mutual banks are owned by its depositors, they are given first priority in receiving the shares arising out of the conversion's initial public offering. The Commission's complaint alleges that, beginning in or about February 2004, Ross orchestrated a scheme in which he and others used seven individuals who were depositors of New Haven Savings Bank to illegally obtain 490,000 shares of NewAlliance Bancshares stock at the initial offering price of $10 per share. According to the complaint, Ross recruited Defendants Lucarelli and Raila to locate depositors who would be willing to enter into arrangements with Ross. In these arrangements, as alleged in the complaint, Ross would put up the funds to purchase the stock and the depositor was to receive a small portion of the profits. The Commission's complaint further alleges that, in addition to providing funds himself, Ross recruited Vought and Kundrat to provide funds for the nominee depositors to purchase the stock. Further, according to the complaint, Ross caused the nominee depositors to submit to the bank subscription documents that falsely and misleadingly represented that the depositors were the true purchasers of the stock and had not entered into any agreements relating to the sale or transfer of the stock. The complaint alleges that, as a result of this fraudulent conduct, the scheme generated approximately $1.75 million in total profits.
The Commission's complain alleges that Ross, Vought, Kundrat, and Lucarelli violated Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. Raila and Lucarelli are charged with aiding and abetting Ross' violations. Lucarelli is also charged with violating Section 15(a) of the Exchange Act. Without admitting or denying the allegations in the complaint, Kundrat agreed to a permanent injunction and the payment of disgorgement plus prejudgment interest of $474,279 and a civil penalty of $120,000.
Today's civil and criminal actions are the result of ongoing investigations by the SEC, the U.S. Attorney for the District of Connecticut, and the New Haven Division of the Federal Bureau of Investigation. The SEC also acknowledges the assistance and cooperation of the Connecticut Department of Banking, Securities and Business Investment Division in the investigation, which is continuing.
The SEC has also issued a related Investor Alert, which is available at: www.sec.gov/investor/pubs/mutualconversion.htm.