SEC Announces 100 Percent Return of Funds to Defrauded Spear & Jackson Investors
The Securities and Exchange Commission today announced a Fair Fund distribution totaling more than $5.6 million to 534 investors who were victims of a fraudulent pump-and-dump scheme involving the stock of tool maker Spear & Jackson, Inc.
The Fair Fund distribution represents a 100 percent return of losses to defrauded investors who bought Spear & Jackson stock during the fraudulent touting period from February 2002 through April 2004.
"The SEC's quick action enabled us to stop an ongoing fraud in its tracks and freeze significant funds that we were ultimately able to return to innocent investors," said David Nelson, Director of the SEC's Miami Regional Office. "I am particularly gratified that the action has resulted in a 100 percent return of investors' losses through this Fair Fund."
Under the Fair Fund provisions of the Sarbanes-Oxley Act of 2002, the SEC gained new authority to distribute directly to injured investors the financial penalties paid by securities law violators. The SEC already has distributed more than $3.9 billion in Fair Funds using this new authority, and earlier this year the agency created a new office to further expedite Fair Fund distributions to harmed investors.
Dick D'Anna, Director of the SEC's Office of Collections and Distributions, said, "The SEC staff is working hard to successfully achieve our goal of returning the ill-gotten gains of wrongdoers back to harmed investors as quickly as possible, and we look forward to continuing this pursuit and distributing more Fair Funds in the future."
In April 2004, the SEC charged Spear & Jackson, its then-chairman and CEO Dennis Crowley, and two stock promoters in connection with the fraudulent scheme. The complaint alleged that Crowley secretly acquired hundreds of thousands of shares of stock of Spear & Jackson and its predecessor through three nominee companies based in the British Virgin Islands that he clandestinely controlled. The complaint further alleged that Crowley then hired stock promoters to distribute false and misleading information about Spear & Jackson to the brokerage community in order to drive up the company's share price while he dumped his shares on the market.
When the SEC filed its complaint in the U.S. District Court for the Southern District of Florida, it obtained emergency relief against all parties, including an asset freeze over Crowley and the stock promoters, an order temporarily removing Crowley from his positions as chairman and CEO, and the appointment of a monitor over Spear & Jackson to oversee the company's operations.
The Commission ultimately obtained significant relief against all parties by consent. Crowley paid more than $4 million in disgorgement and prejudgment interest and a $2 million civil penalty, and the stock promoters paid a combined total of approximately $800,000 in disgorgement and civil penalties.
In a follow-up action that arose out of this same case, the Commission last year instituted public administrative proceedings against Orlando, Fla. broker-dealer Park Financial Group, Inc., and its principal, Gordon Cantley, alleging that they aided and abetted Crowley's violations of the securities laws by allowing him to buy and sell Spear & Jackson stock through the nominee companies' accounts at Park Financial. Park Financial and Cantley also were charged with failing to file Suspicious Activity Reports (SARs) in connection with Crowley's transactions, marking the first time that the Commission had brought a case against a broker-dealer for failing to file SARs.
In December 2007, the Commission issued an order by consent against Park Financial and Cantley. Without admitting or denying the SEC's allegations, Park Financial and Cantley were ordered to cease and desist committing securities law violations and to pay disgorgement and civil penalties. In addition, the Commission censured Park Financial and barred Cantley from association with a broker or dealer with the right to reapply in two years.
In addition, the U.S. Attorney's Office for the Southern District of Florida filed criminal securities fraud charges against Crowley in January 2008, to which Crowley subsequently pled guilty. He is scheduled to be sentenced on June 27, 2008.
Questions regarding the Fair Fund distribution may be directed to the Court-appointed distribution agent, Kevin B. Love, by:
(Press Rel. 2008-121)
SEC v. Watermark Financial Services Group, Inc., et al.
The Commission announced today that, at a hearing on June 16, 2008, the Honorable William M. Skretny, United States District Judge for the Western District of New York, granted the Commission's motion for preliminary injunction and other relief against defendants Watermark Financial Services Group, Inc. (Watermark Financial), Watermark M-One Holdings, Inc. (Watermark Holdings), M-One Financial Services, LLC (M-One), Watermark Capital Group, LLC (Watermark Capital), Guy W. Gane, Jr., and Lorenzo Altadonna. Entered on June 18, 2008, the court's order continues in place various forms of interim relief initially ordered by the court on May 16, 2008, when the court granted the Commission's application for a temporary restraining order and other relief to halt the fraud orchestrated by Gane and the other defendants. The court's June 18, 2008 order preliminarily enjoins: (a) Watermark Financial, Watermark Holdings, M-One, Gane, and Altadonna from violating Sections 5(a) and 5(c) of the Securities Act of 1933 (Securities Act); (b) Watermark Financial, Watermark Holdings, M-One, Watermark Capital, Gane, and Altadonna from violating Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act), and Rule 10b-5 thereunder; and (c) Gane from violating Section 15(a) of the Exchange Act. The order also (a) continues a freeze over the assets of the defendants and relief defendants Guy W. Gane, III and Jenna Gane, two of Gane's children, and Denkon, Inc., a Florida company; (b) directs the defendants and relief defendants to provide verified accountings; and (c) prohibits the defendants and relief defendants from destroying, altering, or concealing documents.
The defendants and relief defendants Guy W. Gane, III and Jenna Gane filed no opposition to the Commission's motion and ultimately consented to the relief. Relief defendant Denkon, Inc., however, opposed the Commission's motion. At the June 16, 2008 hearing, the court found that "Denkon, Inc. received funds from defendants that it did not have a legitimate claim to" and concluded that Denkon, Inc. should be included in the June 18, 2008 order.
The Commission's complaint, filed on May 15, 2008, alleges that from at least May 2005 to the present, Gane and M-One orchestrated a securities offering fraud that has raised at least $5.7 million from approximately 90 investors, including a number of senior citizens, through the sale of debentures and promissory notes issued by the various entity defendants. Gane is a principal of each of the issuing entities. The complaint further alleges that the defendants told investors that their money would be used to purchase or develop real estate, but instead Gane: (i) used new investor funds to pay back earlier investors; (ii) misappropriated investors' funds by using them to pay himself, his family, and others; and (iii) transferred substantial portions of investor funds to Denkon, Inc., Guy W. Gane, III, and Jenna Gane for no apparent consideration. In addition, the complaint alleges that the debentures offering was not registered with the Commission and that Gane violated the broker-dealer registration provisions of the federal securities laws.
The litigation is pending. [SEC v. Watermark Financial Services Group, Inc., et al., Civil Action No. 08-CV-361(S) W.D.N.Y.] (LR-20628)
Accelerated Approval of Proposed Rule Change
The Commission granted accelerated approval of a proposed rule change (SR-OCC-2008-11) filed by the Options Clearing Corporation under Section 19(b)(1) of the Exchange Act relating to range options. Publication is expected in the Federal Register during the week of June 23. (Rel. 34-58003)
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