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SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 16429 / February 9, 2000 SECURITIES AND EXCHANGE COMMISSION V. DAVID ABISH, CHRISTOPHER BETTS, MARK CHARVAT, MICHAEL COHN, JAMES CORCORAN, CHARLES DISTEFANO, PAUL FEENY, STEPHEN GOURLAY, BRIAN KEARNEY, MICHAEL MACCAULL, TIMOTHY MATTHEWS, ROBERT PRATT, MARIO RODRIGUEZ, WILLIAM SCUTERI, SCOTT SIEGEL, DONALD TURNEY, ANDREW TURSI AND DAVID WEEKS, 00 Civ. 0978 (BSJ) (S.D.N.Y.) The Securities and Exchange Commission ("Commission") announced that it filed its fourth civil action today arising from the massive securities fraud that was conducted through Sterling Foster & Company, Inc. ("Sterling Foster"), a formerly registered broker-dealer. In today's Complaint, which was filed in federal court in Manhattan, the Commission charged eighteen Sterling Foster registered representatives with using fraudulent "boiler-room" sales practices to induce investors to purchase micro-cap securities in six public offerings ("Offerings") at prices artificially inflated by Sterling Foster and others in a market manipulation scheme that defrauded investors of at least $75 million. Named in the Complaint are:
Christopher Betts, age 31, who was a registered representative of Sterling Foster from June 27, 1994 to February 21, 1997. Betts became a branch manager and team leader in or about the fall of 1995. Mark Charvat, age 26, of Patchogue, New York, who was a registered representative of Sterling Foster from June 27, 1994 to February 6, 1997, except between May 1995 and July 1995 when Charvat worked as a registered representative of VTR Capital, Inc., now known as Fairchild Financial Group, Inc. ("VTR"), a broker-dealer registered with the Commission. Charvat became an assistant branch manager at Sterling Foster in or about the fall of 1995. Michael Cohn, age 29, of Lawrence, New York, who was a registered representative of Sterling Foster from June 1994 to February 1997. In or about the fall of 1995, Cohn became a branch manager and team leader. James Corcoran, age 26, of Patchogue, New York, who was a registered representative of Sterling Foster from June 1994 to February 1997. In or about the fall of 1995, Corcoran became an assistant branch manager of Sterling Foster. Charles DiStefano, age 31, of Middle Island, New York, who was a registered representative of Sterling Foster from June 1994 to January 1997. In or about the fall of 1995, he became an assistant branch manager. Paul Feeny, age 27, of Stamford, Connecticut, who was a registered representative of Sterling Foster from October 1994 to February 1997. Stephen Gourlay, age 28, who was a registered representative of Sterling Foster from June 1994 to February 1997. In or about the fall of 1995, he became an assistant branch manager. Brian Kearney, age 30, of Farmingdale, New York, who was a registered representative of Sterling Foster from June 1994 until March 1997. He became a branch manager and team leader in or about the fall of 1995. Micahel MacCaull, age 29, of Hauppauge, New York, who was a registered representative of Sterling Foster from January 1995 to March 1997, except that MacCaull was a registered representative of VTR from May 1995 to July 1995. Timothy Matthews, age 39, of Stonybrook, New York, who was a registered representative of Sterling Foster from June 1994 to April 1997. He became a branch manager and team leader in or about the fall of 1995. Robert Pratt, age 30, of Coram, New York, who was a registered representative of Sterling Foster from June 1994 to February 1997. Pratt became an assistant branch manager and team leader in or about the fall of 1995. He became a branch manager in or about the fall of 1996. Mario Rodriguez, age 37, of West Islip, New York, who was a registered representative of Sterling Foster from June 1994 to April 1997, except when Rodriguez worked as a registered representative of VTR from May 1995 to August 1995. He became a branch manager and team leader at Sterling Foster in or about the fall of 1995. William Scuteri, age 29, of Charlottesville, Virginia, who was a registered representative of Sterling Foster from June 27, 1994 to March 11, 1997. Scott Siegel, age 29, of Hunt Station, New York, who was a registered representative of Sterling Foster from June 1994 to March 1997, except when he worked as a registered representative at VTR from May 1995 to July 1995. Donald Turney, age 29, of Pompano Beach, Florida, who was a registered representative of Sterling Foster from June 1994 to March 1995 and from August 1995 to March 1997. Andrew Tursi, age 30, of St. James, New York, who was a registered representative of Sterling Foster from June 27, 1994 to March 10, 1997. Tursi became a branch manager or team leader in or about the fall of 1995. David Weeks, age 29, of West Hills, New York, who was a registered representative of Sterling Foster from June 27, 1994 to March 7, 1997. Weeks became a branch manager and team leader in or about the fall of 1995. In its Complaint, the Commission seeks permanent injunctive relief, an accounting, disgorgement and prejudgment interest and civil penalties against each of the defendants. The Complaint alleges that: Between October 1994 and February, each of the Defendants, with the knowledge and encouragement of Sterling Foster management, including team leaders, committed numerous sales practice violations. Such violations include: (1) executing unauthorized trades in customer accounts; (2) failing to execute customer sell orders; (3) failing to execute stop-loss orders; (4) soliciting customers to purchase securities in the aftermarket prior to the completion of the IPOs for those securities; (5) making baseless price predictions; and/or (6) making other material misrepresentations to customers, including telling customers that stop-loss orders would be entered on their purchases and that the registered representatives had important confidential information about the issuers of the securities. In its Complaint, the Commission alleges that Defendants violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5 and 10b-6. The litigation is pending. In February 1997, the Commission filed a civil injunctive action charging Sterling Foster and four individuals, including Adam Lieberman, Sterling Foster's president, with obtaining $75 million from investors by using boiler-room sales practices and other fraudulent conduct in connection with IPOs of Lasergate Systems, Inc., Advanced Voice Technologies, Inc., Com/Tech Communication Technologies, Inc., Embryo Development Corporation, Applewoods, Inc. and ML Direct, Inc. On November 9, 1998, Sterling Foster and Lieberman consented to the entry of final judgments that: (1) permanently enjoined Sterling Foster and Lieberman from further violations of the federal securities laws; (2) ordered Sterling Foster and Lieberman to disgorge $75,000,000, waived down to $11,486,064.21, including prejudgment interest, plus proceeds of the sale, at fair market prices, of additional assets turned over to the United States government. The Commission's action against the remaining defendants, Craig Kellerman, Frank Monroig, and Dennis Rueb, is pending, but has been stayed pending the conclusion of a related criminal investigation. Also in November 1998, the Commission filed a complaint against Michael Krasnoff a/k/a Michael Krasnov ("Krasnoff"), Michael Lulkin ("Lulkin"), MD Funding, Inc. ("M.D. Funding") and Special Equities, Inc. ("Special Equities, Inc.") alleging that Krasnoff and Lulkin and two companies that they controlled fraudulently obtained over $8.6 million through their participation in the IPOs of Advanced Voice Technologies, Inc., Com/Tech Communications Technologies, Inc., Embryo Development Corporation, Applewoods, Inc. and ML Direct, Inc. These defendants allegedly knew or were reckless in not knowing that the prospectuses for these IPOs failed to disclose their arrangements to sell their stock to Sterling Foster immediately after the commencement of the IPOs at below-market prices. That litigation is pending. In May 1999, the Commission filed a complaint against Hartley T. Bernstein ("Bernstein") alleging that Bernstein, an attorney, with fraudulently obtaining over $500,000 by selling securities shortly after the IPOs of five companies for which the defendant's law firm acted as counsel, Advanced Voice Technologies, Inc., Com/Tech Communications Technologies, Inc., Embryo Development Corp., and Applewoods, Inc., companies whose IPOs were being underwritten by Sterling Foster, and of Perry's Majestic, Inc., a company whose IPO was co-underwritten by VTR Capital, Inc. and Investors Associates, Inc. The unregistered securities of those issuers that Bernstein acquired were registered along with the securities that were to be sold in each of those IPOs. In all of the IPOs except Applewoods, Bernstein knew or was reckless in not knowing that he would sell those securities at below-market prices to one of the underwriters soon after the commencement of the IPO. In the Applewoods IPO, Bernstein and Sterling Foster agreed that Bernstein would sell his Applewoods securities to Sterling Foster, through another broker-dealer, immediately upon the opening of the first day of after-market trading. Bernstein's sales of securities to Sterling Foster and Investors Associates provided those firms with a source of cheap stock to sell aggressively to their customers. Simultaneously with the filing of the Complaint, Bernstein consented, without admitting or denying the allegations of the Complaint to the entry of a final judgment that: (1) permanently enjoins him from violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5; and (2) orders him to pay a civil penalty of $40,000. The Commission also instituted public administrative proceedings against Lieberman, Sterling Foster and Bernstein. On September 29, 1999, simultaneously with the institution of these proceedings, the Commission accepted offers of settlement from Lieberman and Sterling Foster, under which Lieberman consented to the issuance of an order barring him from association with any broker or dealer and Sterling Foster consented to the issuance of an order revoking its registration. On July 28, 1999, the Commission issued an Order instituting and settling administrative proceedings against Bernstein. Bernstein consented to the Order which bars Bernstein from participating in any offering of penny stock pursuant to Section 15(b)(6) of the Exchange Act and denies him the privilege of appearing or practicing before the Commission pursuant to Rule 102(e) of the Commission's Rules of Practice. Separately, the United States Attorney for the Southern District of New York announced today the indictment of the Defendants, Monroig, Rueb and two others, on related criminal charges. This enforcement action is part of the Commission's four-pronged approach to attacking micro-cap fraud: enforcement, inspections, investor education and regulation. For more information about the SEC's response to micro-cap fraud, visit the SEC's Micro-cap Fraud Information Center at http://www.sec.gov/news/extra/microcap.htm. For more information see Litigation Release Nos. 15261 (February 18, 1997) , 15971 (November 9, 1998), and 16163 (May 27, 1999). The Commission thanks the National Association of Securities Dealers, Inc. for its assistance in this matter.
http://www.sec.gov/litigation/litreleases/lr16429.htm
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