SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 17009 / May 17, 2001

Securities and Exchange Commission v. David J. Naughton, et al., Civil Action No. 00-07531 R (Ex) (C.D. Cal.)

On May 15, 2001, the Honorable Manuel L. Real, United States District Judge for the Central District of California, entered a Final Judgment by default against Victor R. Grauaug, a former salesperson employed by Papa Holdings, Inc. The Final Judgment permanently enjoins Grauaug from future violations of the securities registration, antifraud and broker-dealer registration provisions of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Final Judgment also orders Grauaug to pay $211,306 in disgorgement and a civil penalty of $110,000.

The Commission's complaint alleged that Grauaug failed to disclose the actual commissions and overrides paid to him in connection with his sales of the unregistered securities of three restaurant subsidiaries controlled by Papa Holdings: Ponzu V, Inc., Ponzu VI, Inc. and Express 1, Inc. Papa Holdings and its restaurant subsidiaries, operating out of offices in Woodland Hills, California, raised over $21 million from approximately 1,300 investors nationwide from November 1995 to January 1999. The restaurant subsidiaries each raised money purportedly to open a "Papashon" or "Papashon Express" restaurant, but instead used the money to pay undisclosed commissions and pay for losses incurred by existing Papashon restaurants. None of the restaurant subsidiaries ever opened a restaurant and, due to their losses, existing Papashon restaurants in Pasadena, Beverly Hills, Encino and Long Beach, California, each closed in 1999.

For additional information, see Litigation Release Nos. 16141 (May 13, 1999), 16470 (March 16, 2000), 16624 (July 12, 2000), and 16976 (April 26, 2001).