SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 17215 / October 31, 2001

SEC CHARGES HENRY SALZHAUER, MICHAEL SALZHAUER AND VITO VALENTINI WITH FRAUD IN CONNECTION WITH BANK CONVERSIONS

SECURITIES AND EXCHANGE COMMISSION v. VITO VALENTINI, 01 Civ.7295 (NG) (E.D.N.Y.)

IN THE MATTER OF HENRY SALZHAUER AND MICHAEL SALZHAUER, Administrative Proceeding File No. 3-10629

The Securities and Exchange Commission announced today that it filed an injunctive action against Vito Valentini, alleging that Valentini violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. In a related administrative action, the Commission ordered Henry Salzhauer and Michael Salzhauer to cease and desist from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.

The injunctive action alleged that Vito Valentini participated in a course of conduct that defrauded Staten Island Savings Bank ("SISB"), Richmond County Savings Bank ("RCSB"), Independence Savings Bank ("ISB"), and these banks' depositors, in connection with the purchase of stock that was issued when these banks converted from mutually-owned institutions to publicly-traded corporations between October 1997 and March 1998. In the related cease and desist proceeding, the cease and desist order found that Henry Salzhauer and Michael Salzhauer orchestrated the course of conduct that defrauded SISB, RCSB and ISB and the banks' depositors. Henry and Michael Salzhauer consented to the entry of the cease and desist orders, and agreed to disgorge $1,207,019, and pay prejudgment interest of $312,425, without admitting or denying the Commission's findings

The injunctive action, which was filed in the federal district court for the Eastern District of New York, named Vito Valentini, age 42, who resides in Ridgefield, New Jersey, as a defendant.

The Commission's cease and desist order named the following respondents:

* Henry Salzhauer, age 65, resides in Sands Point, New York. Henry Salzhauer controls his family's real estate and investment businesses, including a hedge fund, the assets of which are invested almost exclusively in bank stocks.

* Michael Salzhauer, age 38, resides in New York, New York. Michael Salzhauer is Henry Salzhauer's son and he works along with his father managing the family's real estate and securities investments.

The injunctive action alleged, and the Order found, the following facts. Under applicable federal and state banking regulations, when a savings bank converts from a mutually-owned to a stock-owned financial institution, depositors have a priority "subscription" right to purchase the bank's stock before the bank sells the stock to the general public. To ensure that only depositors benefit from their priority stock subscription rights, federal and state regulations prohibit depositors from transferring ownership of those rights, or of the stock itself, prior to completion of the conversion. Typically, the price of the stock that a bank offers when the bank converts to stock ownership rises significantly after conversion, thus affording depositors the opportunity to obtain a significant profit on resale of their stock after conversion.

SISB (which maintained its headquarters in Staten Island), RCSB (which had branches in Brooklyn and Staten Island), and ISB (which had branches throughout the New York metropolitan area), were mutually owned institutions that converted to stock- ownership between October 1997 and March 1998. The Salzhauers and Vito Valentini learned about these conversions, and they were well aware of the profit opportunity associated with the SISB, RCSB and ISB depositors' subscription rights. The Salzhauers and Valentini also knew that only the depositors lawfully could exercise those subscription rights. Despite this knowledge, to attempt both to profit from the depositors' subscription rights and to avoid the legal bar on transferring those rights, the Salzhauers and Valentini devised and executed a course of conduct to defraud the converting banks. Valentini located approximately 15 SISB depositors, 30 RCSB depositors and 20 ISB depositors willing to execute written agreements with the Salzhauers under which (1) the Salzhauers provided the funds to purchase the banks' conversion stock; (2) the depositors transferred their stock to a Salzhauer "custodial" account; (3) Henry Salzhauer then had sole discretion to sell the stock; (4) to the extent that the proceeds from the stock sales were not sufficient to cover the Salzhauers' purchase cost, the Salzhauers agreed to look only to the value of the stock for their "repayment"; (5) the Salzhauers received the proceeds of the stock sales up to the amount of the original purchase cost (plus an "interest" charge); (6) the Salzhauers also received 50% of any proceeds of the sales above the original purchase cost (i.e., 50% of the profit); and (7) the depositors received the remainder of the sale proceeds.

As the Salzhauers and Valentini knew, converting banks required the depositors to sign subscription agreements that contained a written certification that the depositors were purchasing the banks' conversion stock "for their own account" and that the depositors had entered into "no agreement or understanding regarding the sale or transfer of" their shares. The certifications that the SISB, RCSB and ISB depositors signed were false. In fact, the depositors were not purchasing the stock solely for their own account, and they had entered into the agreement with the Salzhauers described above.

After SISB's, RCSB's and ISB's conversion stock was issued to the depositors, Henry Salzhauer sold the stock at a significant profit, which he and Michael Salzhauer split evenly with the depositors. Each depositor, in turn, paid between 10 and 50 percent of their profit to Valentini, pursuant to separate written agreements between the depositors and Valentini. The Salzhauers obtained approximately $1,207,019 in illicit profits from the SISB, RCSB, and ISB transactions. Valentini also obtained illicit profits from these transactions.

The Commission found that Henry Salzhauer and Michael Salzhauer violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The Commission entered cease and desist orders against them, and ordered them to pay $1,207,019 in disgorgement, and $312,425 in prejudgment interest.

In the injunctive action against Valentini, the Commission is seeking a permanent injunction, disgorgement and civil penalties.