SECURITIES AND EXCHANGE COMMISSION

          Litigation Release No. 16035 / January 21, 1999

          SEC v. Cavanagh et al., 98 Civ. 1818 (S.D.N.Y) (DLC)

                         On January 7, 1999, United States District Court Judge
          Denise Cote issued an order requiring New Jersey securities
          lawyer William N. Levy to pay $1,292,000 into the Court’s
          registry pending trial on the merits of the Commission’s action,
          SEC v. Cavanagh et al.  Levy consented to the order after the
          Commission discovered that Levy, whom the Commission has alleged
          participated in a scheme to manipulate the stock price of Electro
          Optical Systems, Inc. ("EOSC"), had failed to disclose in his
          court-ordered accounting that he had profited by over $560,000 by
          selling EOSC shares during the manipulation.  Levy previously was
          enjoined in 1976 for violating the antifraud and registration
          provisions of the federal securities laws in SEC v. Management
          Dynamics, Inc., 73 Civ. 2642 (S.D.N.Y.), Lit. Release 7445 (June
          16, 1976), a similar case involving the unregistered sale of
          securities and stock manipulation.

               The $1,292,000 will bring the total deposited in the
          registry of the Court to nearly $2  million.  In addition,
          approximately $6,000,000 is frozen in bank accounts in Spain and
          Switzerland pending disposition of the Commission’s case.  Other
          funds traced to the defendants remain frozen in U.S. banks and
          brokerage accounts.

               On March 13, 1998, the Commission filed its Complaint and
          obtained a temporary restraining order against Levy, Thomas
          Cavanagh, Frank Nicolois and 10 other defendants and 19 relief
          defendants by alleging violations of the antifraud and
          registration provisions of the federal securities laws in
          connection with the defendants scheme to manipulate EOSC’s stock
          price.  The Complaint alleges that the defendants controlled the
          supply of EOSC stock, inflated EOSC’s share price from $.50 to
          over $5.00 in one day, and distributed false information about
          the company in press releases and Internet newsletters.  As a
          result, the  defendants reaped over $12,000,000 in profits by
          selling EOSC shares on the Internet, to primarily small, on-line
          investors.

               On April 20, 1998, Judge Cote entered a preliminary
          injunction against the primary defendants pending trial on the
          merits.  The 122-page District Court opinion stated that
          defendants Levy an Cavanagh "set in motion a plan . . . designed
          to line their pockets."  In July 1998, the Commission amended its
          Complaint, adding four defendants and seven relief defendants.
          On September 2, 1998, the U. S. Court of Appeals for the Second
          Circuit upheld the District Court’s decision granting the
          preliminary injunction.  155 F.3d 129 (1998).  In October 1998,
          the Commission’s case was partially stayed by the District Court
          at the request of the defendants in view of a criminal
          investigation by the United States Attorney’s Office for the
          Southern District of New York.

               In addition to the funds frozen in the U.S. and abroad, to
          date, the Commission has recovered $2.3 million in disgorgement,
          interest and penalties from settling defendants, relief
          defendants and potential relief defendants.  Two of the primary
          defendants, George Chachas and Maier Lehmann, have consented to
          the entry of injunctions alleging violations of the antifraud and
          registration provisions of the federal securities laws.  Chachas
          paid $493,000 and Lehmann paid $630,000 in disgorgement and
          penalties.

          Related Litigation Releases:   No. 15669, March 13, 1998
                                    No. 15715, April 21, 1998