-------------------- BEGINNING OF PAGE #1 ------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION LITIGATION RELEASE NO. 14699 / October 25, 1995 SECURITIES AND EXCHANGE COMMISSION v. JURY MATT HANSEN, FERGUS SLOAN, NILDA ZIM, ROBERT ROWE, ET AL., 95 Civ. 9143 (RD) (S.D.N.Y.) The Securities and Exchange Commission announced the filing of a Complaint in the United States District Court for the Southern District of New York against Jury Matt Hansen, Fergus Sloan, Nilda Zim, Robert Rowe (collectively, the "free-riding defendants"), Pacific Inland Bank ("PIB") and Pacific Inland Bancorp. ("PIBancorp") for violations arising out of a fraudulent free-riding scheme. According to the Commission's Complaint, the scheme involved ordering the purchase of over $260 million of securities without having the cash to pay for them, and without the intention to pay for the purchases. The Complaint also names Patricia Burke and Christie Hansen as relief defendants to recover monies transferred to them as a result of the free- riding defendants' violations. Hansen, of Bridgehampton, New York, pled guilty to ten counts of income tax fraud for conduct relating to an earlier free-riding scheme and was sentenced on March 10, 1994 to one year imprisonment and ordered to pay over $1 million to the IRS in back taxes, including penalties and interest. United States v. Hansen and Sloan, 91 CR 1325-02 (LDW)(E.D.N.Y.). Sloan, of New York City, pled guilty in 1975 to violating Sections 7(f) and 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder and conspiracy to violate Regulation T promulgated by the Board of Governors of the Federal Reserve System ("Federal Reserve"). United States v. Sloan, 74 Cr. 859 (WLK)(S.D.N.Y.). On March 18, 1992, Sloan pled guilty to four counts of income tax fraud for conduct relating to an earlier free-riding scheme and was sentenced on March 10, 1994 to one year imprisonment and ordered to pay over $1 million to the IRS in back taxes, including penalties and interest.U.S. v. Hansen and Sloan, 91 CR 1325-02 (LDW) (E.D.N.Y.). Zim, of Long Island, New York, was permanently barred on July 17, 1990 from associating with any member of the National Association of Securities Dealers ("NASD") and fined by the NASD for churning a customer account. Rowe, of New York City, has worked in the securities industry since 1967 and was a registered representative at various times with various broker-dealers. PIB is a commercial bank located in Anaheim, California. PIBancorp was, during the relevant period, the publicly-held parent company of PIB. The Complaint alleges, among other things, that: Beginning in approximately December 1989, one month after Hansen and Sloan were preliminarily enjoined from violating certain provisions of the federal securities laws in a case arising from an earlier free-riding scheme, Hansen, Sloan, Zim and Rowe launched a new scheme. SEC v. Jury Matt Hansen, et al., 89 Civ. 5242 (RO)(S.D.N.Y.). When they opened cash accounts, the free-riding defendants misrepresented their identity and their -------------------- BEGINNING OF PAGE #2 ------------------- net worth to give brokers the false impression that the account holders had substantial assets. During the course of the scheme the free-riding defendants opened over 645 brokerage accounts, at more than 62 brokerage firms using approximately 40 different assumed names. When they ordered trades, the free-riding defendants misrepresented their intent and ability legitimately to pay for their securities purchases with their own funds. Instead, to settle their transactions, the free-riding defendants instructed their clearing agents to rely upon the proceeds from offsetting same-day sales to pay for their purchases. By trading in this fashion over a period of at least 4 years, the free-riding defendants were able to buy over $260 million worth of securities in cash accounts with little or no capital and shift the risk of loss onto unwitting brokersage firms. As a result of the scheme, the free-riding defendants realized over $2.7 million in profits. At various times, from February 1991 to March 1993, the free-riding defendants maintained custodial clearing accounts at PIB, through which they cleared trades. PIB facilitated the scheme by extending millions of dollars of credit to pay for securities purchases and settle trades that the free-riding defendants could not legitimately finance. In addition, PIB's parent company, PIBancorp, filed a false and misleading report with the Commission on Form 10-Q for the company's quarter ended March 31, 1992, which falsely represented that over $8.5 million in monies due on unsettled securities trades by the free-riding defendants was a receivable from the Depository Trust Company. The Complaint seeks permanent injunctions against all of the defendants, disgorgement from the free-riding defendants plus prejudgment interest on the amount to be disgorged, penalties under the Securities Enforcement Remedies and Penny Stock Reform Act of 1990 ("Remedies Act") from Hansen, Sloan, Zim, Rowe and PIB, and orders barring Hansen, Sloan and Zim from engaging in any securities transactions in the future. Simultaneous with the filing of the Complaint, Rowe consented, without admitting or denying the allegations, to be permanently enjoined from future violations of certain antifraud and credit extension provisions of the federal securities laws, and to disgorge profits of $332,778.26. The Commission waived payment of disgorgement over $100,000 based on Rowe's demonstrated inability to pay. PIB, having admitted to violating the credit extension provisions contained in Section 7(d) of the Exchange Act and Regulation U promulgated by the Federal Reserve, consented to a permanent injunction from future violations of those provisions, and to pay a penalty under the Remedies Act of $50,000. PIBancorp, without admitting or denying the allegations made in the Complaint, consented to be permanently enjoined from future violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rule 13a-13 thereunder and Rule 12b-20. The Commission recently announced settlements in administrative proceedings against two other firms at which the free-riding defendants also maintained clearing accounts. In the Matter of French American Banking Corp., Admin. Proc. File No. 3-8863 (October 4, 1995) and In the Matter of Lewco Securities, Inc., Admin. Proc. File No. 3-8864 (October 4, 1995).