"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."
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 |
