SEC CHARGES REGISTERED REPRESENTATIVE WITH MARKET MANIPULATION OF CREATIVE
HOST STOCK AND KIRKPATRICK, PETTIS, SMITH, POLIAN INC. AND KIRKPATRICK'S
FORMER CHAIRMAN AND BRANCH MANAGER WITH FAILURE TO SUPERVISE
On November 5, the Commission filed a complaint in the U.S. District
Court for the Southern District of California against Steven E. Muth
alleging that Muth perpetrated a fraudulent scheme to artificially
inflate the stock price of San Diego-based airport concessionaire
Creative Host Services, Inc. from $0.78 to $29.00, an increase of
3,618%. Muth, 43, of Houston, Texas, was employed as a registered
representative of broker-dealer Kirkpatrick, Pettis, Smith, Polian Inc.,
headquartered in Omaha, Nebraska.
The complaint alleges that Muth fraudulently manipulated Creative Host's
stock price during the period November 1999 to June 2000 by restricting
supply and artificially creating demand for the stock through a variety
of techniques and devices. These included: 1) causing Kirkpatrick's
clients to buy and control 90% of Creative Host's shares; 2) engaging in
high-pressure sales tactics; 3) using Kirkpatrick's affiliation with
Mutual of Omaha Insurance Company to gain client trust; 4) refusing to
execute clients' orders to sell Creative Host shares; 5) encouraging
customers to obtain credit on their Creative Host shares in order to
release funds with which to buy additional shares without explaining the
risks of that credit; 6) hiring promoters to tout the shares on the
Internet; 7) delaying submission of client orders toward the end of the
trading day to increase demand at the end of the day; 8) helping
Kirkpatrick to lead the bid prices placed for Creative Host shares, and
9) orchestrating prearranged trades. As a result of these actions, Muth
allegedly received $950,562 in ill-gotten commissions and $546,781 in
ill-gotten trading profits, $463,030 of which was received through Door
Chair, Ltd., an entity Muth controls. The Commission charged Muth with
securities fraud, specifically violations of Section 17(a) of the
Securities Act of 1933 and Section 10(b) of the Securities Exchange Act
of 1934 and Rule 10b-5 thereunder.
Separately, on November 5, the Commission entered an Order Instituting
Administrative Proceedings, Making Findings, And Imposing Remedial
Sanctions Pursuant To Section 15(b) Of The Securities Exchange Act Of
1934 (Order) against Kirkpatrick; Peter N. Lahti, Kirkpatrick's former
Chairman, President and CEO; and Gregory D. Adams, Kirkpatrick's former
branch manager of two Colorado branch offices, for failure to supervise.
While neither admitting or denying the Order's findings, Kirkpatrick,
Lahti, 59, of Omaha, Nebraska, and Adams, 49, of Gulf Breeze, Florida,
consented to the entry of the Order.
The Commission's Order found that Lahti failed to develop an adequate
system to implement Kirkpatrick's procedures to prevent and detect
securities law violations. Additionally, Lahti and Adams disregarded
red flags indicating suspicious conduct related to the manipulation of
Creative Host's share price. Adams also failed to follow Kirkpatrick's
policies and procedures regarding heightened supervision and review of
correspondence. As part of their offers to settle the Commission's
administrative proceeding, Kirkpatrick agreed to a censure; Lahti agreed
to be suspended from acting in a supervisory capacity at a broker-dealer
for 12 months; and Adams agreed to be suspended from association with
any broker-dealer for six months and barred from acting in a supervisory
capacity at a broker-dealer. In addition the Order imposes a $100,000
penalty against Kirkpatrick, a $40,000 penalty against Lahti, and a
$20,000 penalty against Adams. [SEC v. Steven E. Muth and Door Chair,
Ltd., Civil Action No. 03 CV 2178 WQH (JFS) SDCA] (LR-18447) |
