The SEC also says that most of those shares were quietly distributed overseas via Regulation S of the Securities Act of 1933. bus.lsu.edu
Until it was tightened late last year, Reg S allowed companies to sell unregistered stock at a discount to foreigners without telling U.S. shareholders. After a brief waiting period, the foreign holders could then freely sell the shares back into the U.S., often reaping handsome profits in the process ("Easy Money," Barron's, April 19, 1996). Many Reg S violations involve foreigners acting as frontmen for U.S. investors, which is patently illegal. This is what the government says happened in the Scorpion deal.
Specifically, the SEC charges that the foreign buyers of Scorpion's Reg S shares illegally split their profits with Scorpion itself, allowing the company to get its hands on some real cash and perpetuate the ruse that it was selling lots of software. In August of '96, federal prosecutors in San Francisco brought criminal stock-fraud and money-laundering charges against Marsh and eight others. But juries will have to wait until next year to weigh the government's evidence in these cases, which are contested by all but two minor defendants.
Two class-action suits by Scorpion shareholders are also proceeding in federal courts in Manhattan and San Francisco, and one of those suits names Witz as a defendant. Roomfuls of brokerage firm records and deposition transcripts put the San Francisco class-action attorneys at Lieff Cabraser Heimann & Bernstein ahead of the government in unraveling Scorpion's dealings. The names of Par Chadha and Barry Witz appear frequently in these materials, which include recent testimony by Scorpion's ex-controller, Eric C. Brown. |
