BEFORE THE NATIONAL BUSINESS CONDUCT COMMITTEE
NASD REGULATION, INC.
In the Matter of DECISION
Market Regulation Committee Complaint No. CMS920002
Complainant, Market Regulation Committee
vs. Dated: August 22, 1997
Warren R. Schreiber
430 Chestnut Drive
East Hills, New York 11576
and
Marian S. Gargano
3100 Boardwalk Unit 604A Tower II
Atlantic City, New Jersey 08401
Respondents.
This matter was appealed by respondents Warren R. Schreiber ("Schreiber") and Marian
S. Gargano ("Gargano"), pursuant to Article III, Section 1 of the Association's Code of
Procedure (now Procedural Rule 9310). On September 7, 1995, the Market Surveillance
Committee (now and hereinafter referred to as the Market Regulation Committee)
("MRC") issued a decision in which Schreiber was censured, fined $100,000, barred from
association with any NASD member in any capacity, and assessed costs of $22,104.45,
jointly and severally with Castleton-Rhodes, Inc. ("Castleton" or "the Firm"); and
Gargano was censured and fined $2,500. For the reasons stated below, we affirm the
MRC's findings with the exception of those allegations under cause VII that Schreiber
violated Section 15(c)(1) of the Securities Exchange Act and Rule 15c 1-5 thereunder,
and affirm the sanctions imposed as to both respondents.
We find, among other things, that Schreiber:
(1) Knowingly participated at various times in the unregistered distribution of 486,000
shares of common stock, 2.7 million warrants, and 2,688,000 shares of common stock of
Merlin Baines & Co., Inc. ("Merlin") in violation of Article III, Section 1 of the NASD's
Rules of Fair Practice ("Rules") (now and hereinafter referred to as Conduct Rule 2110);
(2) Knowingly employed manipulative and deceptive practices in connection with the
acquisition of the stock and warrants to obtain control of Merlin and manipulate the price
of the shares, in violation of Conduct Rule 2110, Article III, Section 18 of the Rules
(now and hereinafter referred to as Conduct Rule 2120), Section 10(b) of the Securities
Exchange Act ("Exchange Act"), and Rule 10b-5 thereunder;
(3) Recommended and effected the purchase of stock of Merlin while in possession of
material, nonpublic information, in violation of Conduct Rules 2110 and 2120, and
Section 10(b) of the Exchange Act and Rule 10b-5 thereunder;
(4) Engaged in securities transactions with or on behalf of customers without
disclosing that the Firm and Merlin were under common control, in violation of Conduct
Rule 2110 and Article III, Section 13 of the Rules (now and hereinafter referred to as
Conduct Rule 2240); and
(5) Engaged in an improper distribution of equity securities issued by an affiliate of the
Firm (i.e. the shares of Merlin), in violation of Conduct Rule 2110 and Schedule E of the
NASD's By-Laws (now and hereinafter referred to as Conduct Rule 2720).1
We also find that Gargano, while an associated person with a member, sold Merlin shares
through another member firm, and failed to notify the executing firm of her association
with a member firm, in violation of Article III, Sections 1 and 28 of the Rules (now and
hereinafter referred to as Conduct Rule 3050).
I. Background
Schreiber entered the securities business in December 1981 as a general securities
representative and general securities principal of Brodis Securities Incorporated. He
remained at Brodis Securities until September 1985. He was thereafter associated with
the following members: G.K. Scott & Co. Inc., where he was registered as a general
securities representative and general securities principal (November 1985-November
1986); Hibbard Brown & Co., Inc., where he was registered as a general securities
representative and general securities principal (November 1986-June 1988); Robyns
Capital Corp., where he was registered as a general securities representative and general
securities principal (July 1988-August 1989); Integrated Assets Group, Inc., where he was
registered as a general securities representative and general securities principal (June
1989-February 1991); Castleton, where he was registered as a general securities
representative and general securities principal (August 23, 1989-September 14, 1989 and
September 20, 1989-March 21, 1990); Vanderbilt Securities, Inc., where he was
registered as a general securities representative (May 1990-October 1990); I.A.
Rabinowitz & Co., where he was not registered (September 1990-December 1990); J.
Gregory & Company, Inc., where he was registered as a general securities representative
(April 1991-August 1994); and VTR Capital, Inc. (November 1994-present), where he
currently is registered as a general securities representative.
Gargano entered the securities business in June 1978 with Merrill Lynch, Pierce, Fenner
& Smith and became registered as a general securities representative in November 1978.
She joined Shearson Lehman Brothers, Inc. in June 1988 as a general securities
representative, and she remained there until August 1990. In July 1992, she joined
Comprehensive Capital Corporation as a general securities representative, where she
remained until October 1993. Gargano currently is not associated with an NASD
member.
II. Summary of the MRC Action
The 26-cause complaint was filed on January 15, 1992. Only those causes relevant to the
appeals of Schreiber (Causes I, II, III, IV, V, VI, VII, VIII, and XXIV) and Gargano
(Cause XX) will be discussed in this decision.
In summary, the complaint alleged that in October 1989, Castleton, Jules B. Lipow
("Lipow"),2 Gerald H. Cahill ("Cahill"),3 and Schreiber4 obtained control of Merlin,5 a
blind pool, development stage company, from Abruscato, Merlin's President and principal
shareholder. Abruscato agreed to turn over management control of Merlin to the co-
conspirators, as well as control of a majority of the outstanding unregistered securities of
Merlin, in exchange for assistance in marketing these securities and effecting distribution
of proceeds totaling approximately $250,000 to Abruscato, members of his family, and 16
other early-stage investors.
On October 6, 1989, Cahill purchased 4,000,000 Merlin unregistered warrants owned by
Abruscato and his wife, Constance Abruscato, and two other unaffiliated warrant holders,
for a total of $67,000. Thereafter, on November 10, 1989, Schreiber, through Herschel
Krasnow ("Krasnow"),6 a representative under his supervision, arranged for a client of
the Firm, First National Funding Corp. ("FNFC"), to purchase 486,000 unregistered
shares of Merlin common from Abruscato, his family, and 16 other early-stage investors
at a price of $.375 per share, for a total of $182,250.7 Following these sales of
unregistered securities, Abruscato turned over control of Merlin to Cahill through Cahill's
associate, Victor J. Lombardi ("Lombardi"), who was named President of Merlin.
Cahill and Lipow subsequently made efforts to merge Merlin with an operating company.
On December 21, 1989, while in possession of material nonpublic information
concerning a proposed merger between Merlin and Apollo Energy Corporation
("Apollo"),8 and just minutes before the issuance of a press release concerning the
proposed merger, the Group purchased, on the basis of nonpublic information about the
proposed merger, a total of 2,688,000 shares of restricted stock at $.0213 per share from
19 Merlin shareholders, and placed them in five accounts at Castleton that were owned,
controlled, or favored by the Group. Following the announcement of the proposed
merger, Castleton's sales force sold approximately 700,000 of these shares, mostly in
short sales, to approximately 138 retail customers of Castleton at prices ranging from
$.375 to $.625 per share from December 22, 1989, through mid-January 1990, without
disclosure of the fact that Merlin was under Castleton's control, resulting in profit or
reduced indebtedness to the Group of about $540,000.9
The MRC found, among other things, that in furtherance of the scheme, Lipow, Cahill,
and Schreiber, among others, manipulated the price of Merlin stock and sold it to the
public through Castleton's sales force at artificially high prices; engaged in the
distribution of unregistered Merlin common stock and warrants; created nominee
accounts at Castleton to purchase restricted stock but conceal the true ownership of the
securities in order to avoid a breach of the firm's restrictive agreement; distributed
securities to the public without disclosing the fact that they controlled Merlin, in
contravention of Conduct Rule 2720; created and distributed fraudulent financial reports
relating to Merlin; issued false opinions of counsel in connection with the sale of Merlin
restricted stock; and engaged in prearranged trading in Merlin stock and warrants.
Schreiber maintained before the MRC and on appeal that while a conspiracy to
manipulate Merlin securities and attendant violations took place, he was not aware of or
involved in any of the violations found by the MRC. He also maintained that the
testimony of Lipow, an admitted conspirator, which was offered by the staff to link
Schreiber with the alleged violations, was false and incredible, and that no other evidence
showed that he was aware of or was involved in the alleged violations.
Gargano failed to file an answer and to participate in the MRC proceedings, but
maintained on appeal that although she had been given her Merlin stock and agreed to sell
it when requested to do so by Abruscato, she had not opened a securities account with a
member firm to effect the sale.
III. Findings and Discussion
On appeal before an Extended Hearing Committee of the National Business Conduct
Committee ("NBCC"), Schreiber and Gargano objected to all findings of violation found
by the MRC. Following our consideration of the entire record, we make the following
findings.10 Due to the nature of the manipulative scheme and the manner in which the
complaint is pled, our findings and conclusions are cumulative, and are not necessarily
reiterated in connection with each precedent or subsequent cause discussed.
Credibility Determinations. In affirming in overwhelming part the MRC's findings, we
agree with the MRC's determination to credit the hearing testimony of Lipow, and not
credit that of Schreiber. On appeal, Schreiber concedes that the fraudulent scheme
described in the complaint took place substantially as alleged; he merely denies his role in
it. The testimony of Lipow, an eyewitness and a central participant in all aspects of the
scheme, was consistent with documentary and testimonial evidence which established the
existence of the scheme, and was convincing as to the role played by Schreiber, another
central participant. We also give considerable weight and deference to the MRC's
decision to credit Lipow and not Schreiber because the MRC heard the witnesses testify
and observed their demeanor. See Brewer v. Chater, 103 F.3d 1384, 1392-93 (7th Cir.
1997) (credibility ruling of administrative law judge will be disturbed only if it is
"patently wrong"); see also Vanasco v. SEC, 395 F.2d 349, 351-52 (2d Cir. 1968) (same).
Lipow testified, with the aid of contemporaneous notes, against his personal interest in
admitting his participation in the scheme.11 He testified that Schreiber participated in
meetings with him or Cahill "whenever an event occurred" which forwarded the scheme.
We conclude, as did the MRC, that given Lipow's limited industry experience and
ignorance of broker/dealer operations, Schreiber's participation as Castleton's de facto
head of operations, leader of its sales force, and trader with extensive experience in
underwriting and trading penny stock issues was essential to the planning and execution
of the scheme. We further find that Schreiber's contention that the massive scheme
unfolded around him without his knowledge or participation is incredible and is
contradicted by ample evidence in the record.
Cause I. The first cause alleged that Schreiber, with others, participated in an
unregistered distribution of 486,000 shares of Merlin common stock, in violation of
Conduct Rule 2110. In September 1989, as the first part of a fraudulent scheme to obtain
control and manipulate the shares of Merlin, Schreiber and Lipow determined to find a
customer to purchase 486,000 shares of Merlin common stock owned by John and
Constance Abruscato, affiliates of Merlin. Subsequently, Krasnow, a member of
Schreiber's sales force, was introduced by Schreiber to Lipow, and thereafter solicited
FNFC to purchase on November 10, 1989, 486,000 shares of Merlin common stock at
$.375 per share from the Abruscatos? account at York Securities, Inc. ("York") for a total
of $182,250. The shares were purchased by Castleton on an agency basis for the account
of FNFC. The sale was executed in two parts -- a 386,000-share block from the account
of Constance Abruscato, and a 100,000-share block from the account of John Abruscsato.
Both York order tickets indicated that "Warren" was the Castleton contact for the trades.
Schreiber nevertheless denies any knowledge of or involvement in the transaction and the
existence of any evidence of such knowledge or involvement. Schreiber also claims that
the 486,000 shares in question had previously been registered in an earlier underwriting,
and were thus freely tradeable.
We affirm the MRC's findings of violation. Since the Abruscatos, as controlling
shareholders of Merlin, were affiliates of Merlin, and the block represented 20 percent of
the publicly traded "float" of Merlin at the time, the transaction was not exempt from the
registration requirements of Section 5 of the Securities Act, notwithstanding the claim
that the shares had previously been registered.12 The stock could only have been sold in
one of three ways: (1) pursuant to the exemption provided by SEC Rule 144; (2) pursuant
to an effective registration statement; or (3) pursuant to another exemption from
registration. The transaction was not the subject of an effective registration statement, and
there was no evidence presented that the transactions were otherwise exempt from
registration.
We find that Schreiber was directly involved in the transaction. As head of Castleton's
sales force, an experienced trader, and a co-conspirator involved in all significant aspects
of the fraudulent scheme, Schreiber knew that the transaction needed to be registered, but
participated nonetheless. Schreiber admits that he put Lipow in touch with Krasnow
because Lipow wanted to locate a buyer for a large block of stock on speculation. He
further admits involvement in assisting Krasnow in later seeking to cancel the trade
because the customer had agreed to purchase only half of the securities, but that the full
amount of the trade was later posted to the customer's account (an action purportedly
taken without Schreiber's knowledge).
Lipow testified that Schreiber was aware of the plan to obtain control of Merlin "within
minutes of [his] being first approached by Gerry Cahill." Lipow stated that "I had no
experience and I had no ability to have this 486,000 share trade executed and didn't even
know if it was a good deal or a bad deal, but Warren [Schreiber] seemed to feel that it
was an opportunity and he started working on it over the next two-week period." Lipow
stated that Schreiber participated in negotiations with Abruscato as to price. Lipow
further testified that Schreiber reported to him on his efforts to place the entire block.
The record establishes that Schreiber, who was experienced in penny stock underwriting
and trading, was well aware of the registration requirements for securities transactions.
He failed, in connection with causes I-III, to conduct a "searching inquiry" of
transferability in connection with his marketing of substantial amounts of little-known
securities. See Michael A. Niebuhr, Exchange Act Rel. No. 36620 (December 21, 1995).
We conclude, like the MRC, that at the time of the transaction, Schreiber knew or should
have known that no registration statement had been filed with the SEC for the distribution
of such securities and that no exemption from registration was available, in violation of
Conduct Rule 2110.
Cause II. The second cause alleges that Schreiber, with others, participated in an
unregistered distribution of 2,700,000 Merlin warrants, in violation of Conduct Rule
2110. On or about October 6, 1989, in furtherance of the fraudulent scheme, Constance
Abruscato, an affiliate of Merlin, sold 2,7000,000 Merlin warrants at $.02 per warrant on
an agency basis through York to Lipow, Schreiber, and Castleton, who purchased the
warrants on an agency basis for VJL Development Corp. ("VJL"), an account in which
Cahill had a beneficial interest. The transaction was part of Castleton's total purchase of
4,000,000 warrants through York on that date, since Castleton also purchased 1,300,000
warrants from two unaffiliated customers of York at $.01 per warrant.
All the warrant trades were executed simultaneously. The York order ticket for one of the
unaffiliated customers contained the phone number for Castleton and the name "Warren."
Schreiber acknowledged that he might have been on the Castleton trading desk at the time
the trades were executed. Lipow testified that Schreiber was aware of the warrant
purchases at the time and that Schreiber either wrote up the Castleton ticket for the
warrant purchases or had a clerk write it up; and that Schreiber participated in
conversations with Lipow and Cahill in which he stated that the planned exercise of the
warrants would not constitute an underwriting of a blind pool, an activity prohibited by
the firm's restriction agreement.
On November 8, 1989, Castleton sold 3,500,000 of the aforementioned warrants at
$.0177 per warrant from the VJL account on an agency basis to First Interregional Equity
Corp. ("FIEC"). The FIEC order ticket bore the name "Warren Schriber [sic]" and
Castleton's phone number in the box designated "special instructions."13 The Lombardi
purchase was paid for by a check for $63,000 drawn on the account of "Stonehill
Publishing," a company owned by Cahill. FIEC's xerox copy of the check had
handwritten notes outside the text of the check which included the name "Warren
Schreiber" and the Castleton phone number. Schreiber testified that he had a "vague
recollection" that he executed this trade with FIEC at Lipow's request.
Schreiber nevertheless denies any knowledge of or involvement in the alleged transaction
and the existence of any evidence of such knowledge or involvement.
We affirm the MRC's findings of violation. Like the transaction discussed in connection
with cause I, this transaction, which involved a public sale by an affiliate of the issuer,
was not the subject of an effective registration statement, and there was no evidence
presented that the transaction was otherwise exempt from registration.
Schreiber was directly involved in the transaction, and as head of Castleton's sales force,
an experienced trader, and as a co-conspirator involved in all significant aspects of the
fraudulent scheme, knew that the transaction needed to be registered, but participated
nonetheless. The testimony of Lipow and Lawrence J. Doherty ("Doherty"), a
representative of FIEC, together with corroborating documentary evidence, links
Schreiber to the transaction. Further, the size of the transactions, together with the fact
that Castleton was not a market maker, make it implausible that Schreiber would not have
been previously involved in a scheme to move the unregistered warrants into the hands of
his co-conspirators, or would not have thereby been alerted to the scheme. In this regard,
we observe that low-priced warrants are a typical means for providing undisclosed
compensation to those involved in a distribution, who stand to profit once a trading
market for the underlying security develops and the price of the underlying security
advances.
The transfer of the 2,700,000 warrants owned by Constance Abruscato constituted an
unregistered distribution, and Schreiber, for reasons relating to his participation in the
overall scheme and his role in the transactions, knowingly participated therein. As stated
in connection with cause I, the record establishes that Schreiber, who was experienced in
penny stock underwriting and trading, was well aware of the registration requirements for
securities transactions. We conclude, like the MRC, that at the time of the transaction,
Schreiber knew or should have known that no registration statement had been filed with
the SEC for the distribution of such securities and that no exemption from registration
was available, in violation of Conduct Rule 2110.
Cause III. The third cause alleged that Schreiber, with others, participated in an
unregistered distribution of 2,688,000 shares of Merlin common stock, in violation of
Conduct Rule 2110. As part of the fraudulent scheme, Abruscato sold, and by request,
persuasion, and threat of lawsuit, induced other shareholders to sell in concert, a total of
2,688,000 unregistered, restricted shares of Merlin in purported compliance with SEC
Rule 144 which was intended for distribution to the public through Castleton. From
December 10 through December 18, 1989, as a part of the fraudulent scheme, Cahill and
Lombardi sought the assistance of FIEC to serve as a conduit for the shares. On
December 21, 1989, FIEC trader Doherty informed Abruscato that FIEC would not be
able to sell this Merlin common stock directly to Castleton on an agency basis because
Castleton was not at that time a market maker for Merlin common stock. Doherty
informed Abruscato that M. Rimson & Co., Inc. ("Rimson") was a market maker for
Merlin common stock, whereupon Abruscato informed Doherty that he knew someone at
Rimson who could make the necessary arrangements to purchase the shares from FIEC
for Rimson and then sell those same securities to Castleton.
On December 21, 1989, Schreiber and his co-conspirators effected the distribution of a
total of 2,688,000 restricted shares of Merlin common stock by arranging for the sale of
such securities from the customer accounts established at FIEC, through Rimson, to five
accounts at Castleton which they controlled or favored.14 After acquiring the 2,688,000
shares from the five accounts, Schreiber, his co-conspirators, and the Castleton sales
force distributed approximately 800,000 unregistered shares of Merlin common stock to
the public between December 21, 1989, and February 8, 1990, at prices of up to $.625 per
share, in violation of Conduct Rule 2110.
Schreiber nevertheless denies any knowledge of or involvement in the purported Rule
144 transactions or the creation of nominee accounts. Schreiber asserts that he did not
participate in the solicitation of purchases of these shares, and received no compensation
in connection with the manipulative scheme.
We reject these contentions. As noted above, and as discussed in further detail in
connection with cause VI, below, Schreiber was involved in the alleged transaction.
Schreiber attended a meeting in early December with Lipow,15 Lester Morse
("Morse")(Merlin's counsel) and Cahill, in which they discussed the possible sale of the
2,688,000 restricted shares under Rule 144. According to Morse, Lipow, Cahill, and
Schreiber told him that "they were either buying or had bought the inside position [of
Merlin] and they asked what the status of the stock would be as (sic) with regard to 144."
It was concluded that the shares could not be sold without registration, and Schreiber
admitted that he did not feel that the transaction could be done under Rule 144. In
addition, Lipow testified that Schreiber was aware of the proposed Rule 144 sales as a
result of discussions with Cahill and Lipow. Despite his knowledge that the transaction
had to be registered, Schreiber participated in the transaction.16
On December 21, 1989, at about 4:02 p.m., FIEC sold 588,000 shares at $.00105 and
2,100,000 shares at $.02625 to Rimson as agent for the restricted shareholders.17
Rimson had already received Castleton's buy order for the shares earlier in the day, and
immediately resold the shares to Castleton.18
With respect to the 2,688,000 restricted Merlin shares purchased in the five Castleton
accounts, as noted in footnote 14, above:
1) 250,000 shares were placed in the account of Krasnow's client, FNFC,
which as discussed in cause I, above, had purchased 486,000 common shares
from John and Constance Abruscato in November 1989. The shares were not
sold and remained in the account during the relevant period.
(2) 338,000 shares were purchased by the Oberlander account, a nominee
account established by Lipow with Schreiber listed as the registered representative
of record. 300,000 of these shares were later transferred free to the account of
Sarah Schreiber, Schreiber's sister-in-law, at Friedman, Billings and Ramsey
in Washington D.C., and then sold back to Castleton on January 11, 1990 at $.50
per share to cover Castleton's short sales to retail customers. Proceeds of
$148,000 (after commissions) from the sale back to Castleton were wired to a
bank account of a company owned by Meir Schreiber, who is Schreiber's
brother and Sarah Schreiber's husband.19
(3) 700,000 shares were sold to the OVSK account, an account controlled by
Cahill with Schreiber listed as the registered representative of record. The
check OVSK tendered in payment for the shares bounced, the trade was canceled
by Castleton's clearing firm, and shares were placed in the clearing firm's
proprietary account.
(4) 700,000 shares were sold to the REO account, an account for a company
owned by Lipow, with Schreiber listed as the registered representative of
record. 127,371 shares were later transferred free from this account into a
Castleton inventory account to cover short sales to retail customers.
(5) 700,000 shares were sold at $.0213 per share by Schreiber to EEC, which
was owned by Allan Esrine ("Esrine"), a client of Schreiber to whom Schreiber
owed $50,000. The customer sold 135,000 shares back to Castleton on or
about January 18, 1990 at $.50 per share (for 75,000 shares) and $.35 per share
(for 60,000 shares), and Castleton used these shares to cover short sales to
retail customers.
Lipow testified that on December 21, 1989, the day of the trades, Schreiber apprised him
that Castleton was buying the 2,688,000 shares, that 250,000 shares were going into the
FNFC account, and that 700,000 shares were going to EEC. According to Lipow,
Schreiber then asked Cahill, who also was present, if he had an account that could be
used to place some shares, to which Cahill responded, "You can use OVSK." Lipow then
volunteered the REO account and Cahill suggested the Oberlander account for the
placement of the remaining shares. Lipow testified that a maximum of 700,000 shares
were allocated to the EEC, REO, and OVSK accounts at Schreiber's suggestion in order
to keep control of the stock while maintaining the ownership percentage of any one
account at less than five percent of outstanding shares.
We affirm the MRC's findings of violation as to Schreiber. As the evidence shows,
Schreiber was fully aware of and was personally involved in assuring the success of the
transaction. The distribution of the 2,688,000 shares was not the subject of an effective
registration statement, and there was no evidence presented that the transaction was
otherwise exempt from registration. Among other things, Schreiber knew or was reckless
in not knowing that the sale of these restricted securities was not in conformity with Rule
144 in that the limitations on the amount of the securities that could be sold by affiliates
and non-affiliates acting in concert had been exceeded since the aggregate amount of the
securities sold was substantially greater than ten percent of the shares outstanding.
Schreiber also knew that the manner of the sale was inconsistent with the requirements of
SEC Rule 144, in that Schreiber and his co-conspirators solicited and arranged for the
solicitation of customers? orders to buy the securities.
Cause V. The fifth cause alleged that Schreiber, with others, employed manipulative and
deceptive practices in connection with the acquisition of restricted Merlin shares, to
obtain control of Merlin and manipulate the price of Merlin shares and to distribute these
shares to obtain financial gain, incorporating by reference the actions alleged in causes I-
IV of the complaint, in violation of Conduct Rules 2110 and 2120, Section 10(b) of the
Exchange Act and Rule 10b-5 thereunder.
In connection with the matters discussed in causes I and II, above, the co-conspirators, led
by Cahill, and with Schreiber's knowledge and participation, in fulfillment of their part of
an agreement with Abruscato, obtained control of 4,000,000 Merlin warrants (2,700,000
from Constance Abruscato, an affiliate of Merlin) and engaged the assistance of Krasnow,
who solicited FNFC to purchase 486,000 shares of Merlin common stock. In November
1989, the co-conspirators, with Cahill in the lead, gained control of Merlin's management
through the replacement of its president and legal counsel with their nominees. The co-
conspirators advanced the scheme by, among other things, procuring opinions of counsel
for the purported SEC Rule 144 sale of 2,688,000 shares of Merlin that were known to be
false (Cahill); engaging in prearranged trading in securities of Merlin common stock and
warrants as part of the scheme to obtain control of the securities of Merlin (Schreiber,
Lipow, Lombardi, and Cahill); establishing nominee accounts and soliciting favored
accounts for the purpose of parking unregistered Merlin common stock to avoid inventory
limitations as discussed in cause III, above (Schreiber, Lipow, and Cahill), and creating
and distributing fraudulent financial reports of Merlin that purported to have been filed
with the SEC but were never filed (Cahill). On December 21, 1989, while in possession
of material nonpublic information concerning a proposed merger between Merlin and
Apollo, and just minutes before the issuance of a press release concerning the proposed
merger, Schreiber and his co-conspirators: completed the purchase of 2,688,000 shares of
restricted stock at $.0213 per share from 19 Merlin shareholders; placed the stock in five
accou |
