SEC Sues Four Over Illegal Sale of Systems of Excellence Stock
Washington, Nov. 20 (Bloomberg) -- Federal authorities accused four Massachusetts residents of reaping more than $7.5 million as beneficiaries of ``a massive fraud'' involving Internet stock touting and sale of unregistered securities.
The Securities and Exchange Commission filed suit against the four -- Brian Jackson, Michael Bosse, Lauri Hegarty and Jeremiah Hegarty -- in federal court in Boston.
The case is an outgrowth of fraud charges against the chairman of Systems of Excellence Inc., though the four Massachusetts residents were not accused of a direct role in the alleged fraud.
``They merely benefited from the fraud,'' said SEC associate enforcement director Thomas Newkirk. ``In that way, they were unjustly enriched.''
From the defendants, the SEC is seeking allegedly ill-gotten gains -- $5.3 million from Jackson; $1.7 million from the Hegartys and $429,453 from Bosse. The SEC is also requesting fines.
Lawyers for the defendants could not be reached for comment.
The SEC said it wants to give the money to a court-appointed receiver who will distribute it to victims of the Systems of Excellence fraud. The SEC said it has collected $12 million in ill- gotten gains from various enforcement actions stemming from its investigation of SOE.
Stock Touting
The now-defunct SOE, whose technology was used to distribute video of the 1997 swearing-in of Congress, has been at the center of a sprawling fraud case over the past four years. Brokers and promoters were accused of touting the stock in return for payment from SOE Chairman Charles O. Huttoe.
Federal prosecutors alleged in 1996 that Huttoe netted $12 million in illegal profit from shares inflated by touting. He was sentenced to 46 months in prison after pleading guilty to securities fraud and money laundering.
In 1997, Huttoe agreed to surrender about $8 million to settle regulators' civil charges, the SEC said.
The new complaint alleges that the Massachusetts defendants sold SOE's unregistered stock that they had purchased in private transactions between January and August 1996. The SEC said that money enabled Huttoe and others to maintain the company's operations and further manipulate the market.
The SEC described defendant Jeremiah Hegarty, 42, as a ``recidivist securities law violator'' who was recruited by a friend to participate in the private placement of SOE securities.
Hegarty, a resident of Osterville, then recruited his wife, Lauri, 42, and his two brothers-in-law, Jackson, 34, and Bosse, 36, both of North Easton, the complaint said. The SEC said Jackson ``became the largest single conduit for the unregistered distribution of SOE shares.''
Jeremiah Hegarty did not receive shares but had trading authority in his wife's account and directed the re-sales of her unregistered stock, the SEC said. The Massachusetts defendants would resell their shares in the open market and then return to SOE for more, the SEC said.
It's against the law to sell unregistered shares acquired in a private placement.
The SEC suspended trading in SOE shares in October 1996.
The company -- previously based in McLean, Virginia, and Coral Gable, Florida -- filed for Chapter 11 bankruptcy protection in 1997 and was subsequently liquidated.
Nov/20/2000 17:31 ET
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