Alleged 'Securities Recidivist' Shows Limits of SEC's Reach
January 21, 2001
By AARON ELSTEIN
WSJ.COM
Edward B. Williamson III is a "securities recidivist," according to a
Securities and Exchange Commission lawsuit. But litigation might not be
enough to put him out of business.
The 53-year-old resident of Wichita, Kan.,
was sued twice in the past two months by
the SEC and allegedly violated an order
from last June by selling penny-stocks over
the Internet.
And that's only the latest. In 1997, Mr. Williamson was convicted for
attempting to bribe Federal Bureau of Investigation agents, according to
the SEC. In 1992, he was convicted for stealing money from his elderly
mother. And in 1967, he was convicted of murder and served four years
of a 20-year prison sentence.
So why can't the SEC, whose mandate is to protect small investors, stop
Mr. Williamson?
The SEC hopes this time, its actions will put Mr. Williamson out of the
securities business for good. The commission seeks to stop his sale of
securities, freeze his assets and take back allegedly illegal gains.
"Mr. Williamson has a long history of fraud and we are pursuing him as
diligently as the law allows," says Spencer Barasch, an SEC attorney who
is handling the case against him.
But the SEC acknowledges that the Internet continues to defy many of its
longstanding ways of dealing with securities fraud. And even when the
SEC takes action, it isn't always enough to keep alleged fraudsters out of
business.
The only way to ensure people like Mr. Williamson can't reach potential
investors, SEC and state securities regulators say, is to put them in jail,
where they can't use the Internet. But securities can only file civil charges.
Criminal charges, which could result in incarceration, must be filed by a
prosecutor with the Department of Justice or a local district attorney's
office.
And given the burdens that criminal
prosecutors face in preparing cases against
drug offenders, murderers and other criminals,
they aren't inclined to pursue most stock-fraud
cases, says Deborah Bortner, president of the
North American Securities Administrators
Association.
"Cases like this are terribly labor-intensive, and when they're presented to
prosecutors, they look at you and say, 'Well, I don't think I really want to
do this,' " she says. "It's a shame because stock fraud is hardly a victimless
crime. People can get sweet-talked out of their entire retirement fund."
Mr. Barasch wouldn't comment on whether the SEC is seeking to get a
criminal prosecutor involved in Mr. Williamson's case, but did say that "in
cases like this, we typically seek the assistance of a federal prosecutor."
A federal judge in Wichita has granted the SEC's request to appoint a
receiver to recover money for investors who invested in Mr. Williamson's
offerings. The receiver has seized Mr. Williamson's 1927 Model A Ford
and tried to seize three quarter-horses belonging to his wife.
In documents filed last month in federal court in Wichita, Mr. Williamson
disputed the SEC's charges, saying he "denies the sale of securities to any
entity through any fraudulent means." He has filed motions to quash the
court-appointed receiver and said he will have "no visible means of support
in the face of protracted litigation" if his assets are frozen. Mr. Williamson's
attorney, Kevin Stamper, declined to comment.
Bill Singer, a securities lawyer in New York, applauded the SEC's efforts
in pursuing Mr. Williamson but questioned why it took so long. "It makes a
strong case for a better system of tracking felons in the securities industry
than we have now," he says.
Mr. Williamson appears to have avoided scrutiny because he wasn't
registered with any regulatory body that would have monitored his activity.
Instead, he dealt with investors directly over the Internet, off the radar
screen of securities-industry watchdogs.
"The Internet means you don't have to meet in person to close a deal like
you used to," says Mr. Barasch of the SEC. "That's a big change."
Mr. Williamson wasn't registered with the National Association of
Securities Dealers while he was selling penny-stocks, the SEC says. The
NASD says Mr. Williamson never was a registered member, and Mr.
Williamson concurs in court papers. But the SEC alleges that he was
expelled from the NASD in 1993.
Mr. Williamson's first run-in with the SEC came last June. In connection
with his 1997 conviction of trying to bribe FBI agents, the commission
ordered him to stop committing securities fraud and barred him from
participating in penny-stock offerings.
But he violated the order, the SEC says, by conducting four penny-stock
offerings in companies he controlled. Mr. Williamson promoted the
offerings through his Wichita-based financial-public relations firm, Fifth
Avenue Communications Inc., and its Web site, Stocksfifthavenue.com,
according to the SEC.
Calls to Fifth Avenue Communications weren't answered, and the Web
site no longer functions.
Since 1997, Mr. Williamson allegedly has persuaded more than 1,000
people to invest a total of $1.3 million. The SEC says he siphoned off
nearly $500,000 for his personal use and attempted to manipulate the
prices of the securities after selling them.
In court documents, Mr. Williamson denies controlling the companies and
says Fifth Avenue Communications "never disseminated fraudulent or
misleading information to the public."
Write to Aaron Elstein at: aaron.elstein@wsj.com |
