Richard S. Kern, Donald R. Kern and Charles Wilkins Are Permanently Enjoined
and Ordered to Pay $7.7 Million in Disgorgement and Interest and $1.1 Million
in Civil Penalties
On Sept. 11, 2003, the U.S. District Court for the Southern District of
New York found that Richard S. Kern, of Weston, Florida, Donald R. Kern,
of Fort Lauderdale, Florida, and Charles Wilkins, of Scottsdale,
Arizona, had engaged in fraud and deceit by participating in a "market
manipulation that resulted in millions of dollars in losses to unwitting
investors, and could not have occurred but for defendants' active
involvement and knowledge." In a Final Judgment entered on Oct. 2,
2003, the Court enjoined Richard Kern, Donald Kern, and Charles Wilkins,
and three entities, EFI Corp., Barclay Bankcard, Inc., and Canyon Vista
Corp., from violating Section 5(a) and (c) of the Securities Act of
1933. Defendants Richard Kern, Donald Kern, and Charles Wilkins
previously had consented, without admitting or denying the Commission's
allegations, to an injunction prohibiting them from violating Section
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
The Court ordered Richard Kern, Donald Kern, and Charles Wilkins to pay
disgorgement of almost $6 million, plus prejudgment interest of about
$1.7 million, jointly and severally with EFI Corp., Barclay Bankcard,
Inc., and Canyon Vista Corp. The Court ordered relief defendants Hannah
R Trust and Hannah G Irrevocable Trust to pay disgorgement of almost $1
million, plus prejudgment interest of approximately $280,000. The Court
also ordered Richard and Donald Kern to pay a civil penalty of $400,000
each, and ordered Charles Wilkins to pay a $300,000 civil penalty. When
determining whether to impose the penalties, the Court considered, among
other things, "the individuals' lack of cooperation with the SEC with
respect to the diminution of assets - the proceeds of illegal activities
- that were frozen pursuant to an Order of this Court on July 6, 2000."
The Commission's complaint, filed on Feb. 24, 2000, alleged that the
Kerns and Wilkins aided and abetted co-defendant Peter C. Lybrand in a
stock manipulation and that the Kerns and Wilkins made unregistered
sales of the securities of three shell corporations: Polus, Inc.,
Citron, Inc., and Electronic Transfer Associates, Inc. (ETA). Lybrand,
formerly known as Peter C. Tosto, was enjoined by the Court in this case
in March 2002, and is serving an 87-month prison sentence for crimes he
committed in connection with the manipulation, among other things. The
complaint alleged that beginning in March 1998, Lybrand arranged to
acquire Polus, Citron, and ETA from the Kerns and Wilkins, who
controlled virtually all of the issued and outstanding shares of the
shell corporations. Instead of collecting their sale price directly
from Lybrand, the complaint alleged that the Kerns and Wilkins agreed to
accumulate their sale price by selling a small percentage of their
shares into the public market. Since there was not an active trading
market for the securities, Lybrand created an artificial market by
orchestrating a series of matched trades in which the Kerns and Wilkins
sold their shares to other parties at prices fixed by Lybrand. The
complaint further alleged that Lybrand also created interest in the
stocks by issuing misleading press releases. Lybrand's manipulation of
the securities market caused the stock prices of each corporation to
increase dramatically. Finally, the complaint alleged that after the
Kerns and Wilkins had accumulated their sale price, they transferred to
Lybrand the balance of the shares that they owed him and then continued
to sell their remaining shares into the market at artificially inflated
prices, realizing total illegal profits of about $6 million before the
Commission suspended trading in the securities on Jan. 29, 1999.
The Commission acknowledges the assistance of NASD Regulation, Inc., in
this matter. For further background information, please see Litigation
Release No. 16448 (Feb. 24, 2000) and Litigation Release No. 16064 (Feb.
18, 1999). [SEC v. Peter C. Lybrand f/k/a Peter C. Tosto, Richard S.
Kern, Donald R. Kern, Charles Wilkins, Admiral Investments Ltd.,
Compulink International Corp., Drawbridge Investments Ltd., Glittergrove
Investments Ltd., Grafton Investments Ltd., Greenford Investments Ltd.,
McDonalds Ltd., Oasis Enterprises Ltd., Investor Relations, Inc.,
Tellerstock, Inc., Conversant Enterprises, Inc., EFI Corp. a/k/a
Electronic Funds, Inc., Barclay Bankcard, Inc., Canyon Vista Corp., and
Salteaux Ltd. a/k/a First American Security Corp. a/k/a First American
Securities Corp., Defendants, and Hannah G Irrevocable Trust and Hannah
R Trust, Relief Defendants, U.S. District Court for the Southern
District of New York, 00 Civ. 1387 (SHS)] (LR-18448) |
