DJ SEC Seeks To Enforce Subpoena Vs. Lawyer In Trading Probe
03/17/2004
Dow Jones News Services
(Copyright 2004 Dow Jones & Company, Inc.)
By Phil McCarty
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--The Securities and Exchange Commission said it filed an application Tuesday seeking an order to force a corporate attorney to provide information on possible insider trading ahead of an enforcement action.
The agency alleges that John Furutani, an attorney representing The Hartcourt Companies Inc. (HRCT), sold company securities while he knew of a pending SEC action against the company, and has subsequently refused to fully comply with an investigative subpoena.
Nicolas Morgan, a senior trial counsel in the SEC's Los Angeles office, said the original subpoena seeking information from Furutani was issued in December.
Furutani was allegedly informed of the SEC's pending action against Hartcourt on May 8, 2003, when the agency told him of its intentions. He then sold at least 40,000 Hartcourt common stock before the complaint was actually filed on May 27, 2003, the SEC said.
In May of 2003, the SEC said Hartcourt Cos., its chairman and another man allegedly participated in an illegal scheme to raise money for the company.
According to the SEC, Hartcourt, Chairman and Chief Executive Alan Phan and Yongzhi Yang raised more than $800,000 in late 1999 by issuing 1 million shares to Yang's wife through a special registration statement, known as a Form S-8.
Among other things, the form allows companies to issue stock to consultants as compensation for their work, but it cannot be used by the company to raise capital for itself.
Essentially, the SEC alleged that Phan and Yang filed with the agency to issue stock to Yang's wife as compensation for services she provided to Hartcourt, but instead sold the shares into the market.
Furutani, an attorney at the law offices of Furutani & Peters LLP in Pasadena, Calif., refused to comply with the SEC's investigation into his alleged stock sale, arguing attorney-client privilege and the "attorney work-product doctrine," the SEC said.
In its application, filed in the U.S. District court for the Central District of California, the SEC said that the attorney-client privilege and work-product doctrine do not protect the documents and testimony it is seeking from Furutani.
Morgan said there is a fraud exemption to Furutani's arguments. In other words, you "cannot use the attorney-client privilege or work-product document as a shield to conceal fraud," Morgan said.
But Furutani's lawyer, Mark Peters, said there is no fraud and the SEC is just trying to intimidate his client and influence the ongoing investigation into Hartcourt.
The SEC "is calling it an independent inquiry, but the subpoena arose out of the case against Hartcourt," Peters said. He added that Furutani is paid by Hartcourt in company shares and regularly sells them.
"His (Furutani's) selling pattern was consistent throughout the year" (2003), Peters said. "There was no spike in selling last May and the SEC is well aware of Furutani's selling pattern," he added.
Peters said the SEC is seeking information from Furutani going back to 2001, well before the alleged insider trading in May 2003. "Clearly, the SEC is overreaching and its a ruse to intimidate my client and his client" in the agency's case against Hartcourt, Peters concluded.
-By Phil McCarty, Dow Jones Newswires; 202-862-9251; Phil.McCarty@dowjones com
(END) Dow Jones Newswires |
