ITEM 2. IDENTITY AND BACKGROUND.
(d) and (e) During the last five years, The Hartcourt Companies, Inc. ("Hartcourt") has not been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). In Securities and Exchange Commission v. The Hartcourt Companies, Inc., et al., United States District Court for the Central District of California Case No. CV03-3698LGB (PLAx), the Securities and Exchange Commission filed a complaint against Hartcourt for alleged securities violations. The complaint alleges that Hartcourt illegally used an S-8 registration statement in 1999 to improperly raise capital, and that false and misleading press releases were issued by Hartcourt from September 9, 1999 through November 18, 1999. The SEC is seeking disgorgement from Hartcourt of approximately $800,000.00, civil penalties and interest, as well as an injunction against future securities law violations. Court-ordered mediation took place on April 22, 2004. All of the defendants will be requesting that the Judge order another session of mediation and order the SEC to send an individual to mediation with the power to settle the case. A post-mediation status conference is set for June 1, 2004.
John Furutani, legal counsel to Hartcourt and a director of the Company, is also subject to a separate private investigation by the SEC into trading in the securities of Hartcourt. According to a public statement issued by the SEC, the SEC served an administrative subpoena on Mr. Furutani seeking documents and testimony in connection with its inquiry into, among other things, whether Mr. Furutani sold Hartcourt securities while in possession of material nonpublic information consisting of the SEC's intention to file a complaint against Hartcourt in the above-described civil action. Mr. Furutani withheld the documents requested under the subpoena on the grounds that they are protected by the attorney-client and attorney work-product privileges. In March 2004, the SEC filed an application in district court for an order to enforce the investigative subpoena. Securities and Exchange Commission v. John A. Furutani, Civil Action No. CV 04-1775-GAF (MANx) (C.D. Cal.). The district court found that Mr. Furutani failed to demonstrate that the attorney-client privilege and attorney work-product doctrine protected the documents and testimony sought by the SEC and granted the SEC's application, ordering Mr. Furutani to produce documents on April 26, 2004 and to provide sworn testimony on May 3, 2004. Mr. Furutani subsequently produced documents and his deposition took place on May 3 and May 11, 2004. The Reporting Party been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to judgment, decree, or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation of such laws. |
