International developer or broke small-timer?
MSNBC.com story lands key figure in post-Katrina projects back in court
Richard S. Kern speaks at a meeting of Mississippi Gov. Haley Barbour's rebuilding commission
MSNBC
Updated: 11:05 a.m. ET Jan 3, 2007
Mike Stuckey
Senior news editor
A key player in the most ambitious post-Katrina development in Mississippi is back in court and his employer is at risk for contempt proceedings in the wake of an MSNBC.com exposé.
Attorneys with the U.S. Securities and Exchange Commission have filed papers in federal District Court in New York accusing Richard S. Kern of Florida-based Paradise Properties of lying under oath in a “brazen” bid to avoid paying the more than $9 million he and his brother owe the government.
Seeking to dodge the debt, the SEC lawyers say, Kern portrayed himself to them as a broke, small-time real estate agent and vitamin hustler with a string of failed business plans. But Kern told officials of Hancock County, Miss., and his business partners that he is an international developer with the experience and vision to plot residential and commercial development on a scale never before seen in their Gulf Coast community.
“It sounds like two completely different people,” SEC attorney Richard Simpson told MSNBC.com.
To determine the truth, the SEC is seeking to grill Kern under oath again and review scores of Paradise Properties business records. While Simpson suspects that Kern’s claims in Mississippi could be in keeping with his “track record of dissembling about his background and experience,” it is “my responsibility to amass all possible information about Kern’s assets and sources of income.”
‘A fishing expedition’
Kern's lawyer calls the SEC action "a fishing expedition without any foundation in fact," a sentiment echoed by an attorney for Paradise Properties. Both lawyers accuse the SEC of trying to harass Kern by getting Paradise to sever its ties with him.
Eager for new tax revenue and economic development, Hancock County, with a pre-Katrina population of about 43,000, has accommodated Paradise Properties with zoning changes to allow the company to proceed with plans for $5 billion worth of residential and commercial projects over the next few years. That would be more than 10 times the value of all taxable property in the county before Hurricane Katrina struck on Aug. 29, 2005.
The difference in Kern’s two tales came to light after MSNBC.com reported on June 28, 2006, that Kern and his brother, Donald R. Kern, also a Paradise Properties employee, were participants in a late-1990s stock market scam that bilked investors out of more than $12 million. Found by U.S. District Judge Sidney H. Stein to have “violated the security laws repeatedly and with regularity,” the Kerns were ordered to pay the SEC more than $9 million in penalties and ill-gotten gains. And Stein noted that Richard Kern had been barred for life from participating in the franchise business after his involvement in an earlier scam that fleeced 400 franchisees out of $6 million.
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U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No.18448 / November 6, 2003
Securities and Exchange Commission 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)
COURT FINDS THAT RICHARD S. KERN, DONALD R. KERN AND CHARLES WILKINS ENGAGED IN FRAUD AND DECEIT IN MARKET MANIPULATION
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 September 11, 2003, the United States 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 October 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 February 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 January 29, 1999.
The Commission acknowledges the assistance of NASD Regulation, Inc., in this matter. For further background information, please see Litigation Release No. 16448 (February 24, 2000) and Litigation Release No. 16064 (February 18, 1999).
sec.gov
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