SEC Sues Electro-Optical Systems, 12 Others, Claims Manipulation
Dow Jones Online News, Friday, March 13, 1998 at 18:26
WASHINGTON -(Dow Jones)- Electro-Optical Systems Corp. and 12 other
individuals and companies were sued by the Securities and Exchange
Commission Friday for their alleged role in manipulating the share price
of the Stow, Mass., company, and reaping $5 million in profit.
The SEC's suit, filed in U.S. District Court in New York City and
made public after the close of trading, alleged that the defendants had
been conducting a fraudulent scheme to create a controlled market for
Electro-Optical's shares (EOSC) to artificially inflate the share's
price, which they sold to unsuspecting investors, including many
purchasing over the Internet.
The court has ordered the defendants to immediately cease their
frauduent activities. It froze their assets pending further litigation,
the SEC said.
The defendants, the SEC alleged, sold unregistered and restricted
shares of Electro-Optical, purchased small quantities of
Electro-Optical's shares at above-market prices to inflate that price
and issued a false statement about the company's only potential product,
a fingerprint device.
As a result, the company's share price rose from about 25 cents to
over $5 per share in one day, a price the defendants managed to maintain
for several months through control of the supply of shares and issuance
of misleading information about the company and its potential product,
the SEC alleged.
To date the defendants have made at least $5 million in profits, the
SEC said.
As of Friday, the SEC has ordered a suspension of trading in the
company's shares through March 26. The suspension was brought about by
questions concerning the accuracy of statements and material omissions
regarding, among other things, viability of the company's product,
customer interest in purchasing the product and the trading and true
value of the company's shares.
The stock closed trading Friday up 50 cents to $3.593, or 16%, on
102,000 shares traded.
"The SEC chose to act unilaterally with the application to the court
and the court has not had the opportunity to hear both sides of the
story," said attorney Harold Ruvoldt of New York's Fishbein, Bidillo,
Wagner & Harding, representing Cavanagh and U.S. Milestones. Ruvoldt
said, "My clients have not participated in any scheme to artificially
inflate the price of this or any other stock."
Attorneys for the other defendants could not be immediately reached
for comment.
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