Pork Two...
Apparently, Mr. Huttoe did not formally resign as director of
Registrant on October 10, 1996. On October 24, 1996, Mr. Huttoe approved and
accepted the appointment of new directors of Registrant, including David
Bruggeman, Thomas G. Clines, Kathleen S. Connell, Michael P. Hegarty, William
H. Sullivan and Kenneth W. Walther. On October 30, 1996, Mr. Huttoe confirmed
in writing to Registrant that he resigned as a director of Registrant.
By letter dated October 31, 1996, Mr. Bruggeman, Registrant's Vice
President of Product Management, declined appointment to Registrant's Board of
Directors. By letter dated November 4, 1996, Mr. Khan confirmed that he
declined appointment to Registrant's Board of Directors.
On November 1, 1996, Registrant's Board of Directors, consisting of
five (5) directors - Thomas G. Clines, Kathleen S. Connell, Michael P. Hegarty,
William A. Sullivan and Kenneth Walther, among other things, elected Ms.
Connell as Chairperson of the Board of Directors, accepted the resignation of
Mr. Walther as President and Chief Executive Officer of Registrant, elected Mr.
Thomas G. Clines as President and Chief Executive Officer of Registrant,
determined to re-engage WPC as Registrant's Certifying Accountant (see Item 4
hereof) and confirmed Mr. Huttoe's resignation as an officer and director of
Registrant.
f. SEC Complaint
On November 7, 1996, the SEC filed a Complaint and, among other
things, a Motion for Temporary Restraining Order naming, among others, Mr.
Huttoe, his wife, mother, other entities and Registrant as defendants. A Copy
of the SEC's Complaint (without exhibits) is included herewith. The SEC's
Complaint, among other things, seeks to enjoin the various defendants from a
variety of activities and further seeks monetary disgorgement and monetary
penalties from Mr. Huttoe and others but not Registrant. The SEC's action was
filed in the United States District Court for the District of Columbia (Civil
Action No. CV 96 02543 GK).
On November 7, 1996, after a hearing on the SEC's motion for temporary
restraining order, the Court granted the SEC's motion. A copy of the Court's
Order is included herewith. As can be seen by the SEC's complaint and the
Court's Order, the SEC does not seek monetary penalties or sanctions from
Registrant.
ITEM 6. Resignations of Registrant's Directors.
Registrant believes that on October 10, 1996, Mr. Huttoe announced
that he would resign as a director of Registrant (see Item 5) and that Ms.
Iacovelli did resign as a director of Registrant. Mr. Huttoe provided
Registrant with a written resignation dated October 30, 1996.
ITEM 7. Financial Statements and Exhibits.
(c) Exhibits
Exhibit No. Document Description
----------- --------------------
99.1 Letter from Weinberg, Pershes & Company, P.A., dated
September 20, 1996.
99.2 Complaint filed in Civil Action no. CV 96 02543 GK,
pending in the United States District Court for the
District of Columbia and styled SECURITIES AND
EXCHANGE COMMISSION V. CHARLES O. HUTTOE, HUTTOE &
ASSOCIATES, INC., WORD CORPORATION, NATIONAL TRADING
SERVICES, INC., KAREN PURVIS, TAMMY JO PERKINS,
JOSEPHINE BROOKS, SGA GOLDSTAR RESEARCH INC., THEODORE
R. MELCHER, JR., SHANNON B. TERRY, SYSTEMS OF
EXCELLENCE, INC., APLHA SECURITIES, LTD. AND DUNBAR
HOLDINGS, LTD.
99.3 Order Granting Plaintiff's Request for Temporary
Restraining Order, Asset Freeze, and other Relief,
entered in Civil Action No. 96-02543 GK, pending in
the United States District Court for the District of
Columbia.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
SYSTEMS OF EXCELLENCE, INC.
By: /s/ TOM CLINES
-----------------------------------
Tom Clines, President
Date: November 15, 1996.
EXHIBIT INDEX
Exhibit No. Document Description
----------- --------------------
99.1 Letter from Weinberg, Pershes & Company, P.A., dated
September 20, 1996.
99.2 Complaint filed in Civil Action no. CV 96 02543 GK, pending
in the United States District Court for the District of
Columbia and styled SECURITIES AND EXCHANGE COMMISSION V.
CHARLES O. HUTTOE, HUTTOE & ASSOCIATES, INC., WORD
CORPORATION, NATIONAL TRADING SERVICES, INC., KAREN PURVIS,
TAMMY JO PERKINS, JOSEPHINE BROOKS, SGA GOLDSTAR RESEARCH
INC., THEODORE R. MELCHER, JR., SHANNON B. TERRY, SYSTEMS
OF EXCELLENCE, INC., APLHA SECURITIES, LTD. AND DUNBAR
HOLDINGS, LTD.
99.3 Order Granting Plaintiff's Request for Temporary
Restraining Order, Asset Freeze, and other Relief, entered
in Civil Action No. 96-02543 GK, pending in the United
States District Court for the District of Columbia.
EXHIBIT 99.1
WEINBERG, PERSHES & COMPANY, P.A.
CERTIFIED PUBLIC ACCOUNTANTS
September 20, 1996
Systems of Excellence, Inc.
2600 Douglas Road
Suite 607
Coral Gables, Florida 33134
Gentlemen:
As you know, on or about July 2, 1996, Weinberg, Pershes & Company, P.A.
("WPC") was retained by Systems of Excellence, Inc. (the "Company") to audit
the Company's balance sheet as of February 29, 1996 and the Company's related
statements of operations, retained earnings, and cash flows for the year then
ended. WPC was also retained to provide consulting services to the Company
with respect to all accounting and tax matters related to proposed
acquisitions, tax matters and other general matters.
In the course of our audit of the Company we have become aware of information
indicating that certain acts of the Company may not have been in conformity
with state and federal law. The purpose of this letter is to advise you of our
statutory obligations under Section 10A of the Securities Exchange Act of 1934
(the "1934 Act"), in connection with our audit of the Company's balance sheet
and to advise you that, based on our preliminary findings, we have concluded
that the Company may have committed illegal acts, as defined in Section 10A of
the 1934 Act, which may have a material effect on the Company's financial
statements and which require that timely and appropriate remedial action be
taken by the Company. A copy of Section 10A of the 1934 Act is enclosed for
your review.
Based on information developed to date by WPC in the course of our audit, we
have determined the following:
1. The Company has not filed the following reports required to be filed
under the federal securities laws:
a. Form 10-Q for the quarter ended May 31, 1996;
b. Form 10-Q for the quarter ended August 31, 1996; and
c. Form 10K for the fiscal year ended February 29, 1996.
2. The Company may have (i) increased the number of authorized shares of
its common stock, (ii) issued shares of its common stock to members of
the public, and (iii) made substantial acquisitions without a vote of
the Company's shareholders and without following proper corporate
formalities, as required by Florida law.
Systems of Excellence, Inc.
September 20, 1996
Page 2
3. The Company may have failed to comply with requirements of the
Florida's Business Corporation Act by failing to hold shareholders'
meetings and elections and that certain acts of the Company which
required votes of the Company's shareholders were approved only by the
Company's Board of Directors.
4. The Company may have failed to notify its transfer agent of all of its
authorized and issued shares of common stock. Although the Company's
records indicate that in August, 1996 approximately 80,000,000 shares
of the Company's common stock were authorized and approximately
58,000,000 shares of its common stock were issued and outstanding, the
Company's transfer agent, American Securities Transfer & Trust, Inc.,
was only aware of 30,000,000 authorized common shares of the Company
and 23,702,270 issued and outstanding shares.
5. The Company may have issued shares of the Company's common stock to
members of the public pursuant to S-8 registration statements under
the Securities Act of 1933 which may not have been filed with the SEC
as required by federal regulations and statutes. In certain of those
instances, registration of shares on an S-8 Registration Statement may
not have been permissible because the Company may not have been
current in its filings with the SEC at the time such statements were
allegedly filed.
6. Through June 1996, the Company apparently issued a significant number
of shares of its common stock to various individuals and companies for
services provided by such persons and entities. Serious questions
exist concerning the compensation paid, and the consideration
received, by the Company for these services.
7. The Company also issued shares of its common stock to members of the
public pursuant to a private placement memorandum. The investors who
received such shares also received promissory notes signed by the
Company. Serious questions exist concerning this private placement.
8. The Company may also have issued shares of its common stock to certain
of its officers and directors without shareholder approval. Serious
questions exist concerning the issuance of such shares.
Systems of Excellence, Inc.
September 20, 1996
Page 3
PLEASE ADVISE US, AS SOON AS PRACTICABLE, WHAT REMEDIAL ACTIONS THE COMPANY
WILL TAKE WITH RESPECT TO EACH OF THE ABOVE NUMBERED PARAGRAPHS.
You should be aware that, pursuant to Section 10A of the 1934 Act, if we
conclude that (i) any or all of the above possible illegal acts has a material
effect on the financial statements of the Company, (ii) the senior management
has not taken, and the board of directors has not caused senior management to
take, timely and appropriate remedial actions with respect to the detected
possibly illegal acts, and (iii) the failure to take remedial action is
reasonably expected to warrant a departure from a standard report of ours, when
made, or warrants resignation from this engagement, under Section 10A of the
1934 Act, we must, as soon as practicable, directly report our conclusions to
the Company's board of directors. Pursuant to Section 10A of the 1934 Act, the
Company must then inform the Securities & Exchange Commission ("SEC") within
one business day after receipt of our report and provide us with a copy of the
Company's notice to the SEC. If we do not receive a copy of such notice before
the expiration of the one day period, we are required to furnish the SEC with a
copy of our report no later than one business day following the business day we
fail to receive a copy of the Company's notice to the SEC.
Your prompt reply to this letter is requested.
Sincerely,
WEINBERG, PERSHES & COMPANY, P.A.
EXHIBIT 99.2
UNITED STATES DISTRICT COURT
DISTRICT OF COLUMBIA
___________________________________________________
:
SECURITIES AND EXCHANGE COMMISSION, :
450 FIFTH STREET, N.W. :
WASHINGTON, D.C. 20549, :
:
PLAINTIFF, : CIVIL ACTION NO. 96-
:
:
V. :
:
CHARLES O. HUTTOE, HUTTOE & :
ASSOCIATES, INC., WORD CORPORATION, :
NATIONAL TRADING SERVICES, INC., :
KAREN PURVIS, TAMMY JO PERKINS, :
JOSEPHINE BROOKS, SGA GOLDSTAR :
RESEARCH INC., THEODORE R. :
MELCHER, JR., SHANNON B. TERRY, :
SYSTEMS OF EXCELLENCE, INC., :
ALPHA SECURITIES LTD., AND :
DUNBAR HOLDINGS LTD., :
:
DEFENDANTS. :
:
___________________________________________________:
COMPLAINT
Plaintiff Securities and Exchange Commission alleges:
SUMMARY
1. This case involves an on-going fraudulent scheme in which
defendant Charles Huttoe, Chairman of the Board and Chief Executive Officer of
Systems of Excellence, Inc. ("SOE" or the company), caused SOE to engage in a
massive unregistered distribution of the company's stock. The stock price was
manipulated to artificial heights with materially false and misleading press
releases issued by SOE, under Huttoe's direction, and through fraudulent stock
promotion by SGA Goldstar Research,
Inc. SOE issued the unregistered stock to recipients controlled by Huttoe, and
to accounts controlled by Theodore R. Melcher, Jr., and Shannon Terry, SGA
Goldstar's principals.
2. Huttoe and Terry and, on information and belief, Melcher, then
quickly sold their SOE stock to an unsuspecting public, not disclosing that the
prices were grossly inflated due to their own unlawful activities. Huttoe
alone amassed at least $9.7 million in aggregate unlawful profits thereby.
3. Huttoe later engaged in a massive cover-up, once his scheme
began to unravel, to create the false impression that the shares had been
properly registered on Form S-8, a Commission form which allows the
registration of company stock issued to company employees and consultants. As
part of the cover-up scheme, Huttoe fabricated bogus Forms S-8 and forged
consultant agreements, and later had them filed with the Commission.
4. By knowingly or recklessly engaging in this conduct,
defendants directly or indirectly violated, are violating, and unless
restrained will violate the antifraud, registration, and filing provisions of
the federal securities laws, specifically, Sections 5(a), 5(c), 17(a), and
17(b) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. Sections
77e(a), 77e(c), 77q(a), and 77q(b)], Sections 10(b), 13(a), 13(b)(2)(A),
13(b)(2)(B), 13(b)(5), and 16(a) of the Securities Exchange Act of 1934
("Exchange Act") [15 U.S.C. Sections 78j(b), 78m(a), 78m(b)(2)(A),
78m(b)(2)(B), 78m(b)(5), and 78p(a)], and Rules 10b-5, 12b-20, 13a-1, 13a-11,
13a-13, 13b2-1, 13b2-2, 16a-2, and 16a-3, thereunder [17 C.F.R. Sections
240.10b-5, 240.12b-20, 240.13a-1, 240.13a-11, 240.13a-13, 240.13b2-1,
240.13b2-2, 240.16a-2, and 240.16a-3].
- 2 -
JURISDICTION
5. This Court has jurisdiction of this action pursuant to Section
22(a) of the Securities Act [15 U.S.C. Section 77v(a)], and Section 27 of the
Exchange Act [15 U.S.C. Section 78aa], and 28 U.S.C. Section 1331.
6. The Commission brings this action pursuant to authority
conferred upon it by Section 20(b) of the Securities Act [15 U.S.C. Section
77t(b)], and Section 21(d)(1) of the Exchange Act [15 U.S.C. Section
78u(d)(1)].
7. Defendants, directly or indirectly, have made use of the means
and instrumentalities of interstate commerce, or of the mails, or of the
facilities of a national securities exchange in connection with the acts,
practices, and courses of business alleged herein.
DEFENDANTS
8. CHARLES O. HUTTOE, age 49, resides in Miami, Florida. Since
1994, he has served as Chairman of the Board and Chief Executive Officer of
Systems of Excellence, Inc. Huttoe directed the hyping and distribution of
unregistered SOE stock, including shares purportedly registered on Form S-8,
using nominee accounts he controlled that were maintained in the names of the
following defendants:
a. NATIONAL TRADING SERVICES, INC. is or was a Florida
corporation, of which Huttoe is the President, Secretary, registered agent, and
controlling person;
b. WORD CORPORATION is or was a Mississippi corporation,
of which Huttoe is the controlling person;
- 3 -
c. TAMMY JO PERKINS, age 27, is Huttoe's niece;
d. KAREN PURVIS, age 41, also known as Karen Purvis
Huttoe, is Huttoe's wife; and
e. JOSEPHINE BROOKS, age 72, is Huttoe's mother.
9. HUTTOE & ASSOCIATES was a Florida broker-dealer operated and
controlled by defendant Huttoe, and now operates as an alter-ego of Huttoe.
10. SGA GOLDSTAR RESEARCH INC., is a corporation wholly owned by
defendant Theodore R. Melcher, Jr. SGA publishes "SGA Goldstar Whisper
Stocks," an electronic tout sheet that aggressively promoted public investment
in SOE stock without disclosing that it was compensated by SOE for doing so.
11. THEODORE R. MELCHER, JR., age 51, owns SGA, and is one of its
two employees. Melcher, personally and through his nominee Alpha Securities
Ltd., received unregistered SOE stock as undisclosed compensation for promoting
SOE's stock in the Whisper Stock report.
12. ALPHA SECURITIES LTD. is a corporation owned and controlled by
Melcher.
13. SHANNON B. TERRY is SGA's only other employee. Terry,
personally and through his nominee Dunbar Holdings Ltd., received unregistered
SOE stock as undisclosed compensation for promoting SOE's stock in the Whisper
stock report.
14. DUNBAR HOLDINGS LTD. is a corporation owned and controlled by
Terry.
15. SYSTEMS OF EXCELLENCE, INC. is a Florida corporation,
incorporated in 1989, with offices in McLean, Virginia and Coral Gables,
Florida. SOE is engaged in the manufacture and distribution of video
tele-conferencing equipment. SOE's stock is
- 4 -
registered with the Commission pursuant to Section 12(g) of the Exchange Act.
Until the Commission suspended trading in SOE's stock on October 7, 1996 (which
suspension has since expired), SOE's stock was quoted on the NASDAQ Bulletin
Board.
OTHER ENTITIES
16. WEINBERG, PERSHES & CO., P.A. ("WPC"), accountants and
auditors, a Florida accounting firm, were SOE's independent auditors.
17. MERLE S. FINKEL, C.P.A., represents himself as being
affiliated with M.S. Finkel & Co., accountants and auditors. Within hours of
being hired as SOE's independent auditor, Finkel, on or about September 21,
1996, provided an unqualified audit opinion on SOE's financial statements for
fiscal years ending February 28, 1995 and February 29, 1996.
18. MARIA IACOVELLI, age 31, is the Corporate Secretary of SOE and
is its other director.
THE FRAUDULENT SCHEME
HUTTOE DIRECTS A MASSIVE
UNREGISTERED DISTRIBUTION OF SOE STOCK
19. SOE entered the video tele-conferencing business on February
12, 1996, when it acquired ICMX Federal Systems, Inc., whose sole business was
manufacturing and distributing video tele-conferencing equipment.
20. Beginning by at least March 9, 1995, and continuing at least
through July 26, 1996, SOE, under the direction of Huttoe, began a massive
distribution of tens of millions of shares of unrestricted, freely-trading
company stock to Huttoe's nominees and confederates, even though the
distribution had not been registered with the Commission.
- 5 -
21. Huttoe knowingly or recklessly deceived the Transfer Agent,
who issued the shares without restrictive legends, into believing that the
shares had been properly registered with the Commission, by falsifying the
Forms S-8 presented to the Transfer Agent to indicate prior filing with the
Commission.
SOE AND HUTTOE FILE THE FIRST SET OF MATERIALLY
FALSE AND MISLEADING FORMS S-8
22. On or about December 6, 1995, SOE, under Huttoe's direction,
filed with the Commission eleven materially false and misleading registration
statements on Forms S-8.
23. The millions of shares purportedly registered on the Forms S-8
had already been distributed prior to the filing.
24. Contrary to representations in the Forms S-8, the SOE stock
was distributed to persons who had performed no services for the company that
would qualify the stock for S-8 registration.
25. SOE and Huttoe knew or recklessly disregarded the fact that
these filings were materially false and misleading.
SOE ISSUES MORE UNREGISTERED SHARES
26. SOE, under Huttoe's direction, continued to issue additional
unrestricted, free-trading SOE shares without registering the shares with the
Commission. Commencing on or about December 20, 1995, and continuing at least
through July 26, 1996, SOE issued approximately 35.5 million additional such
unregistered shares.
27. In or around February 1996, as part of this additional
distribution, SOE issued unrestricted, free- trading shares of SOE stock, and a
"note payable," to investors
- 6 -
in a $2.5 million purported "private placement." These shares were distributed
to investors in proportion to the amount of money invested.
28. At the time these shares were issued and distributed, they
were not registered with the Commission.
HUTTOE MANIPULATES THE MARKET FOR SOE SECURITIES
HUTTOE ISSUES MATERIALLY
FALSE AND MISLEADING PRESS RELEASES
29. In connection with the unregistered distribution of its stock,
SOE, under the direction of Huttoe, issued a series of materially false and
misleading press releases touting its success in the video tele-conferencing
business and announcing other corporate developments. These releases, together
with other false information contributed by SGA Goldstar, caused SOE's stock
price to skyrocket from $0.28 on December 26, 1995, to over $4.50 on June 10,
1996, before retreating to $3.00 on July 12, 1996.
a. In a December 26, 1995 press release, SOE announced
that ICMX, which SOE was in the process of acquiring, had already booked $10
million in sales for Fiscal 1996. In fact, ICMX (now SOE) never had revenues
or orders of that magnitude, or even approaching it.
b. On May 28, 1996, SOE falsely announced that World
Communications Group had ordered approximately 1,000 video tele-conferencing
units, and estimated the value of the order to be $3.4 million. There was no
such order.
c. On June 12, 1996, SOE falsely announced that it had
acquired Lazer Tek Designs and "projected revenues over the next 12 months of
$10 million," failing to
- 7 -
disclose that Lazer Tek was owned by SOE's new president, Kenneth Walther, and
his wife. In fact, there was no acquisition, and there was no basis for the
revenue projection.
d. On June 20, 1996, SOE falsely announced that it had
sold 12 video tele-conferencing units to VueCom, Inc. (also known as ICSN). In
fact, no more than four units were ordered as of October 16, 1996.
e. On July 12, 1996, SOE falsely announced that it had
received through ICE Communications, Inc., multiple orders of several hundred
thousand dollars each in video tele-conferencing equipment. In fact, SOE never
received ICE orders even approaching this magnitude.
30. Huttoe and SOE knew or recklessly disregarded the fact that
each of these releases was materially false and misleading.
SGA GOLDSTAR RESEARCH, INC. TOUTS
SOE FOR UNDISCLOSED COMPENSATION
31. In connection with the unregistered distribution of SOE
shares, SGA initiated aggressively promotional coverage of SOE in its
newsletter, the Whisper Stock Report, on or about January 23, 1996. As
compensation for this coverage, SOE issued shares to Melcher and his nominee
Alpha Securities, and to Terry and his nominee Dunbar Holdings, Ltd.
32. SGA's reports were highly promotional, strongly urging
accumulation of the stock, discouraging sales, and even discouraging investors
from independently verifying SGA's information.
33. SGA's highly promotional reports were materially false and
misleading, and failed to disclose material facts.
- 8 -
a. SGA Goldstar did not disclose the material facts that
its principals, Melcher and Terry, were compensated by SOE for promoting SOE
stock, the amount of such compensation, or that the form of the compensation
was SOE stock.
b. SGA did not disclose the material fact that Terry,
and, on information and belief, Melcher, the authors of the Whisper Stock
Report, while issuing a strong buy recommendation to their readers, were
selling their SOE stock into the market;
c. SGA published materially false and misleading reports
about the SEC's investigation into the company, and the company's response
thereto.
34. These promotional materials, together with the materially
false and misleading company press releases, caused SOE's stock price to
skyrocket.
35. SGA, Melcher, Terry, and Huttoe knew or recklessly disregarded
the fact that these reports were materially false and misleading.
HUTTOE, TERRY, AND MELCHER SELL THEIR
UNREGISTERED SOE STOCK INTO THE INFLATED MARKET
36. During the period from January 16, 1996 through August 28,
1996, while knowingly or recklessly flooding the market with materially false
and misleading information, Huttoe and Terry, and on information and belief,
Melcher, sold millions of shares of SOE stock to the public.
37. Huttoe directed the unregistered SOE shares, including shares
purported registered on Form S-8, into nominee accounts he controlled. Huttoe
then caused those accounts, including accounts under the names of National
Trading Services, Inc., Word Corporation, Tammy Jo Perkins, Karen Purvis, and
Josephine Brooks, to sell the
- 9 -
unregistered shares, amassing for himself unlawful profits of at least $9.7
million. Within eight (8) days following the May 28, 1996 announcement, Huttoe
alone realized profits of over $5 million.
38. During this same time period of heavy selling, Melcher and
Terry were publishing strong buy recommendations through their newsletter SGA
Goldstar.
39. In selling his SOE stock, Huttoe, knowingly or recklessly,
failed to disclose material facts:
a. Melcher and Terry's promotional materials hyping the
stock were materially false and misleading,
b. The company's press releases were materially false
and misleading;
c. The company's periodic public disclosure reports were
materially false and misleading;
d. Huttoe was selling his SOE stock;
e. The SOE shares were not registered for sale.
40. In selling their SOE stock, Melcher and Terry, knowingly or
recklessly, failed to disclose material facts:
more.... |
