Letter from sec on EOSC. Thought I'd copy as I thought others would be interested.
:
EOSC: Information
Date:
Wed, 5 Aug 1998 10:37:58 -0400
From:
<BaltonJ@sec.gov>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 15715 / April 21, 1998
SECURITIES AND EXCHANGE COMMISSION V. THOMAS EDWARD
CAVANAGH, U.S. MILESTONE, ELECTRO-OPTICAL SYSTEMS CORP.,
GEORGE CHACHAS, THOMAS R. BROOKSBANK, WILLIAM N. LEVY,
OPTIMUM FUND, AGIRA TRADING, CUSTOMER SAFETY, S.L.,
CAMBIARES, S.L., CONSTRUCCIONES SOLARIEGAS, S.L., THOMAS A.
HANTGES, COSIMO TACOPINO, ET AL., 98 Civil Action No. 1818 (S.D.N.Y.)
On April 20, 1998, Judge Denise Cote of the United States
District Court for the Southern District of New York entered
a preliminary injunction prohibiting future violations of
Sections 5 and 17(a) of the Securities Act of 1933 and Section 10(b)
of the Securities Exchange Act of 1934 by the primary perpetrators of
a market manipulation scheme in the stock of Electro-Optical Systems,
Corp. ("EOSC"). Judge Cote also extended the asset freeze, initially
ordered on March 13, as to all proceeds from the defendants' sales of
EOSC shares as well as to any shares of EOSC that remain in their
custody or control. In a 122-page opinion, Judge Cote noted that the
case "concerns a scheme through which the defendants reaped millions
of dollars in profits at the expense of the American investor by
creating active trading in the United States securities market without
making the disclosures that were required for the benefit of the
investing public by the Securities Act of 1933."
On March 13, 1998, the Commission filed a complaint alleging
that the defendants defrauded primarily small, on-line investors of at
least $5 million over the course of the scheme, the profits of which
allegedly were distributed among the 13 defendants and 19 relief
defendants. On the same day, Judge Cote issued a temporary
restraining order which ordered the defendants to cease their
fraudulent activities and froze the assets of the defendants and the
accounts of the relief defendants that contained EOSC stock or the
proceeds from sales of the stock. On March 13 the Commission also
suspended over-the-counter trading of the securities of EOSC for a
single ten-day period.
In her April 20 ruling, Judge Cote found that defendant Cavanagh
was the mastermind and a central figure in the fraud who controlled
various nominee accounts through which the fraudulent trades were
made. Hence, the Commission made a proper showing that defendants
Cavanagh, Milestone, Customer Safety, Cambiares, Construcciones, and
Chachas violated the antifraud and registration provisions, and that
they may be found liable at trial for disgorgement of proceeds plus
penalties for their violations. The Court entered preliminary
injunctions against each of these defendants, but based the
preliminary injunction against Chachas on his violation of the
registration provisions only. While Chachas was found to have
participated in the fraud, the Court concluded on the evidence
available at this stage that "the consequences of this litigation have
effectively deterred him" from further fraud violations. Judge Cote
also found that Brooksbank, Hantges, Levy, Optimum, and Agira violated
Section 5 of the Securities Act and entered a preliminary injunction
against Levy based on the Commission's showing of a likelihood of
repetition. The Court observed that, in particular, Cavanagh and Levy
"set in motion a plan that had little to do with raising funds" for
the company, "but instead was designed to line their pockets." In
addition, defendant Tacopino consented to a preliminary injunction
based on antifraud and registration violations, and deposited over
$350,000 into the registry of the court pending resolution of the
case. The SEC had earlier withdrawn its request for a preliminary
injunction against EOSC, while requiring the company regularly to
report on it s expenditures.
Subject:
EOSC: More Information
Date:
Wed, 5 Aug 1998 10:38:38 -0400
From:
<BaltonJ@sec.gov>
Dear Investor,
Thank you for your May 19, 1998 inquiry to us concerning
Electro-Optical Systems Corp. and the stock price manipulation in
which you were caught up.
As referenced in SEC Litigation Release No. 15715 (April 21, 1998)
and noticed in your e-mail, the preliminary injunctions issued by
Judge Denise Cote against defendants described therein remain in
effect. The legal process continues, with discovery expected to last
through the summer and a trial to be scheduled in late fall or early
spring. In addition, for assets to be recovered and disgorged to
claimants, the SEC will have to prevail at trial.
Thus far, I have not seen any reference to a class-action lawsuit
being filed on behalf of investors. If and when such an action is
filed, you will have to weigh whether or not you wish to participate in
it. As the legal process takes its course, you should keep abreast of
the news for potential class actions as well as for the outcome of the
present case.
Thank you for alerting us to your concerns. If we can be of
assistance in any other securities-related matters, please contact our
office.
Joel Balton
Office of Investor Education and Assistance
(202) 942-7040
baltonj@sec.gov |
