Litigation Release No. 15827 / July 30, 1998
SECURITIES AND EXCHANGE COMMISSION v. RAFI M. KHAN AND TIMOTHY J.
TYRRELL, Civil Action No. CV-98-6143 MMM (SHx) (C.D. Cal.)
The Securities and Exchange Commission filed a complaint today in
federal district court in Los Angeles against Rafi M. Khan
charging him with fraud for engaging in stock manipulation. Khan,
age 47, is a Los Angeles-area stockbroker who the Commission
alleges manipulated the stocks of two companies, Future
Communications, Inc. ("FCMI"), a now defunct cable television
programming company based in Dallas, Texas, and The L. L.
Knickerbocker Co., Inc. ("KNIC"), a celebrity-endorsed marketing
company based in Lake Forest, California. From June 30 to August
30, 1993, FCMI's stock price rose from $6.50 to $27.25. Shortly
thereafter, FCMI's price collapsed and the company declared
bankruptcy. From July 3 to August 11, 1995, KNIC's stock price
rose from $6 to $52 per share. Shortly thereafter, the price
dropped 46%.
The Complaint alleges that Khan orchestrated these price runs
using a variety of manipulative practices, including acquiring
substantial control of the market for each stock; restricting the
available supply of each stock; making purchases to stabilize or
raise the price of each stock; executing unauthorized trades;
parking stock in fictitious and nominee accounts and discouraging
sales in order to maintain control of the market; creating demand
by making misleading statements and touting wildly exaggerated
earnings projections; promoting a "short squeeze" scheme, i.e.,
using market control to withhold stock from short sellers and
concurrently raise stock prices to force short sellers to cover
their positions at increasing prices; and engaging in trading
collusion. The Complaint alleges that Khan and a relative had a
significant financial stake in both manipulations. Khan's
improper trading profit from the two manipulations was $552,500.
The Complaint alleges he would have realized significant
additional gains had he and his relative sold their available
stock at the artificially inflated prices.
The Complaint also alleges that Los Angeles-area stockbroker
Timothy J. Tyrrell, age 37, committed fraud by participating in
the FCMI manipulation. Tyrrell was a market maker for FCMI stock
at Reynolds Kendrick Stratton, Inc., the now defunct brokerage
firm where he and Khan worked, and acted as Khan's trader during
the FCMI stock manipulation. The Complaint alleges that Tyrrell
engaged in a variety of manipulative practices to create
artificially high prices for FCMI stock, including refusing to
execute sell orders (as a means to maintain control of the market
for FCMI stock); purchasing FCMI stock and raising FCMI's bid
price merely for the purpose of creating artificially high stock
prices; promoting and furthering a short squeeze scheme; and
orchestrating a collusive trading arrangement with another market
maker, Paul I. Comi, who worked at the now defunct AmeriNational
Securities brokerage firm. Comi previously consented, without
admitting or denying the Commission's findings, to the entry of a
cease-and-desist order, a $5,000 civil penalty, and a six-month
suspension from associating with a broker-dealer. In the Matter
of Paul I. Comi, Exchange Act Release No. 39968 (May 6, 1998).
The Complaint alleges that Tyrrell had a significant financial
stake in the FCMI manipulation. Tyrrell's improper trading
profit was $224,850. The Complaint alleges he would have
realized significant additional gains had he sold his available
stock at the artificially inflated prices.
Khan allegedly manipulated KNIC stock from his one-person
Southern California office of Shamrock Partners, Ltd., a Media,
Pennsylvania based brokerage firm.
The Complaint alleges that as a result of their conduct, Khan and
Tyrrell violated the antifraud provisions of Section 17(a) of the
Securities Act of 1933 and Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 thereunder. The Complaint
seeks permanent injunctions, disgorgement with prejudgment
interest, and civil penalties. |
