With copy to Counsel, addressed to:
George G. Chachas, Esq.
Wenthur & Chachas
4180 La Jolla Village Drive
Suite 500
La Jolla, California 92037
204.192.28.3
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. |
