Three Settle SEC Charges in Systems of Excellence Case
Washington, Feb. 15 (Bloomberg) -- Two former insiders of Systems of Excellence Inc. and an investor settled federal charges that they reaped $1.3 million in illegal profits from reselling unregistered securities of the company, regulators said.
The Securities and Exchange Commission charged that Maria Iacovelli, Jerry Thornthwaite, and investor Marvin Kogod resold the Systems of Excellence securities into an artificially inflated market that was being manipulated by others.
The SEC also filed similar charges against former Systems of Excellence bookkeeper Richard Morrisey, who hasn't settled. Those that settled neither admitted nor denied the charges, the SEC said.
The SEC also charged Iacovelli, Thornthwaite, and Morrisey with insider trading in the securities, the agency said. Attorneys for Iacovelli and Thornthwaite had no comment. Lawyers for Morrisey and Kogod were unavailable for comment.
The SEC has now filed nine separate enforcement actions in the Systems of Excellence case and recovered more than $15 million for defrauded investors, the agency said.
Last month, the SEC accused former Rhode Island Secretary of State Kathleen Connell and ex-Central Intelligence Agency officer Thomas Clines, among others, in the matter.
Clines also was an overseas arms buyer convicted in 1990 on felony tax evasion charges, including willfully failing to report profits from secret arms shipments to the Nicaraguan contras during the Iran/Contra affair.
Four-Year-Old Case
Today's actions are an outgrowth of a four-year-old case involving the stock of Systems of Excellence, a maker of teleconferencing products whose technology was used to distribute video of the 1997 swearing-in of Congress.
Federal prosecutors charged in 1996 that company Chairman Charles O. Huttoe netted $12 million in illegal profit from shares inflated by touting. He was sentenced to 46 months in prison after pleading guilty to securities fraud and money laundering.
The SEC said the distribution of Systems Excellence shares was part of a ``massive fraud'' perpetrated by the company, Huttoe and others. For instance, Kogod's private purchases of the securities gave Systems of Excellence and Huttoe the cash needed to carry on company operations and further manipulate the market for Systems of Excellence stock, the SEC said.
Moreover, shares illegally issued to Iacovelli, Morrisey and Thornthwaite let Systems of Excellence pay employees and consultants without having to tap precious cash resources, the SEC said.
According to the latest charges, Iacovelli, Systems of Excellence's corporate secretary and board member, resold 242,460 unregistered company shares for $519,057 in profits, the SEC said. She knew all along that the company was late in filing periodic reports and hadn't disclosed its illegal distribution of stock, the SEC said.
Reselling Shares
Morrisey, a bookkeeper who did in-house accounting for the company, learned about the Systems of Excellence fraud in August and September 1996 and resold 95,000 shares before the fraud was publicly disclosed, the SEC said. Also, before he heard about the fraud, he resold 220,000 Systems of Excellence shares in violation of registration requirements, the SEC said. In all, Morrisey realized $272,182 in illegal profits, the SEC said.
Thornthwaite, a physician and researcher who did marketing for Systems of Excellence in 1996, resold 214,850 company shares for a profit of $631,959, in violation of registration requirements, the SEC said. He resold 50,000 of the shares in June 1996 knowing about a false company press release, the SEC said. He avoided $20,000 in losses, the SEC said.
Kogod invested in Systems of Excellence's so-called private placement, paid $25,000 to the company and got 86,207 in unregistered shares in March 1996, the SEC said. He realized a $283,372 windfall when he resold Systems of Excellence shares in June 1996, the commission said.
Iacovelli was ordered to pay $45,000, while Thornthwaite will return $83,500 and surrender thousands of shares of unrelated stock, the SEC said. Kogod was ordered to return $283,372 in ill- gotten gains, the SEC said.
Feb/15/2001 16:10 ET
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