Ordinarily I wouldn.t copy but think this impotant
canoe.com
March 13, 1998
SEC sues Electro-Optical to end illegal stock sale
WASHINGTON (Reuters) - The Securities and Exchange Commission said Friday it filed suit in New York federal court to
stop the "unregistered and fraudulent sale and manipulation" of the stock of Electro-Optical Systems Corp.
The lawsuit, filed in the U.S. District Court for the Southern District of New York, named as defendants Electro-Optical and
several individuals, including two former officers and controlling shareholders of a predecessor company.
U.S. District Judge Denise Cote ordered the defendants to immediately cease their allegedly fraudulent activities, the SEC said
in a statement.
The SEC said it also halted trading in Electro-Optical's stock for 10 days because it had questions regarding the accuracy of
statements concerning the company and its only potential product, a fingerprint verification device that it intended to market to
software vendors and systems integrators. Electro-Optical's stock, traded on Nasdaq's over-the-counter bulletin board, was
last quoted Friday afternoon at $3.059 a share, up $0.50.
In the federal complaint, the SEC alleged that the defendants illegally sold unregistered, restricted shares of Electro-Optical as
unrestricted shares, and also purchased small quantities of the stock at far above the market price to artificially inflate the
stock's price.
The SEC's complaint said that as a result of the defendants' actions, the price of Electro-Optical's stock rose more than 1,000
percent in one day from about $0.25 or $0.50 a share to over $5 per share.
The defendants then maintained a $5 price for several months through control of the stock's supply and made at least $5
million on sales of the stock, the SEC's suit said. Some of the stock was sold to investors over the Internet, according to the
SEC.
Electro-Optical, a development-stage company based in Stow, Mass., was formerly known as WTS Transnational Corp.
In December 1997, WTS became a public company and changed its name to Electro-Optical Systems Corp. when it was
acquired by Curbstone Acquisition Corp. The SEC's lawsuit identified Curbstone as "a publicly traded shell corporation doing
no business, i.e., a blank-check company, quoted on the OTC Bulletin Board."
The SEC, in the lawsuit, said Electro-Optical's predecessor company, WTS, "claimed that it was developing a fingerprint
verification device that it would be able to manufacture and sell far more cheaply than available technology. Such devices could
be used to ensure positive identification for logging onto computers or using ATMs.
"In fact," the SEC's complaint continued, "WTS had not produced a single prototype of its device and had not completed
testing of the system. As of September 30, 1997, WTS had $10,000 in total assets, no revenues, and $655,000 in liabilities.
WTS was seeking financing to further develop and market its device."
Charles Weaver, the chief executive officer of both Electro-Optical and the former WTS Transnational Corp., told Reuters in
a phone interview, "The company does not believe it has violated any laws."
Weaver, who was not named as a defendant in the lawsuit, said, "There are many people and companies listed in the lawsuit
who are unknown to the company, who are probably responsible for any violations.
"We plan to have the company removed from this lawsuit," Weaver added.
Besides Electro-Optical, the SEC's lawsuit also named former officers of WTS and Curbstone and other investors in
Electro-Optical as defendants.
The SEC is seeking to require the defendants to disgorge their allegedly illegally-obtained profits and to permanently block
them from future federal securities law violations.
Harold Ruvoldt, an attorney representing defendants Thomas Cavanagh and U.S. Milestone, said Friday he had not yet seen
the complaint, but will respond in court filings next week.
Irving Einhorn, an attorney for another defendant, George Chachas, also said Friday he had not yet seen the complaint but
that it was being sent to him.
Cavanagh, according to the SEC's complaint, is a partner at U.S. Milestone, a Staten Island, N.Y.-based investment banking
company.
Chachas was identified in the lawsuit as a lawyer and a former officer, director, and controlling shareholder of Curbstone
Acquisition Corp.
Copyright 1998 Reuters Limited. All rights reserved. Republication or redistribution of Reuters content is expressly
prohibited without the prior written consent of Reuters. Reuters shall no be liable for any errors or delays in the
content, or for any actions taken in reliance thereon.
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