From today's SEC Digest
sec.gov :
SEC v. THOMAS EDWARD CAVANAGH, ET AL.
On April 20, 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. For further information, see Litigation
Release No. 15669. [SEC 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, SDNY] (LR-15715)
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Reuter's summary of court action:
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