SEC Sues 10 in Stock Scheme
Feb. 01, 2001
WASHINGTON (AP) _ Federal regulators have sued 10 people for their alleged roles in a complex stock manipulation scheme. The accused include the only person to go to prison for Iran-Contra convictions and a former secretary of state of Rhode Island.
The Securities and Exchange Commission on Wednesday announced the civil lawsuits, which were filed Tuesday in federal courts in New York City and Miami. The SEC's investigation into the alleged manipulation of stock of Systems of Excellence Inc. has been proceeding for more than four years and the agency has recovered nearly $15 million from defendants.
The new suit filed in Manhattan alleges that a company and five individuals _ including Iran-Contra figure Thomas G. Clines, his wife Heidi Clines and Kathleen Connell, the former Rhode Island official _ unlawfully resold Systems of Excellence shares in 1996 in violation of federal securities laws.
The defendants, who received most of the shares for free, made a total of some $860,077 in trading profits when they resold them ``into an artificially inflated market that was being manipulated by others,'' the SEC said. It said ``many innocent investors'' eventually were left with ``worthless'' shares.
In the scheme, the head of the company manipulated the market for Systems of Excellence stock by issuing false, favorable press releases about the company, then selling his shares into an inflated market, according to the SEC. It also has accused the publisher of an Internet stock newsletter of writing about the company on nearly 100 occasions, almost always in a highly promotional tone, to pump up the stock price.
People who received Systems of Excellence stock allegedly began selling the shares as the price rose due to investor interest sparked by the promotions.
The SEC is seeking unspecified civil fines and restitution of allegedly ill-gotten gains from all the defendants, and injunctions barring them from future violations of securities laws. For restitution, the agency is seeking $209,288 from Thomas Clines, $90,371 from Heidi Clines and $190,086 from Connell.
Arthur Tifford, the attorney representing Thomas and Heidi Clines and Connell, didn't immediately return telephone calls seeking comment.
The other three defendants _ Wall Street Management Group, Robert Ciofalo and Calvin Moore _ were not represented by attorneys, the SEC said.
The Systems of Excellence case was the first in which the SEC alleged stock manipulation using the Internet. The company, which made video teleconferencing equipment, eventually entered bankruptcy liquidation proceedings. Its offices had been in McLean, Va., and Coral Gables, Fla.
Thomas Clines, 71, a former CIA official, worked for arms dealers Richard V. Secord, a former Air Force major general, and Albert Hakim, who brokered the sale of U.S. arms to Iran in 1985 and 1986. Clines was convicted of tax evasion in 1990 for underreporting his share of arms-sale proceeds. He served a 16-month prison term and was fined $40,000.
In its suit, the SEC alleged that Clines provided consulting services to Systems of Excellence in exchange for 195,000 shares and briefly became the company's president after trading in its stock was suspended by the SEC for 10 days in October 1996.
The agency said that Heidi Clines, 56, ``played a small role'' by hosting investor parties at her home, for which she received 150,000 Systems of Excellence shares.
The Clines live in Huddleston, Va.
Connell, 63, a resident of Middletown, R.I., and her husband Jerry Connell introduced former Systems of Excellence Chairman Charles O. Huttoe to managers of another company to facilitate a merger, the SEC said. It said the introduction was made through Jerry Connell's friend, Thomas Clines.
Huttoe pleaded guilty in 1996 to criminal charges of violating securities laws and engaging in money laundering, and he received a 46-month prison sentence.
The new suit filed in Miami alleges securities-law violations by penny-stock trader Jerome E. Rosen; former stock broker Joseph D. Radcliffe; William A. Calvo III; and Diversified Corporate Consulting Group, a company said to be controlled by Radcliffe and Calvo.
Radcliffe, without admitting to or denying the SEC's allegations, agreed to pay a $75,000 civil fine and restitution of more than $383,500 plus interest of $156,133, the SEC said.
The cases against the others are pending. Attorneys for Rosen, Calvo and Diversified Corporate Consulting Group didn't immediately return calls seeking comment.
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Securities and Exchange Commission: http://www.sec.gov