Opinion
Civil No. 2:03 CV 0914 K
December 19, 2003
Thomas M. Melton, Karen L. Martinez, Salt Lake City, Utah, for Plaintiff
PLAINTIFF'S PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW REGARDING PRELIMINARY INJUNCTION AGAINST MICHAEL SYDNEY NEWMAN
Plaintiff Securities and Exchange Commission (the "Commission"), by and through its counsel of record, hereby submits Proposed Findings of Facts and Conclusions of Law.
INTRODURTION
On October 16, 2003, the Commission filed a civil action against Michael Sydney Newman ("Newman") and others for a Preliminary Injunction for violations of federal securities laws. Although duly served, Newman has failed to respond to the Commission's Motion for Preliminary Injunction, The Commission has submitted evidence supporting the allegations that Newman violated Section 17(a) of the Securities Act of 1933 ("Securities Act") [ 15 U.S.C. § 77q(a)], Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 ("Exchange Act") [ 15 U.S.C. § 78j(b)] and Rule 10b-5 promulgated thereunder [17 C.RF.R. § 240.1 Ob-5].
FINDINGS OF FACT
1. Sukumo Limited (a.k.a. The Sukumo Group, The Fujiwara Group, First Chartered Capital Corporation, First Colonial Trust, First China Capital, International Investment Holding) is a British Virgin Islands corporation operated out of Thailand and Laos, People's Democratic Republic ("Laos")-Sukumo marketed the stock of Stem Genetics, Inc., F10 Oil Gas Properties, Inc., Diversified Financial Resources Corporation, Valesc Holdings, Inc., and NCI Holdings, Inc. to overseas investors in the United Kingdom, Australia, and New Zealand.
2. Michael Sydney Newman (a.k.a. Marcus Wiseman) a citizen of the United Kingdom incarcerated in Laos is the President of Sukumo and its numerous related entities,
3. Newman, through Sukumo solicited investors in the United Kingdom, Australia, and New Zealand via telephone to purchase securities in a number of companies,
4. Sukumo generally offered securities that were quoted on the OTC Bulletin Board, although it has also pitched Stem Genetics, which was characterized as a "pre-IPO" stock. Declaration of Michael John Durham ("Durham Dec."), ¶ 5, Declaration of David deal (deal Dec."), ¶ 2; Declaration of David Lloyd-Jones ("Lloyd-Jones Dec."), ¶ 4.
5. In making sales, Sukumo failed to tell investors that the stock that they were buying was restricted. Declaration of Graham Thaxter ("Thaxter Dec."), ¶ 9; Declaration of David Townsend (Townsend Dec."), 1 7; Declaration of Duncan S. Dymond ("Dymond Dec."), ¶ 16.
6. Sukumo brokers selling Stem Genetics stock falsely told investors the Commission had reviewed Stem Genetics' registration and the shares would trade at a "float price" of $7 per share. Declaration of Simon William David Feather ("Feather Dec."), ¶ 6; Declaration of Adrian C. Charters ("Charters Dec."), ¶ 4.
7. Sukumo told investors in F10 and Diversified that those companies were going private on October 9, 2003, and that the issuers will repurchase their shares at $8.50 or $8.75 a share, Declaration of Dean Swift ("Swift Dec."), ¶ 5, Declaration of Philip Campbell ("Campbell Dec."), ¶ 8.
8. Sukumo mislead investors about the amount of commission it received. Sukumo's sales representatives had the investor agree to a 1% or 2% commission on the investor's purchase, with Sukumo retaining the first right to handle a sale by the investor at a 3% commission. Trade confirmations from Sukumo reflect the quoted 1% or 2% commission. However, Sukumo actually received 70% of the sales proceeds. Charters Dec., ¶¶ 5, 6, 9; Feather Dec., ¶¶ 6, 12, 13; Dymond Dec., ¶¶ 7, 10, 14; Townsend Dec., ¶ 4.
9. Until late August 2003, the funds Sukumo received were wired from the escrow accounts in Salt Lake City and Phoenix to Newman's account at the Thai Military Bank in Vientiane, Laos. Frost Dec. ¶ 78.
10. Since late August, Sukumo's share of the sale proceeds have been wired to an account in the name of International Investment Holdings at the Lao-Viet Bank in Vientiane, Laos. Id.
11. Through June 2003, at least $9.65 million in proceeds from sales of the issuers' securities have been wired to the accounts in Laos. Frost Dec., ¶ 21.
12. Once the investor had wired the money to the escrow account, Sukumo sales representatives would not return phone calls or reply to emails, except to attempt to sell additional securities to these investors. Cleal Dec., ¶ 22; Dymond Dec., ¶ 23; Charters Dec., ¶ 16.
13. Investors were not informed that their shares would be restricted until they received the certificates in the mail and saw the Regulation S legend. Thaxter Dec., ¶ 9; Dymond Dec., ¶ 16; Cleal Dec., ¶ 3.CONCLUSIONS OF LAW
1. The Commission has made a prima facie case that Newman violated Section 17(a) of the Securities Act;
2. The Commission has made a prima facie showing that Newman violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder;
3. The Commission has made a prima facie showing that Newman violated Section 1 5(a) of the Exchange Act; and
4. The evidence shows that unless restrained, there is a reasonable likelihood that Newman will, in the future, violate Section 17(a) of the Securities Act and Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 promulgated thereunder,