On February 7, 2008, the Securities and Exchange Commission filed a civil action in the United States District Court for the Southern District of Florida against Dean A. Esposito, Frederick J. Birks, Joseph DeVito, Theodore B. Holbrook and Walter A. Tye, a group of Florida-based brokers alleged to have violated the federal securities laws in connection with the sale of stock in two companies, SCL Ventures Ltd. and Weida Communications, Inc.
According to the SEC's complaint, from approximately late January until early May 2004, defendants sold approximately $3 million worth of SCL Ventures securities to approximately 78 investors while working out of the company's offices. Defendants were not registered with the SEC or associated with a registered broker or dealer during this period. Defendants received undisclosed commissions of between 10% and 20% for selling SCL Ventures stock. The SEC further alleges that, from approximately June 2004 through April 2005, Esposito and Birks manipulated and dominated and controlled the market price for the common stock of SCL Ventures' successor company, Weida Communications, to approximately $5 per share, in part to facilitate the sale of Weida stock in private transactions at approximately $3 per share by Defendants.
Approximately 165 investors paid at least $9.2 million for Weida's near-worthless securities during the manipulation period. The SEC alleges that, during the manipulation period, Esposito, Birks and Holbrook were registered representatives in the Florida branch of GlobalVest Group, Inc., a registered broker-dealer with a branch office in the same building as Weida, and DeVito and Tye were unregistered brokers. Defendants received excessive undisclosed commissions of between 10% and 20% for selling Weida stock. The SEC suspended trading in Weida securities on April 25, 2005.
The SEC alleges that Esposito and Birks violated Section 5(a) and 5(c) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder and that DeVito, Holbrook and Tye violated Section 5(a) and 5(c) of the Securities Act and Section 15(a) of the Exchange Act. The SEC seeks as relief permanent injunctions, disgorgement with prejudgment interest, civil penalties and penny stock bars.
SEC v. Esposito Complaint
Although the allegations in the Complaint are serious, the somewhat prosaic rendering of truly fascinating facts produced more than a few likely unintentional chuckles. Among the more intriguing allegations were these set forth in Paragraph 65:
65. Holbrook supported a lavish lifestyle with these investor funds, which included, among other purchases,approximately $45,000 on a Mercedes Benz, $1,300 at strip clubs, $7,000 on automatic weapons and another $11,000 on
other guns and gun-related items.