Unregistered Securities Fraud and Misrepresentation Litigation and FINRA Arbitration Attorney, Russell L. Forkey, Esq.
SEC v. Frank C. Calmes, Lynn D. Rowntree, James E. Pratt, and Manny J. Shulman, Case No. 09-80524-CIV0-ZLOCH (S.D. Fla. April 2, 2009)
The Securities and Exchange Commission (SEC) recently announced that the United States District Court for the Southern District of Florida entered final judgments, dated November 10, 2011, against Frank C. Calmes, Lynn D. Rowntree, and James E. Pratt. Calmes and Rowntree had been principals at First Equity Corporation, a Boca Raton company that took small companies public via reverse mergers. Pratt, a lawyer, provided legal opinions regarding the ability to sell stock in the newly public companies.
According to the SEC’s Complaint, Calmes, Rowntree, and Pratt, along with co-defendant Manny J. Shulman, illegally sold millions of shares of unregistered securities in violation of the registration provisions of the Securities Act of 1933 (“Securities Act”). In addition, Calmes, Rowntree, and Shulman were alleged to have committed fraud in selling securities, in violation of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder. Calmes, Rowntree, and Pratt entered into bifurcated settlements with the SEC in May of 2011, just before a jury trial was to begin. Under the bifurcated settlements, Calmes and Rowntree agreed to be permanently enjoined from violating Sections 5(a) and 5(c) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, while Pratt agreed to be permanently enjoined from violating Sections 5(a) and 5(c) of the Securities Act. All three agreed to be barred from participating in any penny stock offering, and to cancel any shares of the corporations at issue in their possession or control. In addition, Defendant Calmes consented to be permanently barred from acting as an officer or director of any public issuer.
The bifurcated settlements left open, and the final judgments entered last week addressed, defendants’ liability for disgorgement of ill-gotten gains, prejudgment interest thereon, and the imposition of penalties. The final judgments imposed the following relief: against Calmes, $1,886,918 in disgorgement, $468,441 in prejudgment interest, and a $5,000 penalty; against Rowntree, $693,948 in disgorgement, $157,411 in prejudgment interest, and a $5,000 penalty; and against Pratt, $258,796 in disgorgement, $64,247 in prejudgment interest, and a $5,000 penalty.
Shulman proceeded to trial and on May 9, 2011 the jury returned a verdict finding him liable for violating Sections 5(a) and 5(c) of the Securities Act by selling uregistered securities and for violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by issuing materially false and misleading press releases regarding a company whose shares he was selling. On July 12, 2011, the Court enjoined Shulman from further violations of the federal securities laws, permanently barred Shulman from participating in any penny stock offering or acting as an officer or director of any public issuer, ordered disgorgement of $273,152, ordered payment of prejudgment interest of $95,633.44, and imposed a $5,000 penalty. The Court further ordered Shulman’s wife, Krystal Becnel, who was named as a relief defendant in the SEC’s Complaint, to disgorge $131,914.