 |
Home | Previous Page | |
|
||
 |
|
|
|
||
 |
|
|
|
|
|||||||||||||||
|
|
|||||||||||||||
|
|
UNITED STATES OF AMERICA
|
| In the Matter of PHILIP A. LEHMAN and |
ORDER MAKING FINDINGS, ORDERING RESPONDENTS TO CEASE AND DESIST AND IMPOSING REMEDIAL SANCTIONS |
I.
On September 22, 1999, the Securities and Exchange Commission (Commission) instituted public administrative proceedings and cease and desist proceedings, pursuant to Section 8A of the Securities Act of 1933 (Securities Act), Sections 15(b), 19(h) and 21C of the Securities Exchange Act of 1934 (Exchange Act), Sections 203(e), 203(f) and 203(k) of the Investment Advisers Act of 1940 (Advisers Act) and Section 9(b) of the Investment Company Act of 1940 (Investment Company Act), against Philip A. Lehman (Lehman) and Tower Equities, Inc. (Tower Equities).
In response to the institution of these proceedings, Lehman and Tower Equities have submitted Offers of Settlement (Offers) which the Commission has determined to accept. Solely for the purpose of this proceeding and any other proceeding brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except the Commission's jurisdiction and the findings contained in Paragraphs II.A and II.B. below, which are admitted, Lehman and Tower Equities consent to the entry of this Order Making Findings, Ordering Respondents to Cease and Desist and Imposing Remedial Sanctions (Order).
II.
On the basis of this Order and the Offers submitted by Lehman and Tower Equities, the Commission finds that:
A. Tower Equities is an Ohio corporation based in Dayton, Ohio, has been a broker-dealer registered with the Commission pursuant to Section 15(a) of the Exchange Act since in or about 1985, and has been an investment adviser registered with the Commission pursuant to Section 203(c) of the Advisers Act since in or about 1988.
B. At all relevant times, Lehman, age 60, was the sole shareholder, chairman, vice president and chief compliance officer of Tower Equities. At all relevant times, Lehman was a person associated with both a broker-dealer and an investment adviser.
C. At all relevant times, Tower Venture 97-A, Ltd. (Tower Venture) was an Ohio limited liability company based in Dayton, Ohio.
D. At all relevant times, Lifetime Assets, LLC (Lifetime) was an Ohio limited liability company based in Dayton, Ohio. At all relevant times, Lehman was the president and managing partner of Lifetime.
E. At all relevant times, Baylor/Gavic, LLC (Baylor) was an Ohio limited liability company based in Dayton, Ohio. At all relevant times, Lehman was the president and managing partner of Baylor.
F. At all relevant times, Wellington, LLC (Wellington) was an Ohio limited liability company based in Dayton, Ohio. At all relevant times, Lehman was the president and managing partner of Wellington.
The Tower Venture Offering
G. In or about February 1997, Lehman and Tower Equities offered to sell to investors the securities of Tower Venture, in the form of units, for $25,000 per unit. The offering was on an all-or-none basis for approximately 420 units for approximately $10.5 million. The closing date for the offering was on or about March 30, 1998. Tower Equities underwrote the offering. From in or about February 1997 through in or about October 1997, Lehman and Tower Equities sold approximately 173 units of Tower Venture to their investment advisory clients.
H. Lehman and Tower Equities, through various means including, but not limited to, the Private Placement Memorandum for Tower Venture, which they distributed to investors, made various misrepresentations of material facts and omitted to state material facts to investors regarding Tower Venture, including the following:
1. Lehman and Tower Equities misrepresented that, after paying approximately $500,000 for investment advisory, bank escrow and other fees, the remaining amount raised from the offering, approximately $10 million, would be used to make a "loan premium payment" to Credit Austerlitz Finances, Ltd. (Credit Austerlitz), a European entity, as payment for the receipt of a "self-liquidating" loan in the amount of approximately $30 million. Due to the "self-liquidating" nature of the loan, Credit Austerlitz would, in essence, pay itself back and, as a result, Tower Venture would never have to repay the remaining amount, approximately $20 million that it received from Credit Austerlitz. In fact, this "loan" transaction did not, and could not, exist;
2. Lehman and Tower Equities misrepresented that the $10 million "loan premium payment" would not be paid until Tower Venture received a valid standby letter of credit obtained by Credit Austerlitz and issued by one of several major European banks identified by Lehman and Tower Equities, and confirmed by an American bank. The standby letter of credit would guarantee the receipt of the $30 million "loan." In fact, none of the European banks identified by Lehman and Tower Equities would have issued a standby letter of credit for the Tower Venture "loan" transaction;
3. Lehman and Tower Equities misrepresented that, after the receipt of the $30 million "loan" proceeds, Tower Venture would repay to each investor a "primary distribution" consisting of his or her entire investment plus an interest payment equal to an annual return of approximately 23.5 percent. Since the loan transaction did not exist and Lehman and Tower Equities had not conducted adequate due diligence, they had no reasonable basis for this representation;
4. Lehman and Tower Equities misrepresented that Tower Venture would use the remaining portion of the "loan" proceeds to invest in viatical insurance policies for which investors could expect to earn an additional return of approximately 33 percent after one year. Since Lehman and Tower Equities, however, had no agreement with any viatical companies to purchase viatical insurance policies and had not conducted adequate due diligence, they had no reasonable basis for this representation;
5. Lehman and Tower Equities misrepresented to one investor who was approximately 70 years old and retired:
a) that Tower Venture was a suitable investment for his individual retirement account (IRA) when, in fact, it was not suitable in light of the conservative nature of the investor's IRA account; and
b) that the Tower Venture offering would be successfully completed within approximately four weeks when, in fact, Lehman and Tower Equities had no reasonable basis to believe that there would be a sufficient amount of new funds invested to complete the offering within that period; and
6. Lehman and Tower Equities omitted to state that they, among other things:
a) never reviewed any Credit Austerlitz financial statements or other financial information about Credit Austerlitz;
b) never reviewed any contracts entered into by Credit Austerlitz with third parties;
c) never conducted any inquiries about Credit Austerlitz; and
d) failed to take any steps to determine if any of the European banks listed in the Tower Venture offering materials would issue a standby letter of credit.
Offerings in Lifetime, Baylor and Wellington
I. From on or about August 15, 1998 to on or about December 15, 1998, Lehman and Tower Equities, in three separate private placement offerings, offered and sold units in Lifetime, Baylor and Wellington to their investment advisory clients. Each of the offerings was to raise a minimum of approximately $1 million and a maximum of approximately $50 million.
J. When the offerings described in Paragraph II.I above closed, on or about December 15, 1998, Lifetime had raised approximately $3.3 million, Baylor had raised approximately $1.9 million and Wellington had raised approximately $600,000 from approximately 35 investors for all three offerings, collectively.
K. Lehman and Tower Equities, through various means, including, but not limited to, the Private Placement Memoranda for Lifetime, Baylor and Wellington, which they distributed to investors, made misrepresentations of material fact and omitted to state material facts regarding these offerings. Specifically, Lehman and Tower Equities represented to investors that they would invest the funds raised from the investors in a "transaction" with a "trading company" sponsored by a "transaction bank" in Europe. They also told the investors that they could expect to earn 100 percent on their investment within 25 days, or an annualized rate of 1,440 percent, with minimal risk to their principal. Lehman and Tower Equities, however, had no basis for these representations. While the funds were, in fact, deposited in an escrow account, Lehman and Tower Equities never had any agreement with any European bank to "sponsor" the transaction, never had any agreement with any "trading company" and never identified any "transaction." Moreover, neither Lehman nor Tower Equities ever had any agreement with anyone for any transaction for the funds raised in the Lifetime, Baylor and Wellington offerings.
L. From in or about February 1997 to in or about December 1998, Lehman and Tower Equities willfully violated and committed or caused violations of Section 17(a) of the Securities Act in that they, by the use of the means or instruments of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly, in the offer or sale of securities described in Paragraphs II.G and II.I above, employed devices, schemes or artifices to defraud; obtained money or property by means of untrue statements of material fact or omissions to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or engaged in transactions, practices or courses of business which operated or would operate as a fraud or deceit upon purchasers or prospective purchasers of such securities. As a part of this conduct, they made misrepresentations or omissions of material facts to investors, as described in Paragraphs II.H and II.K above.
M. From in or about February 1997 to in or about December 1998, Lehman and Tower Equities willfully violated and committed or caused violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder in that they, in connection with the purchase or sale of securities described in Paragraphs II.G and II.I above, directly or indirectly, by the use of the means or instrumentalities of interstate commerce, or of the mails, employed devices, schemes or artifices to defraud; made untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or engaged in acts, practices, or courses of business which operated or would operate as a fraud or deceit upon the purchasers of the securities. As a part of this conduct, they made misrepresentations or omissions of material facts to investors, as described in Paragraphs II.H and II.K above.
N. From in or about February 1997 to in or about December 1998, Tower Equities willfully violated and committed or caused violations of Section 15(c)(1) of the Exchange Act and Rule 15c1-2 thereunder in that it, while acting as a broker-dealer, by the use of the mails or of the means or instrumentalities of interstate commerce, effected transactions in, or induced or attempted to induce the purchase or sale of the securities described in Paragraphs II.G and II.I above, by means of manipulative, deceptive or other fraudulent devices or contrivances, including acts, practices or courses of business which operated or would operate as a fraud or deceit or made untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, which statements or omissions were made with knowledge or reasonable grounds to believe they were untrue or misleading. As a part of this conduct, it made misrepresentations or omissions of material facts to investors, as described in Paragraphs II.H and II.K above.
O. From in or about February 1997 to in or about December 1998, Tower Equities willfully violated and committed or caused violations of Sections 206(1) and 206(2) of the Advisers Act in that it, while acting as an investment adviser, directly or indirectly, by the use of the means or instrumentalities of interstate commerce, or of the mails, employed devices, schemes or artifices to defraud clients or prospective clients or engaged in transactions, practices, or courses of business which operated as a fraud or deceit upon clients or prospective clients. As a part of this conduct, it made misrepresentations or omissions of material facts to investors, as described in Paragraphs II.H and II.K above.
P. From in or about February 1997 to in or about December 1998, Lehman willfully aided and abetted and caused Tower Equities' violations of Sections 206(1) and 206(2) of the Advisers Act as described in Paragraph II.O above, in that he, as principal of Tower Equities, was aware that his role was part of an overall activity that is improper and knowingly and substantially assisted Tower Equities in its violations.
Q. Respondent Tower Equities has submitted a sworn financial statement and other evidence and has asserted its financial inability to pay a civil penalty. The Commission has reviewed the sworn financial statement and other evidence provided by Tower Equities and has determined that Tower Equities does not have the financial ability to pay a civil penalty.
III.
In view of the foregoing, it is in the public interest to impose the sanctions specified in the Offers.
Accordingly, IT IS ORDERED THAT:
A. Lehman, pursuant to Sections 15(b) and 19(h) of the Exchange Act, Sections 203(e) and 203(f) of the Advisers Act and Section 9(b) of the Investment Company Act, be suspended from association with any broker, dealer, investment adviser or investment company for a period of nine (9) months, effective on the second Monday following entry of this Order. Within thirty (30) days after the end of the suspension period, Lehman shall provide an affidavit, stating that he has complied with this sanction, via certified mail to Mary E. Keefe, Regional Director, Securities and Exchange Commission, Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661;
B. Lehman, pursuant to Section 8A of the Securities Act, Section 21C of the Exchange Act and Section 203(k) of the Advisers Act, cease and desist from committing or causing any violation and any future violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Sections 206(1) and 206(2) of the Adviser's Act;
C. Lehman, pursuant to Section 21B of the Exchange Act, Section 203(i) of the Advisers Act and Section 9(d) of the Investment Company Act, pay a civil penalty of $10,000 within sixty (60) days of entry of the Order. Such payment to be: (a) made by United States postal money order, certified check, bank cashier's check or bank money order; (b) made payable to the Securities and Exchange Commission; (c) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (d) submitted under cover letter that identifies Philip A. Lehman as a Respondent in this matter, the case number of this matter, a copy of which cover letter and money order or check shall be sent to Jerrold H. Kohn, Senior Attorney, Securities and Exchange Commission, 500 West Madison Street, Chicago, IL 60661;
D. Tower Equities, pursuant to Section 8A of the Securities Act, Section 21C of the Exchange Act and Section 203(k) of the Advisers Act, cease and desist from committing or causing any violation and any future violations of Section 17(a) of the Securities Act, Sections 10(b) and 15(c)(1) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder and Sections 206(1) and 206(2) of the Advisers Act;
E. Tower Equities is hereby censured;
F. The Division of Enforcement may, at any time following the entry of this Order, petition the Commission to: (1) reopen this matter to consider whether Tower Equities provided accurate and complete financial information at the time such representations were made; (2) determine the amount of the civil penalty to be imposed; and (3) seek any additional remedies that the Commission would be authorized to impose in this proceeding if Tower Equities' offer of settlement had not been accepted. No other issues shall be considered in connection with this petition other than whether the financial information provided by Tower Equities was fraudulent, misleading, inaccurate or incomplete in any material respect, the amount of civil penalty to be imposed and whether any additional remedies should be imposed. Tower Equities may not, by way of defense to any such petition, contest the findings in this Order or the Commission's authority to impose any additional remedies that were available in the original proceeding.
By the Commission.
Jonathan G. Katz
Secretary
http://www.sec.gov/litigation/admin/33-7889.htm
| Home | Previous Page | Modified:09/08/2000 |