Source: http://www.sec.gov/litigation/litreleases/lr19610.htm
Timestamp: 2013-05-26 09:07:16
Document Index: 1947747

Matched Legal Cases: ['§ 371', '§ 1343', '§ 1341', '§ 78', '§ 240', '§ 1956', '§ 1956', '§ 1001']

United States of America v. Eric Walsh, John Abresch, et al.: Lit. Rel. No. 19610 / March 16, 2006
Litigation Release No. 19610 / March 16, 2006
SEC v. Eric Walsh, John Abresch, et al., United States District Court for the Southern District of Florida, Crim. No. 06-20071-CR-Moore
Grand Jury Indicts Former Principals of Coral Springs, Florida Broker-Dealer Which Raised Over $3 Million From Investors in a Fraudulent Securities Offering
The Securities and Exchange Commission (Commission) announced today that on February 2, 2006, Erik B. Walsh and John Abresch, residents of South Florida, were criminally indicted by a federal grand jury convened by the United States Attorney for the Southern District of Florida. The 30 count indictment charges the defendants for their roles in a "boiler room" operation that fraudulently induced investors in the U.S. and Europe to invest over $3 million. In March 2002, the Commission charged Walsh and Abresch, former principals of Discovery Capital, Inc., a Coral Springs broker-dealer formerly registered with the Commission, with antifraud and registration violations of the federal securities laws in connection with Discovery Capital's fraudulent securities offering.
According to the Indictment, in February 2000, Walsh gained control and became Chief Executive Officer of Discovery Capital, which had been operating since 1991. In May 2001, Walsh hired Abresch as the Vice President and Director of Institutional Sales. Together, Walsh and Abresch hired numerous sales agents and directed them fraudulently to solicit investors in the U.S. and Europe to invest in securities issued by Discovery Capital. Among other things, according to the indictment, investors were solicited through false representations concerning Discovery Capital's growth, its business and business partnerships, and through claims that no commissions would be paid in connection with investors' purchase of private placement stock. The indictment further alleges that, in order to lull existing investors, Walsh and Abresch paid them purported interest and dividend payments which were funded with money raised from new investors. Also according to the indictment, Walsh and Abresch used investor funds to purchase cashier's checks for their own benefit.
The indictment charges Walsh and Abresch with conspiracy to commit wire fraud, mail fraud and securities fraud (18 U.S.C. § 371), wire fraud (18 U.S.C. § 1343), mail fraud (18 U.S.C. § 1341), securities fraud (15 U.S.C. §§ 78j(b) and 78ff(a), 17 C.F.R. § 240.10b-5), conspiracy to launder money (18 U.S.C. § 1956(h), and money laundering (18 U.S.C. § 1956(a)(1)(A)(i) and 1957). Defendant Walsh was separately charged in one count for making false statements to the Commission (18 U.S.C. § 1001(a)(2)), in connection with the Commission's on site examination of Discovery Capital in 2002. Specifically, Walsh lied in writing to examiners in response to their questions during the examination. The indictment also seeks criminal forfeiture of property from the defendants, including their residences.
In the emergency civil action brought by the Commission in March 2002, the United States District Court for the Southern District of Florida issued a temporary restraining order and an asset freeze to halt the on-going offering of securities by Discovery Capital. The District Court also appointed a receiver, Michael I. Goldberg, over Discovery Capital. The Commission's Complaint alleged that from at least June 2001 through the filing of the action, Discovery Capital raised at least $2.7 million through the use of a network of primarily unlicensed sales agents using high pressure sales tactics and making misrepresentations about, among other things, Discovery Capital's growth, its affiliations with well-known brokerage firms and other institutions, and the safety of the investments. The Complaint further alleged that Walsh misappropriated investor proceeds through the use of an "off the books" account in the name of Discovery Capital.
In October 2002, by consent, the District Court permanently enjoined Walsh and Abresch from violations of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rule 10b-5 thereunder, and enjoined Discovery Capital from further violations of violations of Section 17(a) of the Securities Act, Sections 10(b), 15(c) and 17(a) of the Exchange Act, and Rules 10b-5, 15c1-2, 15c3-1, 17a-3, 17a-4, 17a-5, and 17a-11 thereunder. In October 2002, the Court further ordered Abresch to disgorge over $500,000, but waived payment of all but $195,000 and did not impose a civil money penalty based on Abresch's sworn financial statement and other information submitted to the Commission. In January 2003, the Court ordered Walsh to pay over $500,000 in disgorgement and prejudgment interest and imposed a $90,000 civil penalty. Subsequently, in March and April 2003, the Commission barred Walsh and Abresch, respectively, from association with a broker or dealer, and in March 2003, the Commission revoked the registration of Discovery Capital.
For further information, see Litigation Release Nos. 17420 (March 19, 2002), 17813 (October 29, 2002), 17812 (October 29, 2002), and 17914 (January 7, 2003).
http://www.sec.gov/litigation/litreleases/lr19610.htm