Opinion ID: 556608
Heading Depth: 3
Heading Rank: 1

Heading: The Cluett Transactions

Text: 1 The indictment charged three fraudulent schemes relating to trades in Cluett. These involved misrepresenting the source of funds used to purchase stock, secretly accumulating stock through nominee, and misrepresenting an open market purchase. By agreeing to share any profits and by guaranteeing against any loss, Bilzerian in April and May of 1985 raised $9 million to buy Cluett stock from various individual investors. The funds were transferred to him through a series of trusts set up for that purpose. Defendant was required to disclose purchase of this large block of stock on a form filed with the SEC known as a Schedule 13D. On the 13D, and its amendment, respecting the Cluett purchase, defendant stated that the stock was purchased with personal funds, and did not disclose that they were raised from other investors with whom he had a profit-sharing and guarantee-against-loss agreement. 2 Bilzerian also engaged an employee of Jeffries & Company, Inc. (Jeffries), a registered broker-dealer, to accumulate stock on his behalf. Under stock accumulation, a broker-dealer purchases stock in its own account with the understanding that the customer will buy it at a later date at the broker's cost plus interest and commissions. In such a transaction the prearranged sale involves no risk of loss to the broker-dealer, who acts as a nominee for the true purchaser. On May 28, 1985 defendant purchased the accumulated stock without revealing the accumulation arrangement to the SEC. The indictment charged that the agreement was fraudulently designed to delay the reporting requirements of the securities laws. 3 Bilzerian also agreed to purchase 347,567 shares of Cluett common stock from a group of shareholders in contemplation of making a tender offer for that company, offering between $38 and $40 per share depending on the price of his tender offer. This proposed purchase was made with the understanding that the trade would not settle for 45 days and that defendant would cancel the purchase proposal if a third party offered more for the shares. Although he learned that 66,667 of the shares included in this block were already under his control, defendant advised the shareholder group to proceed with the sale. The offering statement claimed that 347,567 shares were purchased in an open market transaction. The existence and terms of the privately-negotiated transaction were not disclosed. 4 The indictment alleged that the Cluett transactions violated Secs. 10(b) and 32 of the Securities Exchange Act of 1934 (Exchange Act), 15 U.S.C. Secs. 78j(b) and 78ff (Count One), and the federal false statements statute, 18 U.S.C. Sec. 1001 (Counts Two, Three, and Four). Defendant was also charged with conspiring to defraud the SEC and to commit specific offenses in violation of 18 U.S.C. Sec. 371 (Count Eight).