Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Thursday, March 5, 2009

Jury Exonerates Broker in CTT Manipulation Case

A jury in the federal district court for the District of Connecticut on March 3, 2009 returned a verdict in favor of Richard A. Kwak, a former registered representative of a broker-dealer in Rancho Bernardo, California.  The SEC charged Kwak with participating in a scheme to manipulate the stock price of Competitive Technologies, Inc., ("CTT"), a technology development company located in Fairfield, Connecticut. The verdict followed a one-week trial.  The Commission's complaint, filed against a total of eight defendants on August 11, 2004, alleged that the defendants participated in a scheme to manipulate and inflate the price of CTT stock from at least July 1998 to June 2001. The complaint alleged that the defendants (which included CTT itself and its former CEO, plus six former registered representatives of broker-dealers) raised and maintained the price of CTT's stock and created a false or misleading appearance with respect to the market for CTT stock through manipulative practices such as placing buy orders at or near the close of the market in order to inflate the reported closing price ("marking the close"), placing successive buy orders in small amounts at increasing prices ("painting the tape"), and using accounts they controlled or serviced to place pre-arranged buy and sell orders in virtually identical amounts (placing "matched trades").

A previous trial in November 2007 resulted in a verdict in the Commission's favor against one scheme participant, Sheldon A. Strauss, a former registered representative from Cleveland, Ohio, and a hung jury against Kwak and one other defendant, Stephen J. Wilson. The Commission retried the case against Wilson, which resulted in an October 14, 2008 jury verdict in Wilson's favor. The Commission retrial of the case against Kwak resulted in the March 3, 2009 verdict. In addition, the Commission previously settled charges in the same case against: former registered representative Chauncey Steele, formerly of Cohasset, Massachusetts, in July 2005; CTT in October 2007; Frank McPike of Ridgefield, Connecticut, the former CEO of CTT, in October 2007; John R. Glushko, formerly a registered representative associated with a broker-dealer in Las Vegas, Nevada, in October 2007; and former registered representative Thomas C. Kocherhans of Orem, Utah, in October 2007.

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