Securities Law Prof Blog

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

Wednesday, June 25, 2008

SEC Announces Fair Fund Distribution to Spear & Jackson Investors

The SEC announced a Fair Fund distribution totaling more than $5.6 million to 534 investors who were victims of a fraudulent pump-and-dump scheme involving the stock of tool maker Spear & Jackson, Inc.  The SEC stated that the Fair Fund distribution represents a 100 percent return of losses to defrauded investors who bought Spear & Jackson stock during the fraudulent touting period from February 2002 through April 2004.

In April 2004, the SEC charged Spear & Jackson, its then-chairman and CEO Dennis Crowley, and two stock promoters in connection with the fraudulent scheme. The complaint alleged that Crowley secretly acquired hundreds of thousands of shares of stock of Spear & Jackson and its predecessor through three nominee companies based in the British Virgin Islands that he clandestinely controlled. The complaint further alleged that Crowley then hired stock promoters to distribute false and misleading information about Spear & Jackson to the brokerage community in order to drive up the company's share price while he dumped his shares on the market.

The SEC ultimately obtained significant relief against all parties by consent. Crowley paid more than $4 million in disgorgement and prejudgment interest and a $2 million civil penalty, and the stock promoters paid a combined total of approximately $800,000 in disgorgement and civil penalties.

In a follow-up action that arose out of this same case, the SEC last year instituted public administrative proceedings against broker-dealer Park Financial Group, Inc., and its principal, Gordon Cantley, alleging that they aided and abetted Crowley's violations of the securities laws by allowing him to buy and sell Spear & Jackson stock through the nominee companies' accounts at Park Financial. Park Financial and Cantley also were charged with failing to file Suspicious Activity Reports (SARs) in connection with Crowley's transactions, marking the first time that the Commission had brought a case against a broker-dealer for failing to file SARs.

In December 2007, the Commission issued an order by consent against Park Financial and Cantley. Without admitting or denying the SEC's allegations, Park Financial and Cantley were ordered to cease and desist committing securities law violations and to pay disgorgement and civil penalties. In addition, the Commission censured Park Financial and barred Cantley from association for a broker or dealer with the right to reapply in two years.

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