The opinion of the court was delivered by: MILTON I. SHADUR
This cause has come on to be heard on the motion of Securities and Exchange Commission ("SEC"), pursuant to Fed. R. Civ. P. 56 and this District Court's General Rule ("GR") 12(m), for an Order of Permanent Injunction against Thomas Quinn ("Quinn"). This Court has considered SEC's evidence and arguments,
and now being fully advised in the premises makes the following findings of fact ("Findings") and conclusions of law ("Conclusions") and enters the following Order of Permanent Injunction.
To the extent (if any) that the Findings as stated may be deemed conclusions of law, they shall also be considered Conclusions. In the same way, to the extent (if any) that matters later expressed as Conclusions may be deemed findings of fact, they shall also be considered Findings. In both those respects, see Miller v. Fenton, 474 U.S. 104, 113-14, 88 L. Ed. 2d 405, 106 S. Ct. 445 (1985).
1. This Court has subject matter jurisdiction in this case, as well as personal jurisdiction over Quinn.
2. Both common stock and warrants of GSS Venture Capital Corporation, Inc. ("GSS") and Max, Inc. ("Max"), which were sold by Quinn, certain Quinn controlled companies and co-conspirators of Quinn, are securities under Securities Act of 1933 ("1933 Act") § 2(1) [ 15 U.S.C. § 77b(1)] and Securities Exchange Act of 1934 ("1934 Act") § 3(a)(10) [ 15 U.S.C. § 78c(a)(10)].
3. Currently Quinn is serving a four (4) year prison sentence in France after having been criminally convicted for, among other things, the fraudulent offer and sale of securities, including those of GSS and Max, in that country. In addition, Quinn has previously been permanently barred by SEC from associating with any broker or dealer, criminally convicted of securities fraud and permanently enjoined from violating the registration and antifraud provisions of the federal securities laws.
4. During at least all times relevant to this action, Quinn was a partner of Arnold Kimmes and Michael Wright, former defendants in this action against both of whom permanent injunction orders have been entered. In addition, Quinn was a member of a loosely bound group of confederates (including at least Quinn, Arnold Kimmes, Michael Wright, Martin Hirsh, Carl Porto and Gene Kazlow) who were involved in the fraudulent formation of GSS, Max and other corporations.
5. Quinn, as part of that loose confederation, caused GSS to be organized and incorporated in or about January 1985 with a view toward publicly offering its securities, and then in or about December 1985 caused Max to be similarly organized and incorporated. In doing so, Quinn and his confederates caused the identities of the persons actually controlling the two companies to be concealed by causing undisclosed nominees to be used as officers, directors, founders and principal shareholders.
6. Quinn, as part of the same loose confederation, participated in the sham public offerings of the securities of GSS and Max through the means of materially false registration statements filed with SEC. GSS's offering was completed in July 1985 and raised $ 150,000. Max's offering was completed in August 1986 and also raised $ 150,000. Both companies' registration statements, as filed with SEC and publicly disseminated, were materially misleading in that each included untrue statements of material facts, and omitted to state material facts necessary in order to make the statements made not misleading, concerning among other things the nondisclosure of these facts:
(a) that the persons disclosed as officers or directors of GSS and Max were merely figureheads acting on behalf of Quinn and his confederates;
(b) that the persons disclosed as being principal shareholders and owning substantial portions of the common stock of GSS and Max did not in fact pay for the stock;
(c) that Quinn and his confederates, who had no disclosed affiliation with GSS and Max, would and did actually control the companies and that Quinn and certain of his confederates had previous regulatory problems;
(d) that the units offered in the GSS and Max initial public offerings would not in fact be publicly distributed but instead would be purchased by undisclosed nominees of Quinn and his confederates, or by persons that they otherwise controlled, in order to give the appearance that the securities were publicly distributed;
(e) that Quinn provided the initial $ 5,000 capital for Max's organization and incorporation; and
(f) that Quinn and his confederates intended to inflate artificially the price of GSS and Max securities.
7. By purchasing or causing the purchase of the units of GSS and Max in nominee names or names that they otherwise controlled, Quinn and his confederates caused required brokerage records to be made false and misleading in that the records failed to reflect the actual beneficial ownership of the accounts or failed to disclose the existence of all persons authorized to transact business in corporate accounts.
8. Quinn, as part of the loose confederation, attempted to and did manipulate the aftermarket trading in the securities of GSS beginning in or about July 1985, and Max beginning in or about August 1986, by causing the common stock to trade at artificially high prices that did not reflect the unfettered supply of and demand for those securities. That was accomplished by, among other things:
(a) with regard to GSS, shortly after the initial public offering causing the GSS "box" containing 900,000 of the 1,000,000 GSS shares offered to the public, as well as virtually all of the Class A and B GSS warrants, to end up under Quinn's control, and with regard to Max causing at least 792,000 of the 1,000,000 units offered in the initial public offering to be purchased by Quinn and his confederates;
(b) with regard to GSS, causing the 2,000,000 shares of insiders' stock which were purportedly bought by the GSS officers and directors also to be ultimately delivered to Quinn's control in Cannes, France;
(c) after the respective public offerings of GSS and Max, distributing the securities of GSS and Max to investors in the aftermarket in the United States and Europe through stock brokerage companies controlled or cooperating with Quinn and his confederates;