Securities and Exchange Commission
Washington, D.C.
Litigation Release No. 17204 / October 25, 2001
Accounting and Auditing Enforcement Release No. 1472 / October 25, 2001
, Civil Action No. 98-1106 (RMU) (D.D.C. May 4, 1998).
SEC Obtains Final Judgments Against Remaining Defendants in S-8 Scheme
The Securities and Exchange Commission today announced that on May 15,
2001 and October 11, 2001, the Honorable Ricardo M. Urbina, United
States District Judge for the District of Columbia, entered final
judgments of permanent injunction and other relief against defendants
Edward R. Showalter and Tracy A. Braime. These judgments conclude a
civil action filed by the Commission on May 4, 1998 against Hollywood
Trenz, Inc. ("HTI") and various individuals.
In its Complaint, the Commission alleged, among other things, that
Showalter, HTI's Chairman of the Board, President, Chief Executive
Officer, and Chief Financial Officer, orchestrated two fraudulent
schemes to raise capital illegally. In the first scheme, HTI
materially overstated the value of the primary asset of a wholly-owned
subsidiary, a portfolio of defaulted bank loans, in reports filed with
the Commission and disseminated to the public. In the second scheme,
HTI fraudulently raised millions of dollars by issuing HTI stock to
nominee consultants pursuant to Form S-8 registration statements.
While the registered offerings were all purportedly to compensate
HTI's employees or consultants for services, in at least nine of these
cases the free-trading S-8 stock was used to raise capital for or pay
expenses on behalf of HTI, often pursuant to undisclosed agreements
between Showalter and the consultants. According to the Complaint,
Showalter directed the nominees to transfer the great majority of
their shares to various investors, HTI creditors and consultants, and,
in exchange for their cooperation, these nominees were permitted to
retain the remaining shares.
The Commission further alleged that Tracy A. Braime, then Showalter's
wife, was one of HTI's principal nominee consultants. At Showalter's
direction, she transferred millions of shares of S-8 stock and loaned
the proceeds from sales of other S-8 shares to HTI, where it was used
to pay HTI's payroll and various creditors and consultants, as well as
many of Showalter's personal expenses. Proceeds from the sale of S-8
stock received by Braime were also used to make the downpayment and
monthly mortgage payments on an expensive home where Showalter and
Braime lived. In total, the Commission alleged that Showalter and
SNIPPETS:
Securities and Exchange Commission
Litigation Release No. 17204 / October 25,
These judgments conclude a civil action filed by the Commission on May 4, 1998 against
In its Complaint, the Commission alleged, among other things, that Showalter, HTI's Chairman
In the first scheme, HTI materially overstated the value of the primary asset of a
HTI fraudulently raised millions of dollars by issuing HTI stock to nominee consultants
While the registered offerings were all purportedly to compensate HTI's employees or
According to the Complaint, Showalter directed the nominees to transfer the great majority of
The Commission further alleged that Tracy A. Braime, then Showalter's wife, was one of HTI's
At Showalter's direction, she transferred millions of shares of S-8 stock and loaned the
Proceeds from the sale of S-8 stock received by Braime were also used to make the downpayment
On December 4, 2000, the Court ruled that Showalter was in default based upon his repeated
On May 15, 2001, the Court entered a Final Judgment of Permanent Injunction and Other
Specifically, the Final Judgment against Showalter enjoins him from violating Sections 5, 5,
The Final Judgment further orders him to pay disgorgement in the amount of $538,400, together
In agreeing to settle this matter, Braime consented to a permanent injunction enjoining her
Moreover, the proposed final judgment against Braime holds her jointly and severally liable
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