SEC Wins Liability Ruling V. Inc. Principal

The SEC (Securities and Exchange Commission) was granted summary judgment in its action charging the principal of 800America.Com Inc., a supposed Internet retailing venture, with securities fraud and other violations. The judge, however, refused to impose penalties on Tillie Ruth Steeples (the principal) to the full extent wanted by the SEC. The liability ruling was issued at the U.S. District Court for the Southern District of New York. In addition to agreeing to and ordering the SEC’s disgorgement request of $2.7 million, the court agreed to impose a penny stock bar on Steeples, but only for five years following her time in prison.

In a reverse merger in July 1999, a publicly registered shell company called World House Entertainment issued 1 million shares of restricted common stock to acquire all of the outstanding common and issued stock of 800America Inc. The shell company was controlled by Rabi and Steeples. They renamed 800America Inc. to Inc. claimed to be an Internet retailer that sold clothes and connected customers with other Internet retailers. Its common stock was traded on the over-the- counter bulletin board and registered with the SEC.

The commission claims that Steeples was the other undisclosed control person of for a significant period of time. The Internet retailer allegedly issued artificially inflated financial statements and withheld information about Rabi’s and Steeples’s criminal records to attract investors. Steeples denies ever having served in this position.

According to the SEC, however, Steeples and Rabi sold shares to the public through Internet brokerage accounts-even though, as the control persons, they were forbidden to-under Steeples’ name and the names of 13 people who did not even know that these accounts existed.

The court has denied Steeples’ motion for dismissal.

What the Court Said:

· Collateral estoppel bars Steeples from litigating the 1933 Securities Act Section 17(a) securities fraud claim and the SEC’s 1934 Securities Exchange Act Section 10(b).

· Failure by to reveal information about the company’s revenue is considered material misrepresentations and omissions under Rule 10b-5.

· There is sufficient evidence to support the SEC’s claim that Steeples is liable for recordkeeping, corporate reporting, and internal violations (as a control person and an aider and abettor of to grant summary judgment to all the claims.

The court, however, denied the SEC’s request for a permanent injunction against Steeples because “it does not appear that she initiated the fraud… (the SEC’s failure) to demonstrate that there is any risk of future violation or that this is more than an isolated incident. It also denied the SEC’s motion requesting a third tier civil penalty, noting about the defendant that “it appears that she was influenced to enter and continue the scheme by her co-conspirator. She also cooperated with the Government, at least to the extent of a guilty plea, which mitigates, to some extent, the egregiousness of her conduct.”

In 2005, Steeples had pleaded guilty to related criminal charges and was sentenced to 70 months in prison and two years supervised release. She also has been ordered to pay more than $9 million in restitution. Co-defendant David Rabi who had been convicted after a trial, later died in prison.

Over the past decade, Shepherd Smith Edwards & Kantas LTD LLP, LLC has helped thousands of investors nationwide to recover their losses in securities fraud cases. Contact us today for a free, no obligation consultation. We have offices conveniently located in Chicago, New York, San Francisco, Houston, Dallas, Phoenix, New Orleans, and Mexico City.

Related Web Resource:

Trading Suspension of Inc., Securities Exchange Act of 1934, Release No. 46820 / November 13, 2002