Vigue et al.

Litigation Rel. No. 16912 / February 28, 2001

Accounting and Auditing Enforcement Release No. 1373 / February 28, 2001

SEC v. Vigue et al., Civil Action No. 00113-B (United States District Court for the District of Maine, filed June 7, 2000)

The Securities and Exchange Commission announced today that James F. Vigue and Ivy L. Gilbert, the former CEO and CFO of Firstmark Corp., have settled the Commission's enforcement actions against them. The Commission's complaint alleged that Vigue and Gilbert carried out a long-running financial fraud and stock manipulation scheme involving the common stock of Firstmark, a Maine corporation formerly based in Waterville, Maine. Vigue and Gilbert, residents of Waterville, Maine, consented, without admitting or denying the allegations of the Commission's complaint, to the entry of permanent injunctions and have agreed to pay a total of $160,000 within eighteen months, plus postjudgment interest, to settle this action. Pursuant to their consents, Vigue is ordered to pay disgorgement plus prejudgment interest in the amount of $75,000 and a civil penalty of $50,000, and Gilbert is ordered to pay a civil penalty of $35,000. In addition, Vigue has agreed to be barred from serving as an officer or director of a public company. In a related consented-to administrative order, based on the entry of the injunctions, the Commission barred Vigue from association with any broker, dealer or investment adviser, and barred Gilbert from association with any broker, dealer or investment adviser, with the right to reapply for association after three years.

The Commission's complaint in SEC v. Vigue et al. (D. Maine, filed June 7, 2000), alleged that, from 1994 until early 1997, Vigue carried out a scheme to maintain the price of Firstmark stock at $4 per share by inflating Firstmark's assets and income in financial statements filed with the Commission, and by effecting manipulative transactions in client and customer accounts of Firstmark's broker-dealer and investment adviser subsidiaries. The complaint alleged that Vigue discouraged or prevented investors from selling their Firstmark stock; used nominee accounts to purchase Firstmark stock; effected trades where no real change in ownership took place ("wash sales"); and made purchases near the end of the trading day in order to increase Firstmark's stock price (known as "marking the close"). The complaint alleged that when the manipulation scheme collapsed, in early 1997, the price of Firstmark stock declined from approximately $4 to less than $1. On April 27, 1999, Firstmark stock was delisted from the NASDAQ SmallCap market. Many of Firstmark's approximately 650 shareholders are residents of the Waterville, Maine area.

The complaint further alleged that Gilbert and Vigue inflated Firstmark's assets and income in financial statements filed with the Commission. For the quarters ended December 1994 through March 1996, Firstmark's assets were overstated by ten to eighteen percent. For the fiscal year ended June 30, 1995, Firstmark reported net income before taxes of $771,895 when it should have reported a loss of $54,886. This resulted from Firstmark's failure to write off a $680,000 investment in a company that had become defunct, and from improperly treating as income a $146,781 increase in the value ofstock it owned in another company. In addition, the complaint alleged that Vigue defrauded his advisory clients by failing to disclose investment risks, his receipt of commissions and his conflicts of interest. The complaint also alleged that Gilbert aided and abetted Vigue's manipulation scheme by misrepresenting account activity and falsifying client reports issued to conceal purchases of Firstmark stock.

The complaint alleged that Vigue violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The complaint also alleged that Vigue violated the margin requirements set forth in Section 7(d) of the Exchange Act and Regulation T, and failed to implement and maintain internal controls at Firstmark in violation of Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder. The complaint further alleged that, as the control person of Firstmark's brokerage firm, Vigue is liable under Section 20 of the Exchange Act for the brokerage firm's violations of the antifraud provisions as set forth in Sections 10(b) and 15(c) of the Exchange Act and Rules 10b-3 and 15c1-2 thereunder. Finally, the complaint alleged that Vigue aided and abetted violations by Firstmark's investment adviser subsidiary of Sections 206(1) and 206(2) of the Advisers Act.

The complaint alleged that Gilbert violated Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and that she aided and abetted Vigue's violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Sections 206(1) and 206(2) of the Advisers Act.

The Commission wishes to thank the State of Maine Securities Division for its assistance with this matter.

For further information, see Lit. Rel. No. 16586.