Maxxon et al.


U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 19132 / March 14, 2005

SECURITIES AND EXCHANGE COMMISSION V. MAXXON ET AL., Civil Action No. 02-CV-975 H(J) (U.S.D.C., N.D. Okla.)

U.S. DISTRICT COURT ISSUES PERMANENT INJUNCTION, FIVE-YEAR OFFICER AND DIRECTOR BAR, AND PERMANENT PENNY STOCK BAR AGAINST GIFFORD M. MABIE, JR., FOR ENGAGING IN SECURITIES FRAUD, AND ORDERS HIM TO PAY MORE THAN $1 MILLION

On March 11, 2005, Sven Erik Holmes, Chief Judge of the U.S. District Court for the Northern District of Oklahoma, issued a Final Judgment barring Gifford M. Mabie, Jr., president of Maxxon, Inc., a Tulsa-based company, from acting as an officer or director of any public company for a period of five years and permanently barring him from participating in any offering of penny stock. In addition, Judge Holmes issued permanent injunctions prohibiting Mabie and Maxxon from violating the antifraud provisions of the federal securities laws and ordered Mabie to pay more than $1 million in disgorgement, prejudgment interest, and penalties.

The decision followed a jury finding on November 18, 2004, that Maxxon and Mabie had engaged in securities fraud. The jury found that Mabie and Maxxon violated fraud provisions of the federal securities laws beginning October 7, 1998. The Commission had alleged that Mabie and Maxxon made false or misleading statements in various media about the company and a "safety syringe" the company stated it was attempting to develop. [LR No. 19013, December 22, 2004; see LR No. 17911, December 30, 2002.]

Judge Holmes called Mabie's violation of the securities law "egregious" and stated that Mabie had "demonstrated that he is unfit to serve as an officer or director for the time being."

The Final Judgment permanently enjoins Mabie and Maxxon from violating, or aiding and abetting the violation of, Section 10(b) of the Securities and Exchange Act of 1934 ("Exchange Act") and Exchange Act Rule 10b-5, which forbid knowingly or recklessly making false or misleading statements or omissions of material fact, or engaging in any act, practice, or course of business which operates as a fraud or deceit in connection with the purchase or sale of a security. The order also permanently enjoins Mabie and Maxxon from violating, or aiding and abetting the violation of, Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, which forbid fraud in the offer or sale of securities.

In finding that permanent injunctions were warranted, Judge Holmes stated, "Defendants' actions were not isolated incidents. Misleading statements regarding the safety syringe were made over a period of years with the intention of inflating the value of Maxxon stock. The Court finds that, given the degree of scienter and the scope of Defendant Mabie's involvement with several similar ‘developmental' corporations that he has promoted in recent years which have not sold a product or made a profit, there is a reasonable likelihood that future violations will occur."

Other relief ordered by Judge Holmes consisted of:

  • Permanently barring Mabie from participating in an offering of penny stock. A penny stock is generally considered to be any equity security that has a price of less than five dollars.
     
  • Requiring Mabie to pay disgorgement of $433,228.52, representing profits gained as a result of selling Maxxon shares at inflated prices during the period of his violations, together with prejudgment interest on those ill-gotten gains in the amount of $221,610.16.
     
  • Requiring Mabie to pay a civil penalty of $433,228.52, an amount equal to his disgorgement.

In a separate order, Judge Holmes denied Maxxon's and Mabie's motions for a new trial, or for judgment as a matter of law.