Florida Man Fined $400,000 for Phony Tender Offers

Jack Humphrey, Regulatory journalist
January 13, 2012 /

The U.S. District Court for the Southern District of Florida in Miami entered final judgments against Allen E. Weintraub and his company, AWMS Acquisitions, Inc., for sham tender offers they made for the common stock of Eastman Kodak Company and AMR Corporation, the parent company of American Airlines.

The court’s order imposes permanent injunctions against Weintraub and Sterling Global and requires them to pay $400,000 in civil money penalties.

On December 30, 2011, the court entered an order granting the Securities and Exchange Commission’s motion for summary judgment against Weintraub, a resident of Aventura, Florida. In its order, the court found that Weintraub deceived the public by making false and misleading statements regarding Sterling Global’s ability to purchase and operate Kodak and AMR.

Specifically, the Court found that on March 19, 2011, Weintraub, on behalf of Sterling Global, emailed a written offer to Kodak for all its “outstanding stock” at a total price of approximately $1.3 billion in cash. On the same date, Weintraub emailed substantially the same letter to AMR offering to purchase all AMR’s “outstanding stock” for approximately $3.25 billion in cash. These offer prices represented almost a 50% premium over each company’s then current stock price.

Before submitting the offer letters to Kodak and AMR, Weintraub entered the local branches of three banking institutions to solicit respective loans of $3 billion, $3.5 billion, and $1.3 billion. Each institution informed Weintraub that they were not interested in establishing a business relationship.

Weintraub never obtained a letter of credit or other written financing agreement. The letters he sent to Kodak and AMR created the misleading impression that Sterling Global was poised to purchase the companies because Weintraub and Sterling Global had substantially no assets, and lacked the resources to complete the offers.

Weintraub emailed the purported tender offers to media outlets, investment research firms, and large shareholders in an effort to publicize his proposed deal.

In published media interviews, Weintraub misrepresented that he had the financial backing of “several large institutions,” could produce letters of credit “within five minutes,” had done similarly-sized deals, and was in discussions with Kodak about his offer.

Weintraub did not disclose several aspects of his personal background before submitting the offer letters to Kodak and AMR, or in his subsequent communications with shareholders and members of the press.

Specifically, Weintraub never disclosed that in 2008 he pleaded guilty to two felony counts of organized fraud and one count of felony money laundering, and that he was on probation when he submitted the offer letters to Kodak and AMR.

He also did not disclose that in 2002 the Court permanently enjoined him from acting as an officer or director of any public company as a result of a previous violation of federal securities law. SEC v. Florida Stock Transfer, Inc., et al.

Weintraub failed to disclose that he had filed for bankruptcy in 2007, and that his primary residence was foreclosed upon in 2008. Weintraub also did not divulge that on September 24, 2010, the Division of Corporations of the Florida Department of State administratively dissolved Sterling Global for failing to file its annual report.

The Court ordered them to each pay a civil money penalty in the amount of $200,000. The SEC did not seek any other remedies.

 

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