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Author Topic: CSHD: The Never-ending Story
Mr. CATIAEngineer
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It makes it difficult for a group of people, like shareholders in a penny stock, to really all come together as a single unit. The reputation of the business just doesnt support it IMO. Its a playground for the dishonest.
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wallymac
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quote:
Originally posted by Mr. CATIAEngineer:
It makes it difficult for a group of people, like shareholders in a penny stock, to really all come together as a single unit. The reputation of the business just doesnt support it IMO. Its a playground for the dishonest.

Actually if you learn the rules of the game you not only survive but can make money. Number one is to keep emotion out. Number two is to protect your capital, take the profit when it there.

We all have done it and probably still do it at times, I'm talking about waiting for the next leg up instead of cashing out and taking profits.

The deceitful use this to their advantage. It's called greed. Not saying that all people who look for a higher exit point are bad or that greed in and of itself is bad but those looking to take advantage of the retail buyer use it to their advantage.

Entry and exit strategy go hand in hand. One without the other spells doom.

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wallymac
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quote:
Originally posted by Mr. CATIAEngineer:
It makes it difficult for a group of people, like shareholders in a penny stock, to really all come together as a single unit. The reputation of the business just doesnt support it IMO. Its a playground for the dishonest.

I disagree. If we can base decision on the other traders/investors that through time have proven themselves worthy and not on the dishonest business we can come together, to look at, analyze, discuss openly without character assassination, the business and prospects of these businesses, we can win.
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Mr. CATIAEngineer
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quote:
Originally posted by wallymac:
quote:
Originally posted by Mr. CATIAEngineer:
It makes it difficult for a group of people, like shareholders in a penny stock, to really all come together as a single unit. The reputation of the business just doesnt support it IMO. Its a playground for the dishonest.

I disagree. If we can base decision on the other traders/investors that through time have proven themselves worthy and not on the dishonest business we can come together, to look at, analyze, discuss openly without character assassination, the business and prospects of these businesses, we can win.
"through time have proven themselves"

Thats what i meant by difficult. I agree with your post, but in some cases it may be too late once the people have come together.

The more stock related investigations I read about, the more I realize that "time" is an issue. The bad guys get it done in a flurry of mind blowing activity and then gone before the bottom falls out. Thats where the existence of emotions will hurt the trader. Without the emotion you should be able see through the flurry and act accordingly.

But if youre fortunate enough to meet some people along the way I suppose with each play you have a better and better chance of success. [Wink]

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T e x
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quote:
Originally posted by 66inxs:
We have always had a pretty good team here on Allstocks and I enjoy being a part of it. I will make a real effort to stay out of the drama and stick to the facts. I also hope i don't have a "black heart". Serenity in life is also a virtue.

Sticking to facts is crucial to my meaning of "black heart."

You demonstrated "thick face" by immediately owning up to your take on the same-names, different states.

In a different light, a boss I once had on a framing crew told us one morning, "If you ain't making mistakes...you ain't working very hard."

The corollary, though, is: always better to correct mistakes as soon as possible. Those without "thick face" have an over-riding ego that makes it difficult to concede mistakes.

--------------------
Nashoba Holba Chepulechi
Adventures in microcapitalism...

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wallymac
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quote:
Originally posted by Mr. CATIAEngineer:
quote:
Originally posted by wallymac:
quote:
Originally posted by Mr. CATIAEngineer:
It makes it difficult for a group of people, like shareholders in a penny stock, to really all come together as a single unit. The reputation of the business just doesnt support it IMO. Its a playground for the dishonest.

I disagree. If we can base decision on the other traders/investors that through time have proven themselves worthy and not on the dishonest business we can come together, to look at, analyze, discuss openly without character assassination, the business and prospects of these businesses, we can win.
"through time have proven themselves"

Thats what i meant by difficult. I agree with your post, but in some cases it may be too late once the people have come together.

The more stock related investigations I read about, the more I realize that "time" is an issue. The bad guys get it done in a flurry of mind blowing activity and then gone before the bottom falls out. Thats where the existence of emotions will hurt the trader. Without the emotion you should be able see through the flurry and act accordingly.

But if youre fortunate enough to meet some people along the way I suppose with each play you have a better and better chance of success. [Wink]

Yes as we learn and share what we have learned the better we, as a group get. Those that allow emotion to drive them don't learn, they simple go on and on about how they were deceived.

Heck, I stayed away from this thread for a long time until someone came along to rabble rouse. I do have to say I learned a lot on this play, due to some very good people.

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Mr. CATIAEngineer
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quote:
Originally posted by wallymac:
quote:
Originally posted by Mr. CATIAEngineer:
quote:
Originally posted by wallymac:
quote:
Originally posted by Mr. CATIAEngineer:
It makes it difficult for a group of people, like shareholders in a penny stock, to really all come together as a single unit. The reputation of the business just doesnt support it IMO. Its a playground for the dishonest.

I disagree. If we can base decision on the other traders/investors that through time have proven themselves worthy and not on the dishonest business we can come together, to look at, analyze, discuss openly without character assassination, the business and prospects of these businesses, we can win.
"through time have proven themselves"

Thats what i meant by difficult. I agree with your post, but in some cases it may be too late once the people have come together.

The more stock related investigations I read about, the more I realize that "time" is an issue. The bad guys get it done in a flurry of mind blowing activity and then gone before the bottom falls out. Thats where the existence of emotions will hurt the trader. Without the emotion you should be able see through the flurry and act accordingly.

But if youre fortunate enough to meet some people along the way I suppose with each play you have a better and better chance of success. [Wink]

Yes as we learn and share what we have learned the better we, as a group get. Those that allow emotion to drive them don't learn, they simple go on and on about how they were deceived.

Heck, I stayed away from this thread for a long time until someone came along to rabble rouse. I do have to say I learned a lot on this play, due to some very good people.

Ive actually been in a comfortable position with this stock since around August 06 thanks to several members here. I had never been involved in anything like it and who knows what I may have done "on my own". I could have done a lot worse.

I could have done A LOT better too though [Were Down]

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Peaser
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quote:
Originally posted by Mr. CATIAEngineer:
It makes it difficult for a group of people, like shareholders in a penny stock, to really all come together as a single unit. The reputation of the business just doesnt support it IMO. Its a playground for the dishonest.

Yup. IMO, that's why it is best to stick to the big boards.

I learned my lessons playing in the pennies. With the majority of these "companies," not all is as it seems. I made out well on a few of these scam plays, unfortunately I lost on a few too.

There are credible penny stocks out there, just gets real tiring sludging through the muck...

--------------------
Buy Low. Sell High.

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Peaser
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My comment on the last page about paople getting banned on message boards was meant as humorous, in case not all were aware.

I was chuckling as I wrote it, as I'm sure those that know me were as well.

For those, that are unaware, I was banned from a pro Rufus board as some here have been. I was just there to cause trouble for the "company" and attempt to pull folks from the "death star" so to speak.

The dang force dun let me down tho, as my craft was destroyed! LOL

--------------------
Buy Low. Sell High.

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Ocqueoc
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Good morning!!

It's nice to see, that peole are "playing" nice again [Smile]

Have a great day!

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frank021474
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quote:
Originally posted by Mr. CATIAEngineer:
quote:
Originally posted by T e x:
well, omigosh...

personally, am not into the karma of "miserable-ness"...

but I see nothing wrong with credible follow-up in the interests of justice...

In other words, once again, this is business. No one should let emotions over-ride. That's how peeps get into stalking, midnight-harrasing phone calls, threats, etc.

As traders, we want--no, need--our personal lives to be as calm as possible.

Thick face, black heart: I know it "sounds" ominous...and can be "twisted" (oooh, Tex said 'black heart'), but seriously, that's the deal with trading. Like a surgeon, we're detached and all about the matter at hand... when we go in, and when we come out.

lol, hopeably, we don't leave a sponge inside...

Thrive among the cunning and ruthless through masterful dishonesty.....
 -

Sad but true Mr T

Is that a carbon credit? [Razz]

--------------------
Got CSHD? Its fun

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bbbmine
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Wow--
And here I thought I was the only person not posting anywhere... but threads are dead all over!

Great US Open on TV. I love Torrey Pines-- but it's even better to see in person. Maybe I'll do that trip again next year.

Well, if there's any lurkers that I know out there... HELLO!

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stocktrader22
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Rufus go to jail

--------------------
Disclaimer: Not accountable for anything I say

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unclerudy
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Flurry, flurry, flurry... nothing...

Is that pretty much what is happening?

--------------------
Muad'Dib knew that every experience carries its lesson.

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thecon00
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Was Samuel Israel's name ever thrown into the mix in cshd??? -


Fugitive hedge-fund swindler surrenders in Mass. By LARRY NEUMEISTER, Associated Press Writer
32 minutes ago



NEW YORK — A hedge fund swindler who set off a national manhunt when he faked his suicide to avoid reporting to prison surrendered Wednesday to Massachusetts police after three weeks in which authorities suspected he was hiding out in RV parks and highway rest areas. Authorities say his own mother helped broker the surrender.

Samuel Israel III, 48, walked into the police station in Southwick, Mass., at about 9:15 a.m. wearing a colored T-shirt and shorts, identified himself and said he was a fugitive wanted by the federal government, officials said.

"He was polite, very contrite and a perfect gentleman at all times," said Southwick police officer Paul Miles.

Israel disappeared June 9 just hours before he was to report to prison to begin serving a 20-year sentence handed down in April for his role in the collapse of the Bayou hedge funds.

Israel's SUV was found abandoned on a bridge over the Hudson River in suburban New York City with the words "Suicide is Painless" — the theme song for the "MASH" television show — scrawled in dust on the hood.

Prosecutors said he and two other men scammed investors into putting $450 million into the funds by announcing nonexistent profits and providing fake audits, and made millions in commissions on trades that lost money for the investors. The collapse of the funds prompted calls for stricter oversight.

Frank Dawson, public information officer for the U.S. Marshals Service in Boston, said Israel was talking to his mother on his cell phone when he surrendered. He said the marshals' service had been in contact for several days with Israel's mother in Illinois and as a result, the surrender was "more or less expected."

"Obviously, she probably had some kind of influence, which mothers usually do," Dawson said. "He knew they were getting close to him, so he probably did the right thing."

Officials said the recreational vehicle in which Israel fled was found in nearby Granville, Mass. Israel had planned to surrender in Granville but the town's part-time police department was closed, so he rode a motor scooter to Southwick to turn himself in, they said.

Israel was expected to appear in federal court in Springfield, Mass., later Wednesday. A call to his lawyer, Lawrence S. Bader, wasn't immediately returned.

Almost as soon as Israel's SUV was found, its key in the ignition, authorities suspected he had faked his disappearance. No body was found beneath the 150-foot-high bridge, and the anthem "Suicide is Painless" was sung during a fake suicide in the original "MASH" movie.

Officials said Israel fled in the RV with a scooter and other belongings. He was thought to be staying at RV parks, campgrounds or highway rest areas.

His girlfriend, Debra Ryan of Armonk, was arrested 10 days after his disappearance and charged with aiding and abetting his escape.

Ryan told authorities that on the day Israel was to surrender, she drove her car and he drove the RV to a rest area. Israel parked the RV there, and the two drove back to their home.

After Israel stopped on Bear Mountain Bridge, near West Point about 40 miles north of New York City, surveillance video showed a second car slowly pass his SUV and then stop.

That could explain how he got from the bridge to the rest area, but authorities have never confirmed reports that the driver of the second car had been questioned.

Ryan could face as many as 10 years in prison if convicted in the scheme to help Israel flee.

Southwick, where Israel turned himself in, is near the Connecticut line about 100 miles southwest of Boston. It is also about 95 miles away from the federal prison in Ayer, Mass., where Israel was to report.

Already facing a length prison term for conspiracy and fraud, Israel was likely to be charged with failing to surrender to serve a federal sentence, authorities said.

In a separate development, federal prosecutors announced Wednesday that more than $115 million is available to pay back victims of the Bayou fraud. The money includes whatever was forfeited by Israel and his co-defendants as part of their sentences, plus interest. The total loss to investors was about $300 million.

___

Associated Press writers Mark Pratt and Denise Lavoie in Boston and Tom Hays and Jim Fitzgerald in New York contributed to this report.

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TakeAShot
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not that I remember.....

--------------------
Live With Passion!

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Ocqueoc
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HAPPY 4TH OF JULY [Smile]
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TimW
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HAPPY LATE 4TH!!!

Fireworks were awesome here. Kid's all loved it.

GL 2 All with your "real" stocks on Monday. I feel a rebound for all!!

--------------------
Buy high, sell higher.

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TimW
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I was just going through throwing out things.. and i found my 6,500 CSHD share certificate.. I stopped for a moment.. thinking.. wow.. this cost me $12,000 at one time, and it currently worth a couple bucks.

I decided to keep it. I'll eventually frame it and hang it in my office as a reminder to TAKE PROFITS lol.

--------------------
Buy high, sell higher.

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PCola77
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Yikes Tim. Definitely a rough learning experience.
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Stockstar69
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quote:
Originally posted by TimW:
I was just going through throwing out things.. and i found my 6,500 CSHD share certificate.. I stopped for a moment.. thinking.. wow.. this cost me $12,000 at one time, and it currently worth a couple bucks.

I decided to keep it. I'll eventually frame it and hang it in my office as a reminder to TAKE PROFITS lol.

Yes frame it and hope someone steals it. Then tell the insurance company some of you rare and PRICELESS artwork was stolen. Priceless as in at least you would not be telling a lie.
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TimW
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LOL!!!!!!!

--------------------
Buy high, sell higher.

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TimW
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New doc on Pacer:

27 Filed & Entered: 07/21/2008
Order on Motion for Reconsideration

--------------------
Buy high, sell higher.

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TimW
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Heres the big news out of it:

Having found Defendants liable for the violations alleged in the Complaint,
the Court next considers the question of relief. The SEC requests permanent
injunctive relief, an Order barring Mr. Harris from acting as a director or officer of
certain organizations, and a civil penalty. The Court has scheduled an evidentiary
hearing on September 10, 2008 at 1:30 pm to determine the appropriate relief in this
case.

and it is finished off with...

The Court will hold a hearing on September 10, 2008 at 1:30 pm to determine
the appropriate relief to be awarded in this case.
SO ORDERED this 21st day of July, 2008.
s/ CLARENCE COOPER
CLARENCE COOPER
UNITED STATES DISTRICT JUDGE

--------------------
Buy high, sell higher.

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PCola77
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I'd like to "relief" myself in his front yard.
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66inxs
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IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
SECURITIES AND EXCHANGE :
COMMISSION, :
:
Plaintiff, ::
CIVIL ACTION NO.
vs. :
: 1:06-CV-2568-CC
CONVERSION SOLUTIONS HOLDING :
CORPORATION and RUFUS PAUL :
HARRIS a/k/a PAUL RUFUS HARRIS, :
:
Defendants. :
ORDER
This matter is presently before the Court on Defendant Rufus Paul Harris’
Motion for Reconsideration / Rehearing of the October 30th Order Entered by this
Court [Doc. No. 20], Plaintiff’s Motion for Default Judgment [Doc. No. 21], and
Defendant Harris’ Verified Motion to Compel Discovery and Motion for Sanctions
for Failing to Disclose [Doc. No. 23]. The Court will address each motion in turn
below.
I. MOTION FOR RECONSIDERATION
On October 30, 2007, this Court entered an Order denying Defendant Harris’
motion to set aside the entry of default against him on the grounds that Mr. Harris
had failed to show good cause for setting aside the entry of default, pursuant to
Federal Rule of Civil Procedure 55. On November 7, 2007, Mr. Harris filed the
instant motion for reconsideration of that decision.
A motion for reconsideration is not a form of relief explicitly recognized by
the Federal Rules of Civil Procedure. Although not specifically mentioned in the
rules, motions seeking to have the court reconsider an earlier ruling are usually
considered pursuant to Rule 59. Federal Rule of Civil Procedure 59(e) authorizes a
motion to alter or amend a judgment after its entry. Reconsideration is only proper
Case 1:06-cv-02568-CC Document 27 Filed 07/21/2008 Page 1 of 15
- 2 -
if the movant has demonstrated that: (1) there has been an intervening change in the
law, (2) new evidence has been discovered that was not previously available to the
parties at the time the original order was entered or (3) reconsideration is necessary
to correct a clear error of law or prevent manifest injustice. Bryan v. Murphy, 246
F. Supp. 2d 1256, 1258-59 (N.D. Ga. 2003). As the Local Rules of this Court direct,
“[m]otions for reconsideration shall not be filed as a matter of routine practice.”
Local Rule 7.2E. The decision whether to alter or amend a judgment pursuant to
Rule 59(e) is “committed to the sound discretion of the district judge.” Mincey v.
Head, 206 F.3d 1106, 1137 (11th Cir. 2000)(citation omitted). Rule 59(e) motions must
be filed no later than ten days after entry of the judgment. Fed. R. Civ. P. 59(e). The
Local Rules of this Court expressly require that motions for reconsideration be filed
within ten (10) days after the entry of the Order that the movant contends should be
reconsidered. See Local Rule 7.2E. Mr. Harris’ motion for reconsideration is timely,
and the Court accordingly proceeds to consider the merits of the motion.
Mr. Harris identifies the following grounds to support his motion for
reconsideration: (1) the Court did not conduct a hearing on the motion; (2)
Defendant did not have sufficient funds to hire an attorney to defend him in this
action; (3) Defendant was relieved of his position with Conversion Solutions
Holding Corporation and accordingly did not have access to records necessary to
formulate a defense; (4) the Securities and Exchange Commission (the “SEC”) seized
records and deprived Defendant of access to the records necessary to prepare an
answer; (5) Defendant cooperated with the SEC and understood that the SEC would
subpoena the documents necessary for Mr. Harris’ defense; (6) improper conduct
on the part of the SEC and SEC counsel, including withholding of information from
Mr. Harris; (7) that when Defendant realized that the SEC would not supply him
with the necessary information, he filed an answer; ( the SEC has unclean hands
Case 1:06-cv-02568-CC Document 27 Filed 07/21/2008 Page 2 of 15
- 3 -
and has withheld exculpatory evidence; (9) Mr. Harris’ failure to file a timely answer
was caused by the actions of the SEC’s counsel; and (10) three additional events
prevented Mr. Harris from filing an answer, including the seizure of an email
account, the seizure of the names of illegal shareholders, and the unavailability of
office phone recordings and messages. Notwithstanding these various arguments,
however, Mr. Harris has not identified a change in the law, newly-discovered
evidence, or a need to correct clear error that would support his request that the
Court reconsider its October 30, 2007 Order. Instead, Mr. Harris’ motion for
reconsideration merely recites arguments that could have been made in his initial
motion to set aside default, and it provides no basis for the Court to reconsider its
prior decision. See Pres. Endangered Areas of Cobb’s History, Inc. v. U.S. Army
Corps of Eng’rs, 916 F. Supp. 1557, 1560 (N.D. Ga. 1995) (“A motion for
reconsideration is not an opportunity for the moving party . . . to instruct the court
on how the court ‘could have done it better’ the first time.”); Carey v. BellSouth
Short Term Disability Plan, No. 1:06-CV-2589-WSD, 2008 U.S. Dist. LEXIS 15490
(N.D. Ga. Feb. 29, 2008) (“A motion for reconsideration should not be used to
present the Court with arguments already heard and dismissed, or to offer new legal
theories or evidence that could have been presented in a previously-filed motion.”).
Mr. Harris’ motion for reconsideration is therefore DENIED.
II. MOTION FOR DEFAULT JUDGMENT
On October 24, 2006, the SEC filed its Complaint for Injunctive and Other
Relief [Doc. No. 1] (“Complaint”) in the instant case. The next day, on October 25,
2006, the Court held a hearing on the SEC’s motion for temporary restraining order
and thereafter granted the SEC’s motion. Defendant Harris was present at the
October 25, 2006 hearing. On November 16, 2007, the SEC filed proof of service
indicating that Mr. Harris was served with a copy of the summons and Complaint
Case 1:06-cv-02568-CC Document 27 Filed 07/21/2008 Page 3 of 15
1 In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1982) (en banc), the
United States Court of Appeals for the Eleventh Circuit adopted as binding precedent all
decisions of the former Fifth Circuit entered prior to October 1, 1981.
- 4 -
on November 4, 2006 [Doc. No. 9-3] and Defendant Conversion Solutions
Corporation (“Conversion”) was served with a copy of the summons and Complaint
on October 26, 2006 [Doc. No. 9-2]. Neither Defendant filed a timely answer, and the
Clerk of Court entered default against Mr. Harris on November 29, 2006 and against
Conversion on November 17, 2006, pursuant to Federal Rule of Civil Procedure
55(a). On April 27, 2007, Mr. Harris filed an answer, purportedly on behalf of
himself and Conversion. This Court struck the April 24, 2007 answer and denied
Mr. Harris’ motion to set aside the entry of default on October 30, 2007. As set forth
in the previous section, the Court has denied Mr. Harris’ motion for reconsideration
of the October 30, 2007 Order. The SEC moves for default judgment against both
Defendants pursuant to Federal Rule of Civil Procedure 55(b).
A. Legal Standard
The entry of default judgment by a court is discretionary. See Fed. R. Civ. P.
55(b) (noting that judgment by default may be entered). To determine whether
default judgment is appropriately entered, the court considers the allegations in the
complaint. “The defendant, by his default, admits the plaintiff’s well-pleaded
allegations of fact.” Nishimatsu Constr. Co. v. Houston Nat’l Bank, 515 F.2d 1200,
1206 (5th Cir. 1975).1 “There must be a sufficient basis in the pleadings for the
judgment entered.” Id. Although a defaulted defendant is deemed to “admit[] the
plaintiff’s well-pleaded allegations of fact,” that defendant “is not held to admit facts
that are not well-pleaded or to admit conclusions of law.” Id.
B. Analysis
The Court will first review the claims for relief asserted in the Complaint. The
Case 1:06-cv-02568-CC Document 27 Filed 07/21/2008 Page 4 of 15
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Complaint asserts that both Defendants violated of Section 10(b) of the Exchange Act
and Rule 10b-5. The Complaint additionally alleges that Conversion violated
Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-11 and that Mr.
Harris aided and abetted Conversion’s violations. Finally, the Complaint alleges
that Mr. Harris signed false certifications, in violation of Rule 13a-14.
1. Well-pleaded allegations of fact
By their default, Mr. Harris and Conversion have admitted the Complaint’s
well-pleaded allegations of fact. Accordingly, the Court considers the facts set forth
below when evaluating Defendants’ liability in this case. Conversion is a publiclytraded
company, incorporated in Delaware on February 11, 2005, with a principal
place of business in Kennesaw, Georgia. Conversion purports to be a “diversified
holdings company which was formed to originate, fund and source funding for
asset-based transactions in the private market.” Conversion’s stock has been quoted
publicly on the OTC Bulletin Board under the symbol CSHD or CDSH.OB since
August 2006 and is also traded on the Berlin stock exchange. At the time the
Complaint was filed, Defendant Harris was the Chief Executive Officer (“CEO”) of
Conversion.
On September 26, 2006, Conversion filed a Form 8-K with the SEC using Mr.
Harris’ electronic signature. The Form 8-K stated that Conversion’s “Board of
Directors has approved a contract extension with the Caracas Group and accepted
into its Asset Management Portfolio an additional 5 Billion Euro denominated
Global Bonds on the Republic of Venezuela with an 11% annual coupon.” This
statement, which was also made in a September 25, 2006 press release, was false.
The Form 8-K and the press release stated that the bond had been loaded in the
Euroclear system with an international security identification number of
DE0006106875 and a Common Code of 012481241. These identifying codes
Case 1:06-cv-02568-CC Document 27 Filed 07/21/2008 Page 5 of 15
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correspond to a €700 million bond series issued by Venezuela, not a €5 billion series.
On September 27, 2006, Conversion and Mr. Harris issued another press release
restating the same claim. Conversion does not own or manage as an asset the entire
€700 million bond series issued by Venezuela corresponding to the identifying codes
used in the press releases and the Form 8-K. There has been trading activity in the
€700 million Venezuelan bond series in question during the period Conversion
claims to have owned it.
On September 27, 2006, Conversion and Mr. Harris issued another press
release stating that Conversion had “obtained contracts from . . . Deutche [sic] Bank,
ABN Amro Bank, Dresdner Bank and Kommerce [sic] Bank” and that “the
mentioned banks will be the foundation for our projected funding platform.” The
press release contained material misstatements of fact or, at a minimum, was
misleading.
On September 26, 2006, Conversion filed an amended current report under
Form 8-K/A with the SEC. Audited financial statements for the period ending June
30, 2006 were attached to the Form 8-K/A. In the financial statements, Conversion
listed assets including a long-term investment in bonds valued at $500 million. Note
12 to the financial statements explained that, on March 15, 2006, Conversion
“acquired full ownership of Global Bonds issued through the Republic of Venezuela
with an issuance date of July 31, 1998 and a maturity date of August 15, 2018. The
principal amount of the bonds is $500,000,000 USD with a fixed interest rate of
13.625%, computed on a semi-annual basis.” Note 12 went on to give the Common
and international security identification numbers for the bonds and stated that the
bonds had been acquired on March 15, 2006. Conversion’s claim to have acquired
the entire series of $500 million Venezuela bonds on March 15, 2006 and to have held
them through June 30, 2006, is false. Some, and possibly all, of the $500 million
Case 1:06-cv-02568-CC Document 27 Filed 07/21/2008 Page 6 of 15
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Venezuelan bond issue was owned by entities other than Conversion during the
relevant time period. There has been trading activity in the bond issue during the
period Conversion claims to have owned it. A substantial portion of the $500
million bond issue, approximately $39 million, has been owned by corporate
affiliates of FMR Co. (Fidelity Investments) during the relevant period.
On October 16, 2006, Conversion filed an annual report on Form 10-KSB with
the SEC. On October 17 and 19, 2006, Conversion filed amended annual reports on
Forms 10-KSB/A with the SEC. With regard to the $500 million Venezuelan bond
issue, the audited financial statements attached to these forms were essentially
identical to those incorporated in the Form 8-K/A discussed above. Conversion’s
claim to have acquired the entire series of $500 million Venezuela bonds on March
15, 2006 and held them through June 30, 2006, was repeated in the Form 10-KSB and
the Forms 10-KSB/A.
Mr. Harris, the CEO, caused the above-referenced statements to be made and
either knew the statements were false and misleading or recklessly disregarded the
risk that they were false and misleading. Conversion and Mr. Harris, directly or
indirectly, made use of the mails or means or instruments of transportation or
communication in interstate commerce.
Trading activity in Conversion’s stock increased dramatically after the two
September 27, 2006 press releases were issued. On Tuesday, September 26, 2006,
Conversion’s stock closed at a price of $1.01 per share on a volume of 498,303 shares
traded. On September 27, 2006, the stock closed at $1.75 per share on a volume of
4,932,180 shares, an increase of over 73% in price and almost 890% in trading
volume. On September 28, 2006, Conversion’s stock closed at $3.02 per share on a
volume of 14,037,728 shares traded.
Case 1:06-cv-02568-CC Document 27 Filed 07/21/2008 Page 7 of 15
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2. Violations established by Defendants’ admission of well-pleaded
facts
As previously noted, the SEC alleges that Conversion and Mr. Harris violated
Section 10b of the SEC, 15 U.S.C. § 78j(b), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5.
Section 10b states:
It shall be unlawful for any person . . . [t]o use or employ, in connection
with the purchase or sale of any security . . . any manipulative or
deceptive device or contrivance in contravention of such rules and
regulations as the Commission may prescribe as necessary or
appropriate in the public interest or for the protection of investors.
15 U.S.C. § 78j(b). Rule 10b-5(b) provides that “t shall be unlawful for any person
. . . [t]o make any untrue statement of a material fact or to omit to state a material
fact necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading. . . .” 17 C.F.R. §
240.10b-5. To state a claim under Section 10(b) and Rule 10b-5, the SEC must show:
“(1) a misrepresentation or omission, (2) that was material, (3) which was made . .
. in connection with the purchase or sale of securities . . . , (4 ) scienter, and (5) the
involvement of interstate commerce, the mails, or a national securities exchange.”
Securities and Exchange Commission v. Dauplaise, No. 6:05-cv-1391-Orl-31KRS,
2006 U.S. Dist. LEXIS 9589 (M.D. Fla. Feb. 22, 2006). Scienter may be established
by a showing of severe recklessness, which is defined as “those highly unreasonable
omissions or misrepresentations that involve not merely simple or even inexcusable
negligence, but an extreme departure from the standards of ordinary care, and that
present a danger of misleading buyers or sellers which is either known to the
defendant or is so obvious that the defendant must have been aware of it.” Ziemba
v. Cascade Int'l, Inc., 256 F.3d 1194, 1202 (11th Cir. 2001) (citation omitted). Material
information is “information that is substantially likely to be important to a
reasonable investor in deciding whether to purchase, sell, or hold securities.”
Dauplaise, *17 n.13 (citation and marks omitted). Having carefully and thoroughly
Case 1:06-cv-02568-CC Document 27 Filed 07/21/2008 Page 8 of 15
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reviewed the Complaint, the Court concludes that the well-pleaded allegations
contained therein, as set forth above and which Mr. Harris and Conversion have
admitted by virtue of their default, establish a violation of Section 10(b) and Rule
10b-5. Conversion’s filings with the SEC, signed by Mr. Harris, represented that
Conversion owned and/or managed millions of dollars in bonds which were not,
in fact, owned or managed by Conversion, and this information could only be
described as information that would be important to a reasonable investor. Press
releases were issued containing the same false information. The release of this
information influenced the price and trading of Conversion’s stock. Mr. Harris
knew that the bond information was false and/or acted with severe recklessness in
connection with the SEC filings and press releases, and Mr. Harris’ scienter may be
imputed to Conversion. See SEC v. K.W. Brown & Co., No. 05-80367-CIVMIDDLEBROOKS/
JOHNSON, 2007 U.S. Dist. LEXIS 97024, (S.D. Fla. Dec. 19, 2007).
A violation of Section 10(b) and Rule 10b-5 has been established.
The SEC additionally alleges that Conversion violated Section 13(a) of the
Exchange Act and Rules 12b-20, 13a-1, and 13a-11 and that Mr. Harris aided and
abetted Conversion’s violations. Section 13(a) requires that each issuer of registered
securities file with the Commission certain information and reports. It reads as
follows:
Periodical and other reports
(a) Reports by issuer of security; contents
Every issuer of a security registered pursuant to section 78l of this title
shall file with the Commission, in accordance with such rules and
regulations as the Commission may prescribe as necessary or
appropriate for the proper protection of investors and to insure fair
dealing in the security--
(1) such information and documents (and such copies thereof) as the
Commission shall require to keep reasonably current the information
and documents required to be included in or filed with an application
or registration statement filed pursuant to section 78l of this title, except
Case 1:06-cv-02568-CC Document 27 Filed 07/21/2008 Page 9 of 15
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that the Commission may not require the filing of any material contract
wholly executed before July 1, 1962.
(2) such annual reports (and such copies thereof), certified if required
by the rules and regulations of the Commission by independent public
accountants, and such quarterly reports (and such copies thereof), as
the Commission may prescribe.
Every issuer of a security registered on a national securities exchange
shall also file a duplicate original of such information, documents, and
reports with the exchange.
15 U.S.C. § 78m(a). Rules 13a-1 requires registrants to file annual reports on Form
10-K and Rule 13a-11 requires a registrant to file current reports on Form 8-K. See
17 C.F.R. § 240.13a-1; 17 C.F.R. § 240.13a-11. Rule 12b-20 requires that other material
information be disclosed as necessary to make the required statements not
misleading. 17 C.F.R. § 240.12b-20. As this Court has noted, “[t]hese reporting
requirements were designed to ensure that investors receive adequate information
upon which to base their investment decisions [and] are a crucial element in the
federal government’s efforts to maintain the integrity of the nation’s financial
markets.” SEC v. World-Wide Coin Investments, Ltd., 567 F. Supp. 724, 789 (N.D.
Ga. 1983). “Courts have held that implicit in the reporting requirements of the
Exchange Act is a duty to report truthfully and completely.” SEC v. Indigenous
Global Dev. Corp., No. C-06-05600 JCS, 2008 U.S. Dist. LEXIS 50434 (N.D. Cal. June
30, 2008) (citing SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1165 (D.C. Cir. 1978)). To
establish a violation of Section 13(a) and the related rules, the SEC is not required to
show scienter. See SEC v. Koenig, 469 F.2d 198, 200 (2d Cir. 1972); SEC v. McNulty,
No. 94 Civ. 7114 (MBM), 1996 U.S. Dist. LEXIS 10649 (S.D.N.Y. July 29, 1996). The
Complaint alleges that in September and October 2006, Conversion filed with the
SEC a current report and an amended current report on Forms 8-K and 8-K/A and
an annual report and two amended annual reports on Forms 10-KSB and 10-KSB/A
that fraudulently overstated Conversion’s assets. The fraudulent overstatement of
Case 1:06-cv-02568-CC Document 27 Filed 07/21/2008 Page 10 of 15
- 11 -
assets relates to the purported bond ownership and related bond amounts that have
previously been discussed in this Order. The Court finds that the well-pleaded
allegations of the Complaint are sufficient to establish that Conversion violated the
reporting requirements.
The SEC alleges that Mr. Harris aided and abetted Conversion’s violations of
the reporting requirements. “For aiding and abetting liability under the federal
securities laws, three elements must be established: (1) a primary or independent
securities law violation committed by another party; (2) awareness or knowledge by
the aider and abettor that his or her role was part of an overall activity that was
improper; . . . and (3) that the aider and abettor knowingly and substantially
assisted the conduct that constitutes the violation.” K.W. Brown & Co., 2007 U.S.
Dist. LEXIS 97024, at *76-77 (citations omitted); see also 15 U.S.C. § 78t(e). “The
element of substantial assistance is met when, based upon all the circumstances
surrounding the conduct in question, a defendant’s actions are a ‘substantial causal
factor’ in bringing about the primary violation.” K.W. Brown & Co., 2007 U.S. Dist.
LEXIS 97024, at *79 (citations omitted). As previously stated, the SEC has
established Conversion’s violations of the reporting requirements. According to the
well-pleaded allegations of the Complaint, Mr. Harris caused the false statements
and reports to be made. The SEC has established that Mr. Harris aided and abetted
Conversions reporting violations.
Finally, the Complaint alleges that Mr. Harris signed false certifications, in
violation of Rule 13a-14. Rule 13a-4 provides that each report required to be filed
under Section 13(a) of the Exchange Act, including Forms 10-Q, 10-K, 20-F or 40-F,
and each periodic report containing financial statements, must include a certification
signed by the principal executive and principal financial officer indicating that,
among other things, the report contains no material misstatements and omits no
Case 1:06-cv-02568-CC Document 27 Filed 07/21/2008 Page 11 of 15
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material information, to the best of the officer’s knowledge. 17 C.F.R. § 240.13a-14.
The Court finds that, based on the well-pleaded allegations of the Complaint, Mr.
Harris violated this requirement by signing certifications of forms filed with the
SEC, even though he knew that the forms contained material misstatements.
3. Relief
Having found Defendants liable for the violations alleged in the Complaint,
the Court next considers the question of relief. The SEC requests permanent
injunctive relief, an Order barring Mr. Harris from acting as a director or officer of
certain organizations, and a civil penalty. The Court has scheduled an evidentiary
hearing on September 10, 2008 at 1:30 pm to determine the appropriate relief in this
case.
The SEC “is entitled to injunctive relief when it establishes (1) a prima facie
case of previous violations of federal securities laws, and (2) a reasonable likelihood
that the wrong will be repeated.” S.E.C. v. Calvo, 378 F.3d 1211, 1216 (11th Cir.
2004)(citation omitted); see also S.E.C. v. Unique Financial Concepts, Inc., 119 F.
Supp.2d 1332, 1338 (S.D. Fla. 1998)(citations omitted). “Indicia that a wrong will be
repeated include the egregiousness of the defendant's actions, the isolated or
recurrent nature of the infraction, the degree of scienter involved, the sincerity of the
defendant's assurances against future violations, the defendant's recognition of the
wrongful nature of the conduct, and the likelihood that the defendant's occupation
will present opportunities for future violations.” Calvo, 378 F.3d at 1211 (citations
and marks omitted). By virtue of the default judgment in the instant case, the SEC
has established a prima facie case of Defendants’ violations of federal securities
laws. As to the requirement that the SEC establish a reasonable likelihood that the
wrong will be repeated, the Court will allow the SEC to present evidence regarding
this issue at an evidentiary hearing before this Court and will determine at that time
Case 1:06-cv-02568-CC Document 27 Filed 07/21/2008 Page 12 of 15
2 Under a previous version of the statute, courts considered “(1) the ‘egregiousness’
of the underlying securities law violation; (2) the defendant's ‘repeat offender’ status; (3)
the defendant's ‘role’ or position when he engaged in the fraud; (4) the defendant's degree
of scienter; (5) the defendant's economic stake in the violation; and (6) the likelihood that
misconduct will recur.” SEC v. First Pac. Bancorp, 142 F.3d 1186 (9th Cir. 1998) (citation
and marks omitted)
- 13 -
whether injunctive relief is appropriate.
The SEC asks that the Court enter an Order that permanently prohibits Mr.
Harris from acting as an officer or director of any issuer of registered securities or
of any entity required to file reports with the SEC. Pursuant to Section 21(d)(2) of
the Exchange Act, this Court may enter such an Order if Mr. Harris’ “conduct
demonstrates unfitness to serve as an officer or director of any such issuer.” 15
U.S.C. § 78u(d)(2). This Court has substantial discretion when determining whether
to impose such a bar. SEC v. Amazon Natural Treasures, 132 Fed. Appx. 701 (9th
Cir. 2005). To determine whether to order the bar, the Court considers the following
factors: “(1) the nature and complexity of the scheme; (2) the defendant's role in the
scheme; (3) the use of corporate resources in executing the scheme; (4) the
defendant's financial gain (or loss avoidance) from the scheme; (5) the loss to
investors and others as a result of the scheme; (6) whether the scheme represents an
isolated occurrence or a pattern of misconduct; (7) the defendant's use of stealth and
concealment; ( the defendant's history of business and related misconduct; and (9)
the defendant's acknowledgment of wrongdoing and the credibility of his
contrition.” SEC v. Levine, 517 F. Supp. 2d 121, 145-46 (D.D.C. 2007).2 The Court
will determine the appropriate bar that should be imposed in this case, if any, after
hearing evidence on this issue.
Finally, the SEC requests that substantial civil penalties be awarded in this
case. Pursuant to Section 20(d) of the Securities Act and Section 21(d)(3) of the
Case 1:06-cv-02568-CC Document 27 Filed 07/21/2008 Page 13 of 15
- 14 -
Exchange Act, this Court may impose monetary penalties. The decision to impose
a penalty, and the amount of any such penalty, is a matter within the discretion of
the Court. See 15 U.S.C. § 78u(d)(3); 15 U.S.C. § 77t(d)(1). The Exchange Act sets
forth tiered categories establishing the limitations of the civil penalties. The SEC
seeks a third tier civil penalty in this case, pursuant to 15 U.S.C. § 77t(d)(2)(C) and
15 U.S.C. § 78u(d)(3)(B)(iii). “According to those statutes, a third tier civil penalty
is available if (1) the securities violation involved fraud, deceit, manipulation, or
deliberate or reckless disregard of a regulatory requirement, and (2) the violation
directly or indirectly resulted in substantial losses or created a significant risk of
substantial losses to other persons.” SEC v. Kamardin, No. 8:07-cv-159-T-24-MAP,
2007 U.S. Dist. LEXIS 44260 (M.D. Fla. June 19, 2007). The SEC seeks to present
evidence on the losses caused by the securities violations in this case, and the Court
will consider such evidence in determining the amount of civil penalty that should
be imposed.
III. MOTION TO COMPEL
Insofar as the Court has denied Mr. Harris’ motion for reconsideration and
has entered default judgment against him, the motion to compel is due to be
DENIED as moot.
IV. CONCLUSION
For the foregoing reasons, the Court DENIES Defendant Rufus Paul Harris’
Motion for Reconsideration / Rehearing of the October 30th Order Entered by this
Court [Doc. No. 20], GRANTS Plaintiff’s Motion for Default Judgment [Doc. No.
21], and DENIES as moot Defendant Harris’ Verified Motion to Compel Discovery
and Motion for Sanctions for Failing to Disclose [Doc. No. 23].
Case 1:06-cv-02568-CC Document 27 Filed 07/21/2008 Page 14 of 15
- 15 -
The Court will hold a hearing on September 10, 2008 at 1:30 pm to determine
the appropriate relief to be awarded in this case.
SO ORDERED this 21st day of July, 2008.
s/ CLARENCE COOPER
CLARENCE COOPER
UNITED STATES DISTRICT JUDGE
Case 1:06-cv-02568-CC Document 27 Filed 07/21/2008 Page 15 of 15

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ATLANTA DIVISION

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Mr. CATIAEngineer
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There is some good discussion taking place "elsewhere" regarding the hearing. No, I wont directly discuss the other place but......

Someone pointed out that this is an "Evidentiary Hearing". The only "evidence" I see the SEC holding at this point is the "damages to the shareholders". If they have more, they are keeping it under wraps. Quite honestly, IMO...if they had more we wouldnt still be waiting this out.

To me this is the most important portion of the document for the SEC.

"The SEC seeks to present evidence on the losses caused by the securities violations in this case, and the Court will consider such evidence in determining the amount of civil penalty that should be imposed."

"Evidence on the losses"

What about the bonds? What about Harris or his family allegedly selling, or im sorry, TRYING to sell shares? So this has come down to a few testimonys of ticked off shareholders? Half of which were shareholders of Fronthaul LONG before the merger which, IMO of course, was up to their eyeballs in illegal activity!

Im very anxious to see what Alana Black brings to the table. Im more anxious to know what she has and will NOT bring to the table (something I will never know im sure). I would certainly hope she has more than what she appears to have. Id hate to think we were suspended and our pps driven to nothing based on hearsay and a default judgement.

Anyway, anyone familiar with an "Evidentiary Hearing" care to comment?

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glassman
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i beleive we have seen enough evidence in the past couple of weeks to safely say that the SEC is broken( and i mean badly)....

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Mr. CATIAEngineer
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quote:
Originally posted by glassman:
i beleive we have seen enough evidence in the past couple of weeks to safely say that the SEC is broken( and i mean badly)....

Thats for certain. Make rules, change rules, bend rules, exempt rules....finished.
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PCola77
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Mr Cat, I may be wrong, but I read it like this: They are now looking for evidence to show how people were harmed by the illegal activity. The proof taht you are looking for will never be shown because there is no reason to, because Harris never defended himself, so they had no reason to show. think of it like poker, the SEC raised and Rufus folded. We will never know if the SEC had the cards or was bluffing, because there's no hole camera, and they don't have to ever tell.

At least that's how I read it.

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Igor R
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Is it possible to attend the evidentiary hearing? I'd like to go to that, hell I'd be downtown for school that day anyway, and the court is only like 10 blocks away.
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Mr. CATIAEngineer
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quote:
Originally posted by Igor R:
Is it possible to attend the evidentiary hearing? I'd like to go to that, hell I'd be downtown for school that day anyway, and the court is only like 10 blocks away.

Yup, you certainly can. I wish it wasnt such a haul for me...I want to be there badly. Who knows, maybe a road trip is in my future.
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Igor R
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Well in that case I shall probably be there!
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milliam
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So much for the idea that the judge wouldn't want to see this thing won on a default. Lookw like its going to take other ways to found out what actually happened here.

Like sands through the hourglass.....

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frank021474
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quote:
Originally posted by Mr. CATIAEngineer:
There is some good discussion taking place "elsewhere" regarding the hearing. No, I wont directly discuss the other place but......

Someone pointed out that this is an "Evidentiary Hearing". The only "evidence" I see the SEC holding at this point is the "damages to the shareholders". If they have more, they are keeping it under wraps. Quite honestly, IMO...if they had more we wouldnt still be waiting this out.

To me this is the most important portion of the document for the SEC.

"The SEC seeks to present evidence on the losses caused by the securities violations in this case, and the Court will consider such evidence in determining the amount of civil penalty that should be imposed."

"Evidence on the losses"

What about the bonds? What about Harris or his family allegedly selling, or im sorry, TRYING to sell shares? So this has come down to a few testimonys of ticked off shareholders? Half of which were shareholders of Fronthaul LONG before the merger which, IMO of course, was up to their eyeballs in illegal activity!

Im very anxious to see what Alana Black brings to the table. Im more anxious to know what she has and will NOT bring to the table (something I will never know im sure). I would certainly hope she has more than what she appears to have. Id hate to think we were suspended and our pps driven to nothing based on hearsay and a default judgement.

Anyway, anyone familiar with an "Evidentiary Hearing" care to comment?

They are looking for more than just how much money he is going to get hammered with. The doc I thought also was going to knock him out of ever being an officer in a publicly traded company.

I think once the SEC presents their case as the WHAT happened a lot of other things will come into play that most shrugged off as part of the "plan".

I am interested to see what all of the depositions read out as (If they get released to the public). It will be a surprise to all of us include Rufus what was said on paper.

Anyone remember Pacific Beach Mortgage or Mad Dog Builders? David Alan Hawkins? Early CSHD days? (I read the court docs on hawkins- pretty interesting story. Just wanted to cross it to any dealings in CSHD documented)

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Got CSHD? Its fun

Posts: 766 | From: Washington, DC | Registered: Sep 2006  |  IP: Logged | Report this post to a Moderator
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