SEC v. First Pacific Bancorp

142 F.3d 1186 (9th Cir. 1998)

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Nature of the Case

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Facts

Sands (D) was the chairman of the board, chief executive officer, and corporate counsel of Bancorp, a Delaware corporation organized as a bank holding company, and owned 54% of its common stock. Sands (D) was also the chairman of the board and corporate counsel of First (D), the wholly-owned subsidiary of Bancorp and its major asset. Sands (D) was the president and the CEO of PacVen, a Nevada 'shell', corporation formed for the purpose of merging with or acquiring other companies. Bancorp and Sands (D) engaged in several financial transactions designed to raise additional capital for First (D). They committed various securities law violations in the process. In 1987 Bancorp commenced a 'mini-max' public offering with the intention of down streaming its proceeds to financially troubled First (D). Bancorp was required to sell a minimum of 750 'units,' at $2,000 each, on an all-or-nothing basis. If all 750 units were not sold by the deadline, the offering was to be canceled and the funds were to be returned to the investors. If the minimum were reached, Bancorp had a right to sell up to 1,275 units on a best-efforts basis. Bancorp only raised $188,000. Pac Ven had raised $500,000 in a public offering and that was fraudulently diverted by Sands (D) into the Bancorp offering. Plus a $1,000,000 check written by Kutik bounded. Sands (D) and Bancorp did not return the funds to the investors and continued with the offering. On the date the offering was scheduled to close, Sands (D) purchased 500 of the Bancorp units, paying $1,000,000 of his funds. That purchase brought the total amount to $1,688,000. The offering was then closed and the proceeds were delivered but Sands’ (D) funds were in the form of a check. P sought to have Sands (D), Bancorp, and PacVen disgorge the $688,000 raised in the Bancorp offering from outside investors, and to have Sands (D) barred from serving as an officer or director of publicly held companies in the future. The district court granted the relief and this appeal resulted.