Major SEC Suit Against Former CoElco Chief Sterns Is Settled

The Securities and Exchange Commission has settled a major lawsuit against former CoElco Ltd. President David D. Sterns, who was accused of fraudulently raising more than $600,000 through the defunct Fountain Valley conglomerate.

Sterns, CoElco’s founder, has agreed to a permanent court order forbidding him from defrauding investors and violating the anti-fraud, registration and proxy provisions of federal securities laws.

Under the agreement, Sterns did not admit or deny the charges of an eight-count civil lawsuit filed late last year in U.S. District Court in Los Angeles. The consent order specifically leaves unsettled the issue of whether Sterns will have to repay investors the $600,000 that the SEC contends was fraudulently obtained.

By approving the order Thursday, Judge Robert M. Takasugi effectively ended the SEC suit against Sterns.

The settlement, however, does not end the SEC’s lawsuit against two co-defendants--CoElco itself and its accountant, John L. Van Horn. A trial is scheduled to start July 12 in federal court against the bankrupt business and Van Horn if a proposed SEC settlement is not reached by then.

In addition, Sterns remains a defendant in two civil lawsuits filed by individuals who say they believe they were bilked.

Sterns and Van Horn could not be reached for comment Monday.

The SEC lawsuit was filed after a long investigation that began when trading of CoElco stock was temporary suspended in April, 1985.

CoElco was then a fledgling conglomerate that had acquired nine Southern California companies from mid-1984 through mid-1985 in exchange for stock. The acquisition binge ended abruptly with a spate of lawsuits and bankruptcy in July, 1985.

The company was delisted by the National Assn. of Securities Dealers Automated Quotation system and is no longer actively traded.

The SEC sued Sterns, Van Horn & CoElco, asking the court to enjoin them from further violations of securities laws and requiring them to return investors’ funds--if available--to defrauded investors.

Federal regulators said in their suit that Sterns, as president, chief executive officer and chairman of CoElco from about February, 1984, to May, 1985, filed statements with the SEC that overvalued CoElco’s assets.

From March to October, 1984, the SEC contended, Sterns sold about 5 million shares of CoElco stock to more than 200 investors without providing any formal written offering materials to them or giving them stock certificates.

According to the lawsuit, Sterns failed to disclose in SEC filings his ownership interest in about 2 million shares of CoElco stock held in the name of a private corporation he controlled.

He also did not tell potential investors that he had filed for bankruptcy within the previous five years, a disclosure required by SEC regulations, the lawsuit contended.

The SEC alleged that Van Horn issued and signed unqualified audit opinions included in CoElco’s 1984 annual report and other documents at a time when his accountant’s license had been suspended.

Sterns’ attorney, Joseph Cillo of Laguna Hills, noted that Sterns has not admitted any wrongdoing.