Ex-Incomnet Chair Subject of New Charges
In new charges in a case that has embroiled Woodland Hills-based Incomnet Inc. since 1995, federal regulators on Thursday charged Sam D. Schwartz, 58, the former chairman of the long-distance reseller, with operating a trading scheme that included false statements and unauthorized trades.
As part of the complaint, filed in federal court in Los Angeles, the Securities and Exchange Commission said it also settled securities fraud charges against Broad Capital Associates, a New York investment advisor to Incomnet; two Incomnet directors, and Incomnet itself.
Specifically, the SEC alleges that Schwartz traded Incomnet stock from June 1994 through July 1995 without timely disclosures. Schwartz made 48 purchases and 28 sales of stock in the period.
The SEC also alleges that under Schwartz’s direction Incomnet filed an 8-K disclosure document with the SEC stating that Schwartz had obtained written approval from the company’s board to set up a brokerage account, through a company he controlled, in order to buy and sell Incomnet stock, when he had no such approval.
Those claims were later repeated in press releases, the SEC states. In addition, the SEC alleges that in January 1995 Schwartz directed Incomnet to issue two press releases falsely denying the existence of an ongoing SEC investigation, although Schwartz was aware of the investigation.
Sheldon Jaffe, a lawyer for Schwartz, could not be reached for comment Thursday.
Schwartz resigned from Incomnet’s board in November 1995. In 1996, he agreed to turn over to Incomnet the more than $2 million he made on his trades. He defended his actions by saying he was trading the shares in an attempt to protect the stock from “short sellers.”
In its complaint, the SEC is seeking an injunction against Schwartz from future violations, and unspecified civil penalties.
“In a publicly traded company, you can’t run it like it’s your private company. You have to disclose trades and disclose what you are doing to the public,” said Lisa Gok, assistant regional director of enforcement at the SEC.
In its settlement with the SEC, Incomnet didn’t admit or deny any allegations. In addition, on Thursday, two ex-directors of Incomnet, Joel Greenberg and Stephen A. Caswell, also agreed to settle SEC charges but did not admit or deny guilt or pay civil penalties.
The SEC agreed to settle with Broad Capital for about $4.7 million in profit and interest and a $50,000 civil penalty. The complaint alleges that Broad Capital failed to disclose that it held a more than 5% stake in Incomnet and profited from receiving restricted shares.
Incomnet stock has sunk as the firm has struggled with losses.
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Incomnet Inc.
Quarterly stock price plus latest
Thursday: $1.88
Source: Bloomberg News
