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United States Securities and Exchange Commission v. Allen E. Weintraub and Awms Acquisition

December 30, 2011


The opinion of the court was delivered by: Paul C. Huck United States District Judge


THIS MATTER is before the Court on Plaintiff United States Securities and Exchange Commission's ("SEC") Motion for Summary Judgment (D.E. # 46), filed December 8, 2011. This case arises out of allegations that Defendants Allen E. Weintraub and AWMS Acquisition, Inc. d/b/a Sterling Global Holdings ("Sterling Global") made materially false or misleading statements and omissions in connection with the proposed purchase of all existing stock of two large, multinational corporations. In its Motion for Summary Judgment, the SEC argues that there is no genuine dispute as to any material fact regarding the liability of Mr. Weintraub for violating antifraud provisions of federal securities law. The Court has reviewed the Motion, the parties' memoranda, pertinent portions of the record, and is duly advised in the premises. For the reasons discussed below, the Court grants the Motion for Summary Judgment.


On March 19, 2011, Mr. Weintraub, the sole owner, officer, director, and employee of Sterling Global, an inactive Florida corporation, emailed a written offer letter to various board members, officers, and public relations representatives of the Eastman Kodak Company ("Kodak") to purchase all its "outstanding stock" for a price of $4.81 cash per share, or approximately $1.3 billion. The purchase price represented a 46 percent premium over Kodak's March 18, 2011 closing price. The offer letter was signed "A. Weintraub," and was composed on Sterling Global letterhead that listed the cities of Atlanta, Cleveland, Denver, Dubai, London, Los Angeles, Miami, New York, and Tel Aviv as places where Sterling Global maintained a corporate presence. The offer letter also stated that Mr. Weintraub was "copying all large shareholders [of Kodak] with the same offer, in an effort to acquire majority control . . . ." Minutes before emailing the offer letter to Kodak, Mr. Weintraub emailed it to various reporters at Dow Jones, Bloomberg, and the Rochester Democrat and Chronicle. Mr. Weintraub had subsequent conversations with reporters from various media outlets about the "discussions" being held between Sterling Global and Kodak. Mr. Weintraub also emailed the offer letter to large institutional shareholders of Kodak, including Legg Mason Capital, Blackrock, Inc., Fidelity Management & Research, The Vanguard Group, and Investment Partners Asset Management. Kodak did not respond to Mr. Weintraub's offer letter.

On March 29, 2011, Mr. Weintraub emailed a substantially similar offer letter to AMR Corporation ("AMR"), the parent company of American Airlines. The AMR offer letter proposed to purchase all "outstanding stock" of AMR for $9.75 cash per share, or approximately $3.25 billion. The offer price represented a 48 percent premium over AMR's then closing price. In the offer letter, Mr. Weintraub stated "Attached is our tender offer to take AMR private. Please review. I beleive [sic] as a large shareholder this is in the best interest for all our shareholders and management." Also on March 29, 2011, Mr. Weintraub emailed the AMR offer letter to numerous media outlets including KDAF-TV, NBC5, WFAA-TV, NBC affiliate KXAN, Telemundo, CNBC, the Dallas Morning News, and the Fort Worth Star Telegram. Mr. Weintraub later represented in press interviews that he had the backing of "several large institutions," and had previously done similarly-sized deals. Mr. Weintraub also stated that he had conversations with major AMR shareholders who wanted him to proceed with the takeover. The daily trading volume of AMR shares rose from 5 million on March 29, 2011 to 31.5 million on March 30, 2011, despite there being no other airline industry news. AMR, however, did not respond to Mr. Weintraub's offer letter. Neither Mr. Weintraub nor Sterling Global completed the legal filing requirements applicable to tender offers, and did not otherwise submit formal tender offers to either Kodak or AMR.

Prior to submitting the offer letters to Kodak and AMR, Mr. Weintraub entered the local branches of Citi Personal Wealth Management, UBS Financial Services, and Wells Fargo Advisors to solicit respective loans of $3 billion, $3.5 billion, and $1.3 billion. Each bank informed Mr. Weintraub that they were not interested in establishing a business relationship. At no point did Mr. Weintraub obtain any letter of credit or other written financing agreement. Mr. Weintraub also never retained legal counsel or an investment banking advisor to assist with the proposed transactions.

Additionally, Mr. Weintraub did not disclose several aspects of his personal background prior to submitting the offer letters to Kodak and AMR, or in his subsequent communications with shareholders and members of the press. Specifically, Mr. Weintraub never disclosed that in 2008 he had pled 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 this 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. See SEC v. Florida Stock Transfer, Inc., Case No. 02-23048-CIV (S.D. Fla. Nov. 4, 2002) (order of permanent injunction). Mr. Weintraub also failed to disclose that he has yet to satisfy a judgment of $1,050,000 entered against him by this Court for previous violations of federal securities law. In addition, Mr. Weintraub withheld information that he had filed for bankruptcy in 2007, and that his primary residence was foreclosed in 2008. Mr. 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 SEC commenced the instant action on May 3, 2011. The Complaint (D.E. # 1) alleges two claims: (1) violation of section 10(b) of the Securities and Exchange Act ("SEA") [15 U.S.C. § 78j(b)] and SEC rule 10b-5 [17 C.F.R. § 240.10b-5], and (2) violation of SEA section 14(e) [15 U.S.C. § 78n(e)] and SEC rule 14e-8 [17 C.F.R. § 240.14e-8(a)-(c)]. The SEC alleges that Mr. Weintraub violated antifraud provisions of federal securities laws by making materially false or misleading statements and omissions regarding (1) his ability secure financing and complete the Kodak and AMR deals, and (2) his own background. The SEC is asking the Court to: (1) permanently restrain and enjoin Mr. Weintraub from committing further violations of sections 10(b) and 14(e) of the SEA, and rules 10b-5 and 14e-8 thereunder; (2) permanently restrain and enjoin Sterling Global from committing further violations of sections 10(b) and 14(e) of the SEA, and rules 10b-5 and 14e-8 thereunder; (3) order Mr. Weintraub and Sterling Global each to pay a civil penalty pursuant to 15 U.S.C. §§ 77t(d), 78u(d)(3). On July 21, 2011, the Clerk of the Court entered a default against Sterling Global for failing to appear or otherwise plead the complaint (D.E. # 16). The SEC now moves for summary judgment against Mr. Weintraub on both its section 10(b) and 14(e) claims.


Summary judgment is appropriate when the pleadings, depositions, and affidavits show "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). An issue is "material" if it is a legal element of the claim under applicable substantive law, and might affect the outcome of the case. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Allen v. Tyson Foods, Inc., 121 F.3d 642, 646 (11th Cir. 1997). An issue of fact is "genuine" if a rational trier of fact may find for the non-moving party based on the record taken as a whole. Allen, 121 F.3d at 646. In determining whether summary judgment is appropriate, facts and inferences from the record are viewed in the light most favorable to the non-moving party. Ricci v. DeStefano, 129 S. Ct. 2658, 2677 (2009); Mayfield v. Patterson Pump Co., 101 F.3d 1371, 1374 (11th Cir. 1996).

The movant bears the initial responsibility of informing the Court of the basis for its motion, and the particular parts of the record demonstrating that no genuine issue as to a material fact exists. Fed. R. Civ. P. 56(c)(1)(A). The opposing party has a duty to present affirmative evidence in order to defeat a properly supported motion for summary judgment. Celotex, 477 U.S. at 322. If the non-moving party fails to make a sufficient showing on an essential element of the case, or proffers only conclusory allegations, conjecture, or evidence that is merely colorable and not significantly probative, the moving party is entitled to summary judgment. Id.; Evers v. Gen. Motors Corp., 770 F.2d 984, 986 (11th Cir. 1985).


A. Alleged Violations of SEA Section 10(b) and SEC Rule 10b-5

The SEC alleges in its first claim that Mr. Weintraub violated section 10(b) of the SEA and SEC rule 10b-5.*fn2 To establish a violation section 10(b) and rule 10b-5, a plaintiff must prove (1) a materially false or misleading statement or omission, (2) in connection with the purchase or sale of a security, (3) made with scienter. SEC v. Merchant Capital, LLC, 483 F.3d 747, 766 (11th Cir. 2007) (citing Aaron v. SEC, 446 U.S. 680, 695 (1980)). However, the SEC, unlike a private plaintiff, need not allege or prove reliance, causation, or damages to establish a violation of section 10(b). See id.; SEC v. Blavin, 760 F.2d 706, 711 (6th Cir. 1985) ("Unlike private litigants seeking damages, the [SEC] is not required to prove that any investor actually relied on the misrepresentation or that the ...

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