A federal judge in Washington today declined to throw out a dispute over whether senior officials at a Maryland company intentionally concealed in regulatory filings the status of a convicted felon as a top company official.
The U.S. Securities and Exchange Commission claims that Gary Prince, convicted in a securities fraud case, was serving as an executive officer at Integral Systems, Inc., the satellite ground systems company. The SEC contends that regulatory filings, however, concealed Prince's role at the company. There is no allegation of market manipulation.
U.S. District Judge Gladys Kessler in Washington today said in her decision there's enough information in dispute to allow the civil case to proceed to trial. Still, the judge ruled in part for Prince and Elaine Brown, the company's former chief financial officer. Lawyers for Brown and Prince call the enforcement action unprecedented. A settlement conference is scheduled for Aug. 9.
Kessler, for instance, rejected the SEC's request for an injunction against future securities law violations and a permanent officer and director bar. The judge said the commission's attorneys failed to show there's a reasonable likelihood that Brown will engage in future violations of securities laws.
Brown, represented by Crowell & Moring's Thomas Hanusik, contends among other things that she repeatedly sought the advice of Integral's outside counsel at Venable.
The thrust of Kessler's ruling, though, means Brown and Prince are heading to a trial. The judge wrote that "should the trier of fact find that Prince was a de facto officer of Integral, there is a genuine dispute of material fact over whether Prince knowingly concealed that status from the public."
Prince resigned in 1995 as the Integral's chief financial officer. That same year, he pleaded guilty in California to a securities fraud conspiracy charge. The SEC permanently barred Prince from appearing before the commission as an accountant.
Integral rehired Prince in 1998. Back at the company, he held various titles, including director of mergers and acquisitions, director of strategic and financial planning and managing director of operations. Prince was terminated in 2007.
Kessler said today there remains a genuine dispute about whether Prince practiced before the commission as an accountant at a time when he was not allowed to do so.
Prince said that although he sometimes reviewed Integral's financial filings, he never made any substantive accounting judgments. He contends he was a corporate manager, not an accountant.
Prince's lawyers at Zuckerman Spaeder, including C. Evan Stewart, said the SEC cannot establish that Prince had a duty to clarify any alleged omission in SEC filings.
Kessler ruled in favor of Prince on that point, noting that the commission's attorneys, including Alan Lieberman, conceded their claims that Prince "made" the alleged material misstatements.