U.S. Department of Justice

United States Attorney
Northern District of Texas

1100 Commerce St., 3rd Fl.
Dallas, Texas 75242-1699

 
 

 

Telephone (214) 659-8600
Fax (214) 767-0978
 
FOR IMMEDIATE RELEASE
DALLAS, TEXAS
CONTACT: 214/659-8707
JUNE 7, 2002
   

FATHER AND SON INDICTED IN FEDERAL COURT
FOR SECURITIES FRAUD AND RELATED CHARGES


United States Attorney Jane J. Boyle announced today that a federal grand jury sitting in Dallas, Texas, returned an indictment this week against RICHARD DALE STERRITT, JR. (also known as DALE STERRITT), of Plano, Texas, and RICHARD DALE STERRITT, SR. (also known as DICK STERRITT), of Garland, Texas. The eight count indictment charges each with conspiracy, securities fraud, money laundering, and aiding and assisting in the preparation and filing of false income tax returns with the Internal Revenue Service.

According to the indictment, from July 1991 to September 1998, DALE STERRITT was the Chairman of the Board, President, and CEO of Continental Investment Corporation (Continental). DICK STERRITT was Continental's stock transfer authority and handled the check writing for Continental. Although Continental was headquartered in Dallas, Texas, it was incorporated in Atlanta, Georgia and its principal asset was a granite quarry and surrounding property in Atlanta. DALE STERRITT controlled a large amount of Continental's common stock which was held directly by his father, DICK STERRITT, his father-in-law, wife, other nominees, and through various closely held companies and trusts.

According to the indictment, during this same time period, defendants DALE and DICK STERRITT were not only in control of Continental, but of several other corporations, directly or indirectly through nominees or employees, and benefitted from their business activities. These corporations included Nikko Trading of America Corporation (Nikko), Woodland Venture Corporation (Woodland), Crescent Capital Corporation (Crescent), and Swan Financial Services Corporation (Swan).

One of those closely held companies, Nikko, was headquartered in Dallas but incorporated in Louisiana in 1988. Nikko's principal business was trading and holding securities and related financial instrument investments (primarily Continental common stock). A distant relative of DALE STERRITT was the listed owner of Nikko. From March 1996 to January 1999, Freddie Joe Royer, Jr. (Royer) was the President and CEO of Nikko. At that time, Royer was a licensed securities broker-dealer.

Woodland was another closely held corporation which was headquartered in Dallas, but incorporated in 1997 in Georgia. Woodland's principal business was also trading and holding securities and related financial instrument investments (primarily Continental common stock) as well as real estate assets. A distant relative of DALE STERRITT was the listed owner of Woodland. DALE STERRITT'S Executive Secretary was Woodland's President and CEO.

Another closely held corporation, Crescent, was headquartered in Dallas, but incorporated in 1995 in Nevada. Crescent also traded and held securities and related financial instrument investments (primarily Continental common stock) as well as real estate assets. A long time family friend of DALE STERRITT was the listed owner, President and CEO of Crescent.

Swan was another closely held corporation in which a longtime family friend of DALE STERRITT was listed as the owner, President and CEO. Swan was headquartered in Dallas, but was incorporated in 1996 in Georgia. Its principal business was trading and holding securities and related financial investments (primarily Continental common stock) and real estate assets.

Continental's common stock was traded over-the-counter on the National Association of Securities Dealers (NASD) Bulletin Board Pink Sheets System. Continental's application for listing on the National Association of Securities Dealers Automated Quotation System (NASDAQ) was declined in September 1996 and Continental abandoned its efforts to obtain an American Stock Exchange (AMEX) listing in 1997.

The indictment charges that from September 1995 through September 1998, defendants DALE STERRITT, DICK STERRITT and Freddie Joe Royer, Jr., conspired together and with others to commit certain offenses against the United States, including securities fraud, money laundering, and filing false tax returns.

Continental was required to file quarterly (10Q) and annual (10K) reports with the Securities and Exchange Commission (SEC) that listed the value of Continental's assets. The indictment charges that DALE and DICK STERRITT, and Royer, conspired, filed, or caused to be filed, false 10Qs and 10Ks to create an appearance of legitimacy, profitability and financial strength for Continental and to facilitate their fraudulent scheme. All of the 10Qs and 10Ks filed during the September 1995 through September 1998 time period contained false and fraudulent statements overstating the value of Continental's assets and potential business outlook.

By using false claims and misrepresentations such as engineering suitability reports, pending approval of a City Permit which would allow the 74-acre quarry site in Atlanta to operate as an authorized landfill, pending approval of NASDAQ or AMEX listings of Continental, and representing that DALE STERRITT was connected to Atlanta's power brokers, defendants DALE and DICK STERRITT, and Royer, persuaded numerous investors to invest in Continental. DALE STERRITT, DICK STERRITT, and others were responsible for issuing false stock reports, financial statements, business publication articles, SEC filings, and press releases. Investors relied on this false information that DALE and DICK STERRITT, and Royer, provided.

According to the indictment, DALE STERRITT, DICK STERRITT, and Royer caused a research report to be published, and made available to both a national and international audience, through issues of Mutual Fund Magazine, Town & Country, Individual Investor, Estates Internationale, and Leading Estates of the World. This research report which described Continental as "A Stock Whose Time Has Come" was not an objective analysis, but an advertisement written and paid for by, and on behalf of, Continental. DALE and DICK STERRITT, and Royer, persuaded numerous investors, both sophisticated and unsophisticated, to invest in Continental through the open stock market by making these false claims and material misrepresentations

In addition, DALE STERRITT, with the assistance of DICK STERRITT and Royer, manipulated the market for Continental's common stock by controlling the float and selling the stock among companies they controlled. Among other actions, Royer posed as an independent and objective investor who represented family wealth and his wealthy clientele. DALE STERRITT, DICK STERRITT, and Royer; each independently or in concert with each other, were ultimately responsible for the false and fraudulent information concerning Continental which was promulgated to investors and to the general public.

The indictment charges both defendants with securities fraud for inducing investor Stewart Rahr, through fraudulent means, to purchase 500,000 shares of Continental stock in June 1997. DALE and DICK STERRITT are also each charged with two counts of money laundering relating to their inducing this investor to wire $1 million on June 19, 1997 and $1.5 million on June 27, 1997 to purchase the Continental stock.

The indictment also charges that DALE STERRITT, DICK STERRITT, and Royer aided and assisted in the preparation and filing of false individual and corporate income tax returns with the Internal Revenue Service by listing false short-term capital losses or $488,773 for Nikko, $2,427,419 for Swan, and $1,406,250 for Crescent.

If convicted on all charges, each defendant faces a maximum statutory term of imprisonment of 74 years, a substantial fine, and could be ordered to pay restitution to the victims of their crime.

An indictment is an accusation by a federal grand jury and a defendant is entitled to the presumption of innocence unless proven guilty.

United States Attorney Boyle acknowledged and praised the collaborative investigative efforts of the Internal Revenue Service, Criminal Investigation (IRS-CI) and the Federal Bureau of Investigation.
The case is being prosecuted by Assistant United States Attorney Mike Snipes.


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