New York Federal Court Judge Gerard Lynch ordered a receiver to take over Boca Raton-based Universal Express, which would end Richard Altomare’s tenure as chairman and chief executive officer.
The Aug. 31 ruling also told co-defendants Altomare and general counsel Chris Gunderson to report for an Oct. 12 hearing, during which they must show cause why they should not be held in contempt for disobeying earlier rulings and jailed to compel compliance.
Universal Express (OTCBB: USXP) issued a press release vowing to file a motion to stay Lynch’s ruling in appeals court. The company appealed the judge’s earlier ruling in the civil case, brought by the Securities and Exchange Commission, that it sold unregistered securities and issued false and misleading press releases. That resulted in fines against the executives and the company totaling $25.7 million, and injunctions demanding that the company stop the violations, Altomare and Gunderson not participate in penny stock offerings, and that Altomare resign. The SEC argued that the defendants violated all of these orders – and Lynch agreed.
“The repeated actions of defendants demonstrate not only defendants’ clear lack of respect for the orders of this court and federal securities laws, but also the necessity of this court’s judgments remaining in full force pending appeal,” Lynch wrote in his ruling.
On Aug. 3, Lynch denied Universal Express’ motion to stay the penalties pending appeal.
Boca Raton Attorney Jim Sallah, who used to work in enforcement for the SEC, said the next step is judge Lynch will name the receiver – most likely from a pool of people recommended by the SEC. If the receiver is named before the appeals court rules to stay, the receiver can withdraw the appeal on behalf of the company, Sallah said.
The receiver can forcibly take control of the company and dismiss any employees, but the receiver doesn’t have to shut the company down. Sometimes receivers have kept companies going for more than a year, Sallah said.
Altomare said in a release that Lynch’s ruling should be overturned in favor of a jury trial on the issue of naked short selling – which is when investors short sell stocks they don’t own or borrow. The company believes the SEC is persecuting it because it was outspoken against it.
“The actual legal merits of this case do not necessitate this draconian action,” Altomare said. “It will be the responsibility of a full hearing, not one misinformed appointee, to determine the future of our 23-year-old company.”
Altomare has led Universal Express since taking it over during its 1994 bankruptcy. He launched its luggage shipping service, acquired Michael Jackson family memorabilia to auction and bought a small air charter service in Boca Raton. The company has also been involved in frequent litigation, including pending lawsuits against its landlord and an advertising agency, which countersued.