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December 1, 1993


The opinion of the court was delivered by: MILTON POLLACK

 Milton Pollack, Senior District Judge

 This suit involves a subsidiary chapter to be completed in relation to well documented legal history of the scandalous conduct of Drexel Burnham and Michael Milken in the 1980's. This chapter is part of the larger story and deals with the oft-enjoined predatory conduct of Victor Posner, his son Steven Posner and their controlled corporation Pennsylvania Engineering Corp. ("PEC"), until the latter's bankruptcy in 1992.

 This suit was commenced in 1988 following the revelations of Ivan Boesky in 1986 and 1987, which landed him in jail in 1987. The claims against the defendants Posner and PEC marked time while the SEC was busy clearing up the claims against the other defendants named herein. Those others included Drexel, Michael Milken, Lowell Milken, Carey Maultasch and Pamela Monzert, all of whom ultimately were cast in judgment and permanently enjoined from violating the United States Securities and Exchange Act and the Securities Act. Additionally, Drexel was required to disgorge the sum of $ 350 million and Michael Milken disgorged the sum of $ 400 million.

 This left only the Posners and PEC to be dealt with in this litigation. During attention to those defendants, the SEC had vainly in a five-year period sought depositions and production of records from the Posners and PEC, only to be rebuffed with refusals based upon the Fifth Amendment privilege against giving testimonial data. Just before trial, the Posners in a grandiose gesture, announced that they would be prepared to testify at trial. Their refusal to participate in discovery proceedings before trial entitled and obtained for the SEC an order of preclusion against the Posners from testifying at trial; having denied an opportunity to SEC to depose and obtain discovery before trial, the SEC was entitled to an order depriving the Posners of a trial opportunity belatedly to come in with a version of their concealed story that had not been pre-tested.

 Nonetheless, efforts to wind up the complicity of those defendants by consent procedures were extended before trial, but did not bear fruit. The trial commenced and was completed in June, 1993. The trial was highlighted with the testimony of the witness, Ivan Boesky, called by the SEC and with the witness, Michael Milken (hereafter "Milken"), called by the Posners to the stand.

 The case charged the Posners and PEC with a host of violations of reporting, record keeping and the anti-fraud provisions of the U.S. Securities Laws and the Rules promulgated thereunder. The violations which are dealt with initially herein, occurred in the context of the Posners' efforts to gain control by illegal means of Fischbach Corporation, a listed company on the New York Stock Exchange. The incumbent management opposed the efforts of the Posners and the violations involved Ivan Boesky and his Organization which engaged in buying and parking voting stock of Fischbach for the benefit of the Posners, with the understanding that Boesky was at no risk of loss in the transactions and would recover his outlays and costs to carry.

 This action represents the third time that the Posners have been sued by the SEC for engaging in violations of the Securities Laws. The first two times they consented to the issuance of injunctions prohibiting them from engaging in future violations of various anti-fraud and reporting provisions of the Federal Securities Laws akin to those violations involved in this suit. Because prior injunctions had failed to prevent them from engaging in further like violations and because the Posners have used and abused public companies, of which they are (or were) officers and directors, as vehicles to engage in rapacious and violative conduct repeatedly, and to unjustly enrich themselves unconscionably at the expense of the public shareholders, the SEC therefore here seeks an injunction barring them in the future from further serving in the capacities of officers and directors of public companies registered with the SEC. This type of relief is sought pursuant to the recently enacted statutes, Sections 101 and 201 of the Remedies Act amending Section 20(b) of the Securities Act and Section 21(d) of the Exchange Act, respectively, which provide express statutory authority for a federal court to bar or suspend individuals addicted to predatory and unprincipled conduct in respect of their management and control of public enterprises, from serving again as officers and directors in public companies registered with the Commission. The SEC also seeks an order requiring that these defendants shall disgorge the estimated amounts by which they were unjustly enriched in the processes in which they engaged at the expense of the public shareholders involved.

 Inasmuch as the initial discussion of this case turns on the filing of a Schedule 13D with the SEC, it is well to pause to explain Schedule 13D.

 The Federal Securities Laws require public disclosure of the accumulation of 5% or more of a class of voting securities of a public company by any individual, entity or group acting together. The purpose of this disclosure is to protect companies and the investing public by giving them notice of such accumulations because of their potential effect on control of the company or the price of the company's securities. Such disclosure must generally be made by filing a document known as a Schedule 13D with the SEC, no later than 10 business days following a 5% accumulation. A copy of the Schedule 13D must be mailed to the company whose securities have been accumulated. The Schedule 13D must be promptly updated when there is a 1% change in the size of the accumulation or a material change in the information contained in the filed Schedule 13D.

 The Fischbach Transactions:

 The prelude to the Fischbach transactions commenced in or about 1980, when the Posners and their dominated and controlled corporation, Pennsylvania Engineering Corporation ("PEC") started accumulating a sizable position in Fischbach. By March 20, 1980, PEC had filed a Schedule 13D with the SEC disclosing beneficial ownership of 10.53% of Fischbach's outstanding common voting stock. In August 1980, PEC and Fischbach entered into a so-called "Standstill Agreement" that PEC could not acquire more than 24.9% of Fischbach's outstanding voting securities unless a party not affiliated with PEC filed a Schedule 13D with the SEC indicating ownership of more than 10% of Fischbach's outstanding common stock, or made a filing pursuant to the Hart-Scott-Rodino Act "(H-S-R") indicating an intention to purchase over 10% of Fischbach's outstanding common stock.

 In September 1981, PEC filed an amended Schedule 13D, disclosing that it owned 24.8% of Fischbach's outstanding common stock. In December 1982, the Posners and PEC agreed to extend the term of the Standstill Agreement for an additional 5 years. Victor Posner, shortly thereafter, made it clear to his house counsel that he intended to gain control of Fischbach and to break the Standstill Agreement and ultimately gain 100% ownership. The evidence plainly indicated existence of Posner's intention and of a conspiracy among Drexel, Milken and the Posners formed to accomplish a breach of the Standstill Agreement as a preliminary to further stock acquisitions by PEC.

 Familiarity with the detailed findings of fact which accompany this opinion, will be assumed for purposes of the details spelling out the background and history of the transactions now to be discussed.

 In or about 1980 certain shareholders of Fischbach (the "Fischbach shareholders"), entered into an agreement (the "Standstill Agreement") with Fischbach. That agreement on one side involved the Posners and PEC, and on the other side, the Fischbach Corporation. It barred the Posners and PEC from acquiring more than a 24.9% interest in Fischbach. Under the terms of the Standstill Agreement however, the Fischbach shareholders were permitted to acquire more than a 24.9% interest in Fischbach if, among other things, a third-party (i) acquired more than 10% of the outstanding Fischbach voting securities, and (ii) reported such purchases to the SEC and Fischbach in a Schedule 13D filing.

 Drexel, Milken and the Posners entered into a conspiracy to accomplish Posner's purpose of breaking the Standstill Agreement and acquiring control of Fischbach. To carry out the plan, it was necessary to enlist others in the conspiracy who would be willing to acquire more than 10% of Fischbach's outstanding voting stock and who would file a Schedule 13D announcing such acquisition. That would bring about the demise of the Standstill Agreement.

 The first attempt in the plan was made through Executive Life Insurance Co., an insurance subsidiary of First Executive Corporation and its related companies who were important customers of Milken's High Yield Bond Department. In the latter part of 1983, Executive Life converted Fischbach convertible bonds which it owned to a 13% stake in Fischbach's common stock. It thereupon filed a Schedule 13G, which was the appropriate schedule for an insurance company to file. However, it would take a Schedule 13D to break the Standstill Agreement which barred the Posners from acquiring additional Fischbach stock. Accordingly, sixteen days later, plainly in an effort to repair the situation, First Executive filed a Schedule 13D alleging the same facts that it had asserted in its Schedule 13G. It then apparently offered its block of common stock of Fischbach for purchase but the Posners did not have the wherewithal or the credit in the ...

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