SEC CHARGES OWNER AND FIRM WITH MOVING $17 MILLION IN CLIENT MONEY INTO STOCKS WHERE OWNER HAS UNDISCLOSED INTERESTS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
06/17/2015 09:35 AM EDT

The Securities and Exchange Commission announced fraud charges against a Massachusetts-based investment advisory firm and its owner for funneling more than $17 million in client assets into four financially troubled Canadian penny stock companies in which the owner has undisclosed business and financial interests.

The SEC alleges that clients at Interinvest Corporation may have lost as much as $12 million of their $17 million investment based on the recent trading history of shares in the penny stock companies, some of which are purportedly in the business of exploring for gold or other minerals.  Interinvest’s owner and president Hans Peter Black has served on the board of directors of these companies, which have collectively paid an entity he controls approximately $1.7 million.  Black’s involvement with these companies and his receipt of payments from them created a conflict of interest that he and Interinvest failed to disclose to their advisory clients.

The alleged violations were first identified in an SEC examination of the firm.  The SEC’s complaint filed late yesterday in federal court in Boston alleges that Interinvest and Black have stonewalled the SEC’s investigation.  The SEC is seeking a court order to freeze Interinvest’s assets and prohibit the firm and Black from continuing to exercise investment authority over client assets under management.  As of April 2015, Interinvest purported to manage almost $95 million.

“Investment advisers have a duty to put their clients’ interests first and fully disclose all conflicts of interest,” said Paul G. Levenson, Director of the SEC’s Boston Regional Office.  “We allege that Interinvest and Black violated that duty by investing client money in companies where he has a stake without fully disclosing that conflict to clients.”

The SEC’s complaint filed alleges that Interinvest and Black violated the antifraud and related provisions of the federal securities laws.  In addition to emergency relief, the SEC’s complaint seeks to permanently enjoin Interinvest and Black from violating the securities laws and require them to repay allegedly ill-gotten gains with interest and penalties.

The SEC’s investigation was conducted by Michael Vito, Peter Moores, John McCann, Chip Harper, and Celia Moore of the Boston office.  The SEC’s examination of Interinvest was conducted by Raymond G. Titus, Paul Prata, Daniel B. Wong, and Melissa Clough of the Boston office.

10 CHARGED IN PENNY STOCK FRAUD SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23243 / April 16, 2015
Securities and Exchange Commission v. Daniel P. McKelvey, et al., Civil Action No. 9:15-cv-80496 (S.D. Fla., filed April 16, 2015)

The Securities and Exchange Commission announced fraud charges against 10 individuals involved in a scheme to offer and sell penny stock in undisclosed "blank check" companies bound for reverse mergers while misrepresenting to the public that they were promising startups with business plans.

Blank check companies generally have no operations and no value other than their status as a registered entity, which makes them attractive targets for unscrupulous individuals seeking reverse mergers with clean shells ripe for pump-and-dump schemes. The federal securities laws impose various requirements on blank check companies to prevent such illicit use. The SEC alleges that Daniel P. McKelvey of Foster City, Calif., Alvin S. Mirman of Sarasota, Fla., and Steven Sanders of Lake Worth, Fla., routinely evaded these requirements by creating undisclosed blank check companies and installing figurehead company officers while falsely depicting in registration statements and other SEC filings that the companies were pursuing real business ventures under these officers. Allegedly concealed from the public was the fact that the companies were controlled at all times by McKelvey, Mirman, or Sanders for the sole purpose of entering into reverse mergers with unidentified companies so they could profit from the sales.

According to the SEC's complaint filed in U.S. District Court for the Southern District of Florida, McKelvey, Mirman, and Sanders collectively developed nearly two dozen undisclosed blank check companies and sold most of them for a total of approximately $6 million in ill-gotten gains. They were thwarted from further sales when the SEC instituted stop order proceedings last year that led to the suspension of the registration statements of four issuers before they could be further packaged for sale. The scheme allegedly involved forging or falsifying hundreds of certifications filed with the companies' SEC filings as well as communications from impersonating e-mail accounts, management representation letters to accountants, notarizations on applications to the Financial Industry Regulatory Authority, and securities purchase agreements used in the sales of the undisclosed blank check companies.

The SEC's complaint alleges that Steven Sanders's brother Edward G. Sanders of Coral Springs, Fla., Scott F. Hughes of Duluth, Ga., and Jeffrey L. Lamson of El Dorado Hills, Calif. assisted the scheme by acting as corporate nominees with knowledge of the false business plans, drafting or providing false business plans, or recruiting other nominee officers.

The SEC's complaint charges McKelvey, Mirman, Steven Sanders, Hughes, Lamson, and Edward Sanders with violating or aiding and abetting violations of the antifraud, reporting, recordkeeping, and internal control provisions of the federal securities laws. The SEC seeks disgorgement of ill-gotten gains plus prejudgment interest, financial penalties, and permanent injunctions as well as officer-and-director bars and penny stock bars.

The SEC's complaint also names four relief defendants for the purpose of recovering illicit proceeds of the scheme in their possession: Mirman's wife Ilene P. Mirman, a company managed by McKelvey called Forte Capital Partners LLC, and two companies managed by Steven Sanders named AU Consulting LLC and MBN Consulting LLC.

The SEC additionally charged four other figurehead officers and directors who agreed to settle their cases in separate administrative proceedings: Edward T. Farmer of Sarasota, Fla., William J. Gaffney of Cumming, Ga., Kevin D. Miller of Alpharetta, Ga., and Ronald A. Warren of Peachtree Corners, Ga. They consented to SEC orders without admitting or denying the findings that they violated the antifraud, reporting, recordkeeping, and internal control provisions of the federal securities laws. They are barred from serving as an officer or director of a public company and from participating in penny stock offerings, and they must disgorge ill-gotten gains plus prejudgment interest.

The SEC's investigation, which is continuing, is being conducted by Jeffrey T. Cook in the Miami Regional Office as part of the Microcap Fraud Task Force. The case is being supervised by Eric R. Busto, and the SEC's litigation will be led by Patrick R. Costello.

10 CHARGED BY SEC IN ALLEGED BLANK CHECK COMANIES SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Charges 10 Individuals in Scheme to Sell Stock in Blank Check Companies Secretly Bound for Reverse Mergers
04/16/2015 04:30 PM EDT

The Securities and Exchange Commission today announced fraud charges against 10 individuals involved in a scheme to offer and sell penny stock in undisclosed “blank check” companies bound for reverse mergers while misrepresenting to the public that they were promising startups with business plans.

Blank check companies generally have no operations and no value other than their status as a registered entity, which makes them attractive targets for unscrupulous individuals seeking reverse mergers with clean shells ripe for pump-and-dump schemes.  The federal securities laws impose various requirements on blank check companies to prevent such illicit use.  The SEC alleges that Daniel P. McKelvey of Foster City, Calif., Alvin S. Mirman of Sarasota, Fla., and Steven Sanders of Lake Worth, Fla., routinely evaded these requirements by creating undisclosed blank check companies and installing figurehead company officers while falsely depicting in registration statements and other SEC filings that the companies were pursuing real business ventures under these officers.  Allegedly concealed from the public was the fact that the companies were controlled at all times by McKelvey, Mirman, or Sanders for the sole purpose of entering into reverse mergers with unidentified companies so they could profit from the sales.

“The federal securities laws prohibit the registration and sale of stock in undisclosed blank check companies given their frequent use in perpetrating pump-and-dump schemes,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.  “We allege that McKelvey, Mirman, and Sanders went to extreme lengths to run an illicit supply chain of undisclosed blank check companies, including the complete fabrication of business plans and installation of illusory executives.”

According to the SEC’s complaint filed in U.S. District Court for the Southern District of Florida, McKelvey, Mirman, and Sanders collectively developed nearly two dozen undisclosed blank check companies and sold most of them for a total of approximately $6 million in ill-gotten gains.  They were thwarted from further sales when the SEC instituted stop order proceedings last year that led to the suspension of the registration statements of four issuers before they could be further packaged for sale.  The scheme allegedly involved forging or falsifying hundreds of certifications filed with the companies’ SEC filings as well as communications from impersonating e-mail accounts, management representation letters to accountants, notarizations on applications to the Financial Industry Regulatory Authority, and securities purchase agreements used in the sales of the undisclosed blank check companies.

The SEC’s complaint alleges that Steven Sanders’s brother Edward G. Sanders of Coral Springs, Fla., Scott F. Hughes of Duluth, Ga., and Jeffrey L. Lamson of El Dorado Hills, Calif. assisted the scheme by acting as corporate nominees with knowledge of the false business plans, drafting or providing false business plans, or recruiting other nominee officers.  

The SEC’s complaint charges McKelvey, Mirman, Steven Sanders, Hughes, Lamson, and Edward Sanders with violating or aiding and abetting violations of the antifraud, reporting, recordkeeping, and internal control provisions of the federal securities laws.  The SEC seeks disgorgement of ill-gotten gains plus prejudgment interest, financial penalties, and permanent injunctions as well as officer-and-director bars and penny stock bars.

The SEC’s complaint also names four relief defendants for the purpose of recovering illicit proceeds of the scheme in their possession: Mirman’s wife Ilene P. Mirman, a company managed by McKelvey called Forte Capital Partners LLC, and two companies managed by Steven Sanders named AU Consulting LLC and MBN Consulting LLC.

The SEC additionally charged four other figurehead officers and directors who agreed to settle their cases in separate administrative proceedings: Edward T. Farmer of Sarasota, Fla., William J. Gaffney of Cumming, Ga., Kevin D. Miller of Alpharetta, Ga., and Ronald A. Warren of Peachtree Corners, Ga.  They consented to SEC orders without admitting or denying the findings that they violated the antifraud, reporting, recordkeeping, and internal control provisions of the federal securities laws.  They are barred from serving as an officer or director of a public company and from participating in penny stock offerings, and they must disgorge ill-gotten gains plus prejudgment interest.

The SEC’s investigation, which is continuing, is being conducted by Jeffrey T. Cook in the Miami Regional Office as part of the Microcap Fraud Task Force. The case is being supervised by Eric R. Busto, and the SEC’s litigation will be led by Patrick R. Costello

SEC OBTAINS $5 MILLION JUDGEMENT IN CASE INVOLVING PENNY STOCKS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23226 / March 31, 2015
Securities and Exchange Commission v. StratoComm Corporation, et al., Civil Action No. 1:11-CV-1188
SEC Obtains Judgment for Over $5 Million in Penny Stock Fraud Case

On March 26, 2015, the United States District Court for the Northern District of New York entered an amended judgment in a penny stock fraud case against StratoComm Corporation; its CEO Roger D. Shearer; and its former Director of Investor Relations, Craig Danzig. The judgment orders payment of more than $5 million collectively and imposes permanent injunctions and bars.

The judgment follows the Court's earlier decision granting the SEC's motion for summary judgment on liability against the defendants on all charges against them, including violations of the antifraud provisions and certain registration requirements under the federal securities laws.

The SEC alleged that StratoComm, acting at Shearer's direction and with Danzig's assistance, issued and distributed public statements falsely portraying the penny stock company as actively engaged in the manufacture and sale of telecommunications systems for use in underdeveloped countries. In reality, StratoComm had no product and no revenue. The SEC argued that StratoComm, Shearer and Danzig sold investors more than $4 million worth of StratoComm stock in unregistered transactions.

The judgment orders StratoComm and Shearer to pay a total of $4,968,709.68 in disgorgement and prejudgment interest. It also orders Stratocomm to pay $100,000 as a civil penalty, and orders Shearer and Danzig to pay a civil penalty in the amount of $50,000 and $25,000, respectively. The judgment permanently enjoins all defendants from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 5 of the Securities Act of 1933. The judgment also permanently enjoins StratoComm and Danzig from violating Section 17(a) of the Securities Act and permanently enjoins Danzig from violating Section 15(a)(1) of the Exchange Act. The judgment imposes permanent penny stock bars against Shearer and Danzig and a permanent officer and director bar against Shearer.

SEC MOVES TO THWART PUMP-AND-DUMP SCHEMES BY SUSPENDING TRADES IN 128 SHELL COMPANIES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Suspends Trading in 128 Dormant Shell Companies to Put Them Out of Reach of Microcap Fraudsters
03/02/2015 10:15 AM EST

The Securities and Exchange Commission today announced it has suspended trading in 128 inactive penny stock companies to ensure they don’t become a source for pump-and-dump schemes.

The trading suspensions are the latest in a microcap fraud-fighting initiative known as Operation Shell-Expel in which the SEC Enforcement Division’s Office of Market Intelligence utilizes technology to scour the over-the-counter (OTC) marketplace and identify dormant companies ripe for abuse.  The proactive efforts have prevented fraudsters from having the opportunity to manipulate these thinly-traded stocks by pumping the companies’ stock value through false and misleading promotional campaigns and then dumping the stocks after investors buy in.

Since it began in 2012, Operation Shell-Expel has resulted in trading suspensions of more than 800 microcap stocks, which comprises more than 8 percent of the OTC market.  Once a stock has been suspended from trading, it cannot be relisted unless the company provides updated financial information to prove it’s actually operational.  It’s extremely rare for a company to fulfill this requirement, and the trading suspensions essentially render the shells worthless and useless to scam artists.

“Operation Shell-Expel continues to be an efficient way to combat microcap fraud by denying fraudsters the empty nests they need to hatch their schemes,” Andrew J. Ceresney, Director of the SEC Enforcement Division.  “We are getting increasingly aggressive and adept at ridding the microcap marketplace of dormant shells within a year of the companies becoming inactive.”

Today’s massive trading suspension identifies dormant shell companies in 24 states and Canada.

The Operation Shell-Expel initiative has been led by William Hankins, Margaret Cain, Robert Bernstein, Victoria Adraktas, LaVerne Patterson, Jessica P. Regan, Leigh Barrett, and John Gibbons in the Office of Market Intelligence with assistance from the Enforcement Division’s Delinquent Filings Group.  The SEC appreciates the assistance of the FBI’s Economic Crimes Unit.

SEC CHARGES CHICAGO COMPANY OF SELLING PENNY STOCKS WITHOUT REGISTERING AS BROKER-DEALER

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission charged a Chicago-area company that provides stock loans using equities as collateral, its two co-founders, and its former chief operating officer with selling more than nine billion shares of penny stocks through purported stock-based loans, block trades, and other transactions without registering with the SEC as a broker-dealer as required under the federal securities laws.

International Capital Group (ICG) and the executives agreed to collectively pay more than $4.3 million to settle the SEC’s charges.

“By selling billions of shares of penny stock without registering with the SEC, ICG and its principals subverted core protections provided to investors by the broker-dealer registration provisions,” said David Glockner, Director of the SEC’s Chicago Regional Office.

According to the SEC’s order instituting a settled administrative proceeding against ICG, its co-founders Brian R. Nord and Larry Russell Jr., and its former COO Todd J. Bergeron, ICG presented itself as a stock-based lender.  ICG systematically sold stock obtained as collateral for at least 149 stock-based loans, but failed to register with the SEC as a broker-dealer.  On average, ICG began selling the collateral shares it received through each loan three days before closing and funding the loan, and completed the sale of all remaining shares within two weeks of receiving the stock.  In many instances, ICG did not provide money to the customer until the stock had been sold in an amount sufficient to fund the loan.  On several occasions, ICG also violated the securities registration provisions by distributing unregistered stock that it acquired from issuers or their affiliates.  Nord, Russell, and Bergeron directed, authorized, or participated in these transactions.

The SEC’s order finds that ICG violated Section 5 of the Securities Act of 1933 and Section 15(a) of the Securities Exchange Act of 1934.  The order finds that Nord, Russell, and Bergeron violated Section 5 of the Securities Act and aided and abetted and caused ICG’s violations of Section 5 of the Securities Act and Section 15(a) of the Exchange Act.  Without admitting or denying the findings, they agreed to cease and desist from committing or causing violations of these provisions.  ICG, Nord, and Russell must pay $1,670,054 in disgorgement and prejudgment interest as well as penalties of $1.5 million, $300,000, and $250,000 respectively.  They are barred from the securities industry and penny stock offerings for five years.  Bergeron must pay $417,514 in disgorgement and prejudgment interest and a penalty of $150,000, and he is barred from the securities industry and penny stock offerings for three years.

The SEC’s investigation was conducted by Paul M. G. Helms and Jonathan I. Katz and supervised by Kathryn A. Pyszka in the Chicago Regional Office.

SEC CHARGES OPPENHEIMER & CO. REGARDING THE SALE OF PENNY STOCKS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today charged Oppenheimer & Co. with violating federal securities laws while improperly selling penny stocks in unregistered offerings on behalf of customers.

Oppenheimer agreed to admit wrongdoing and pay $10 million to settle the SEC’s charges.  Oppenheimer will pay an additional $10 million to settle a parallel action by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

According to the SEC’s order instituting a settled administrative proceeding, Oppenheimer engaged in two courses of misconduct.  The first involved aiding and abetting illegal activity by a customer and ignoring red flags that business was being conducted without an applicable exemption from the broker-dealer registration requirements of the federal securities laws.  The customer was Gibraltar Global Securities, a brokerage firm in the Bahamas that is not registered to do business in the U.S.  Oppenheimer executed sales of billions of shares of penny stocks for a supposed proprietary account in Gibraltar’s name while knowing or being reckless in not knowing that Gibraltar was actually executing transactions and providing brokerage services for its underlying customers, including many in the U.S.  The SEC separately charged Gibraltar last year for its alleged misconduct.

The SEC’s order finds that Oppenheimer failed to file Suspicious Activity Reports (SARs) as required under the Bank Secrecy Act to report potential misconduct by Gibraltar and its customers, and the firm failed to properly report, withhold, and remit more than $3 million in backup withholding taxes from sales proceeds in Gibraltar’s account.  Oppenheimer also failed to recognize the resulting liabilities and expenses in violation of the books-and-records requirements, and improperly recorded transactions for Gibraltar’s customers in Oppenheimer’s books and records.

According to the SEC’s order, the second course of misconduct involved Oppenheimer again engaging on behalf of another customer in unregistered sales of billions of shares of penny stocks.  The SEC’s investigation, which is continuing, found that the sales generated approximately $12 million in profits of which Oppenheimer was paid $588,400 in commissions.  The firm’s liability stems from its failure to respond to red flags and conduct a searching inquiry into whether the sales were exempt from registration requirements of the federal securities laws, and its failure reasonably to supervise with a view toward detecting and preventing violations of the registration provisions.  

“Despite red flags suggesting that Oppenheimer’s customer’s stock sales were not exempt from registration, Oppenheimer nonetheless allowed unregistered sales to occur through its account, failing in its gatekeeper role,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “These actions against Oppenheimer demonstrate that the SEC is fully committed to addressing lax AML compliance programs at broker-dealers through enforcement action.  The sanctions imposed on Oppenheimer, which include admissions of wrongdoing and $20 million in monetary remedies, reflect the magnitude of Oppenheimer’s regulatory failures.”

The SEC’s order requires Oppenheimer to cease and desist from committing or causing any violations and any future violations of Section 15(a) and 17(a) of the Securities Exchange Act of 1934 and Rules 17a-3 and 17a-8, and of Section 5 of the Securities Act of 1933.  In addition to the monetary remedies, Oppenheimer agreed to be censured and undertake such remedial measures as retaining an independent consultant to review its policies and procedures over a five-year period.

The SEC’s investigation is being conducted by Robert Giallombardo, Margaret W. Smith, Robert Nesbitt, Gary Peters, and Jesse Grunberg with assistance from Christian Schultz.  The case is being supervised by Doug McAllister and Nina Finston.  The SEC appreciates the assistance of FinCEN and the Financial Industry Regulatory Authority.

SEC CHARGES 3 STOCK PROMOTERS IN ALLEGED PUMP-AND-DUMP SCHEME

FROM:   U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission charged three penny stock promoters with conducting pump-and-dump schemes involving stocks they were touting in their supposedly independent newsletters.

The SEC alleges that Anthony Thompson, Jay Fung, and Eric Van Nguyen worked in coordinated fashion to gain control of a large portion of shares in the stock of microcap companies and then hyped those stocks in newsletters they distributed to prospective investors.  After creating demand for the stock and increasing the value, they sold their holdings at the higher prices and earned significant profits.  Once they stopped their promotional efforts, the demand for the stocks subsided and the prices dropped, leaving investors who had purchased the promoters’ shares with significant losses.

According to the SEC’s complaint filed in federal court in Manhattan, the newsletters published by Thompson, Fung, and Van Nguyen misleadingly stated that they “may” or “might” sell shares they owned when in reality their intentions always were to sell the stocks they were promoting.  In fact, in some instances they already were selling the stocks to which they were saying “may” or “might” sell.  They also failed to fully disclose in their newsletters the amounts of compensation they were receiving for promoting the stocks, cloaking the fact that they were coordinating their promotion of the penny stocks to deliberately increase the prices and dump their own shares.

“Investors should be very wary of penny stock promotions like these, which promise quick and vast riches to those who are purportedly lucky enough to invest,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “In this case, the promoters violated a specific legal requirement that they accurately disclose all compensation they were receiving for promoting the stock and the fact that they were simultaneously selling the stock while urging the investing public to buy it.”

According to the SEC’s complaint, the three promoters conducted five separate schemes that resulted in more than $10 million in ill-gotten gains.  The penny stocks they manipulated were Blast Applications Inc., Smart Holdings Inc., Blue Gem Enterprise Inc., Lyric Jeans Inc., and Mass Hysteria Entertainment Company Inc.  Thompson, who lives in Bethesda, Md., distributed several electronic penny stock promotion newsletters with such names as FreeInvestmentReport.com and OxofWallStreet.com.  Fung, who resides in Delray Beach, Fla., distributed his newsletters at such websites as PennyPic.com, and Van Nguyen was typically based in Canada and distributed electronic penny stock promotion newsletters on such websites as UnrealStocks.com and InsanePicks.com.

“Thompson, Fung, and Van Nguyen repeatedly staged coordinated promotional campaigns to manipulate stock prices and score their own paydays while defrauding investors,” said Sanjay Wadhwa, Senior Associate Director for Enforcement in the SEC’s New York Regional Office.

The SEC’s complaint names two relief defendants for the purposes of recovering money in their possession that resulted from the schemes.  Thompson’s wife Kendall Thompson received $200,000 in proceeds from one of the stock manipulation schemes.  John Babikian, who operated a penny stock promotion business primarily from a website named AwesomePennyStocks.com, received $1 million as a result of one of the schemes. In a separate SEC case involving a different scheme, a court ordered $3.73 million in sanctions against Babikian.

The SEC’s complaint charges Thompson, Fung, and Van Nguyen with violating the antifraud and anti-touting provisions of the federal securities laws and related rules.  The SEC is seeking disgorgement of ill-gotten gains from the schemes plus prejudgment interest and penalties as well as permanent injunctions against further violations of the securities laws.

Thompson and Fung also were named in a separate SEC case for their roles in a Florida-based scheme in which they promoted a penny stock in their newsletters without adequately disclosing they were selling their shares in the same stock and receiving compensation for their promotional efforts.  A court issued a final judgment requiring them to pay more than $1 million combined.

The SEC’s investigation was conducted by Peter Pizzani, Timothy Nealon, Michael Osnato, and Thomas P. Smith Jr. of the SEC’s New York Regional Office, and the case was supervised by Mr. Wadhwa.  The SEC’s litigation will be led by Howard A. Fischer.  The SEC appreciates the assistance of the Manhattan District Attorney’s Office and the Financial Industry Regulatory Authority.

SEC, FINRA ISSUE ALERT TO INVESTORS REGARDING SHELL COMPANIES BEING SOLD AS PENNY STOCKS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission’s Office of Investor Education and Advocacy and the Financial Industry Regulatory Authority (FINRA) today issued an alert warning investors that some penny stocks being aggressively promoted as great investment opportunities may in fact be stocks of dormant shell companies with little to no business operations.

The investor alert provides tips to avoid pump-and-dump schemes in which fraudsters deliberately buy shares of very low-priced, thinly traded stocks and then spread false or misleading information to pump up the price.  The fraudsters then dump their shares, causing the prices to drop and leaving investors with worthless or nearly worthless shares of stock.

“Fraudsters continue to try to use dormant shell company scams to manipulate stock prices to the detriment of everyday investors,” said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy.  “Before investing in any company, investors should always remember to check out the company thoroughly.”

Gerri Walsh, FINRA’s Senior Vice President for Investor Education, said, “Investors should be on the lookout for press releases, tweets or posts aggressively promoting companies poised for explosive growth because of their ‘hot’ new product.  In reality, the company may be a shell, and the people behind the touts may be pump-and-dump scammers looking to lighten your wallet.”

The investor alert highlights five tips to help investors avoid scams involving dormant shell companies:

Research whether the company has been dormant – and brought back to life.  You can search the company name or trading symbol in the SEC’s EDGAR database to see when the company may have last filed periodic reports.

Know where the stock trades.  Most stock pump-and-dump schemes involve stocks that do not trade on The NASDAQ Stock Market, the New York Stock Exchange or other registered national securities exchanges.

Be wary of frequent changes to a company's name or business focus.  Name changes and the potential for manipulation often go hand in hand.

Check for mammoth reverse splits. A dormant shell company might carry out a 1-for-20,000 or even 1-for-50,000 reverse split.

Know that "Q" is for caution.  A stock symbol with a fifth letter "Q" at the end denotes that the company has filed for bankruptcy.

SEC SUSPENDS TRADING IN 255 SHELL COMPANIES TO FIGHT FRAUD

FROM:  SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission today announced the latest actions in its microcap fraud-fighting initiative known as Operation Shell-Expel, suspending trading in 255 dormant shell companies ripe for abuse in the over-the-counter market.

Pump-and-dump schemes are among the most common types of fraud involving microcap companies.  Perpetrators will tout a thinly-traded microcap stock through false and misleading statements about the company to the marketplace. After purchasing low and pumping the stock price higher by creating the appearance of market activity, they dump the stock to make huge profits by selling it into the market at the higher price.

Since Operation Shell-Expel began in 2012, the SEC Enforcement Division’s Office of Market Intelligence has been cleaning up the microcap marketplace by scrutinizing penny stocks nationwide and identifying clearly inactive companies.  This has enabled the SEC to proactively suspend trading in several hundred dormant shell companies before fraudsters have an opportunity to manipulate them.

“A frequent element in pump-and-dump schemes has been the use of dormant shells,” said Andrew J. Ceresney, director of the SEC Enforcement Division.  “Because these shells all too often are used by those looking to manipulate stock prices, we will continue to protect unwary investors by suspending trading in shells.”

Today’s massive trading suspension involves dormant shell companies uncovered in 26 states and two foreign countries.  Once a stock has been suspended from trading, it cannot be relisted unless the company provides updated financial information to prove it is still operational.  It is extremely rare for a company to fulfill this requirement, so the trading suspension essentially renders the shells worthless and useless to scam artists.

“Policing this sector of the markets can be a challenge,” said Margaret Cain, a microcap specialist in the Office of Market Intelligence.  “There is often little or no reliable information about a microcap issuer, and the sheer number of these companies stretches law enforcement resources thin and makes this sector particularly dangerous for investors.  The approach we take with Operation Shell-Expel is both economical and efficient as the SEC continues its commitment to preventing microcap fraud.”

In addition to Ms. Cain, the Operation Shell-Expel initiative has been led by William Hankins, Robert Bernstein, Victoria Adraktas, Jessica P. Regan, Leigh Barrett, John Gibbons, and Megan Alcorn in the Office of Market Intelligence with assistance from the Enforcement Division’s Delinquent Filings Group.  The SEC appreciates the assistance of the FBI’s Economic Crimes Unit.

"SHELL PACKING" CO. & CEO AGREE TO SETTLE FRAUD CASE REGARDING BOGUS SECURITIES SALES

FROM:  SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today announced nearly $300,000 in settlements against a Virginia-based “shell packaging” company and its CEO who were charged with facilitating a penny stock scheme as well as a Bronx, N.Y.-based stock promoter who received proceeds from the fraud.

Virginia-based Belmont Partners LLC and its CEO Joseph Meuse are in the business of identifying and selling public shell companies for use in reverse mergers.  In an enforcement action in late 2011, the SEC alleged that Meuse and his firm aided and abetted a New York-based company that fraudulently issued and sold unregistered shares of its common stock.  The SEC separately named Thomas Russo as a relief defendant in the case for the purposes of recovering ill-gotten gains in his possession as a result of his business partner’s participation in the scheme.  According to the SEC’s complaint, Russo co-owned a stock promotion service called TheStockProphet.com.

In a final judgment ordered late yesterday by the Honorable Shira A. Scheindlin of the U.S. District Court for the Southern District of New York, Belmont Partners and Meuse agreed to pay $224,500.  Meuse additionally has agreed to be barred from the penny stock business or from serving as an officer or director of a public company for at least five years.  In a separate judgment entered last week, Russo agreed to pay $70,075.

“The SEC will continue to pursue and punish gatekeepers whose misconduct enables penny stock frauds to occur,” said Sanjay Wadhwa, senior associate director for enforcement in the SEC’s New York Regional Office.  “Meuse and his firm not only sold the shell company but they fabricated the documents necessary to dupe the transfer agent into issuing shares that should never have been sold to the public.  Russo received proceeds from the subsequent sale of the illicit stock.”

Belmont Partners and Meuse agreed to be permanently enjoined from violating Section 5 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  They neither admitted nor denied the SEC’s allegations.

The SEC previously entered into a bifurcated settlement with the Long Island-based issuer at the center of the scheme – Alternative Green Technologies (AGTI) – as well as its CEO Mitchell Segal, who agreed to be barred from the penny stock business or from serving as a corporate officer or director for at least five years.  Financial penalties against Segal will be determined at a later date.

The SEC’s investigation was conducted by Steven G. Rawlings and Megan R. Genet, and the litigation has been led by Todd Brody and Ms. Genet.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

TROUBLE FOR FINANCIER AND FIRMS FOR SELLING BILLIONS OF UNREGISTERED SHARES OF STOCK

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today charged a New York-based penny stock financier and his firms with violating the federal securities laws when they purchased billions of shares in a pair of microcap companies and failed to register them before they were re-sold to investors for sizeable profits.

Curt Kramer and his firms Mazuma Corporation, Mazuma Funding Corporation, and Mazuma Holding Corporation agreed to disgorge those profits in paying a total of $1.4 million to settle the SEC’s charges.

An SEC investigation found that Kramer and his firms obtained unregistered shares in penny stock issuers Laidlaw Energy Group and Bederra Corporation.  For the Laidlaw transactions, they claimed to rely on an exemption in Rule 504 of Regulation D that permits certain companies to offer and sell up to $1 million in unregistered shares.  However, the Mazuma firms’ purchases of Laidlaw shares exceeded Rule 504’s $1 million limit, so the shares were restricted and not exempt from the registration requirements of the securities laws when they were re-sold.  Mazuma Holding Corporation’s acquisition and sale of more than one billion unregistered shares of Bederra that had been misappropriated from the issuer by its transfer agent also were not exempt from registration.

“Unless there is a valid exemption, shares can’t be sold publicly without a registration statement that provides investors with the level of detail they deserve about the investment opportunity being offered,” said Michael Paley, co-chair of the SEC Enforcement Division’s Microcap Fraud Task Force that was created earlier this year to target abusive trading and fraudulent conduct in securities issued by microcap companies that often don’t regularly report their financial results publicly.

“Billions of shares were not vetted through the registration process yet became publicly traded as a result of the violations by Kramer and his Mazuma firms, and the SEC will continue to punish non-compliance with the registration provisions of the securities laws to ensure the investing public is protected in these types of transactions,” Mr. Paley added.

According to the SEC’s order instituting settled administrative proceedings, Kramer and his firms purchased two billion Laidlaw shares, which amounted to 80 percent of Laidlaw’s outstanding shares at the time.  They purchased these shares at a significant discount from prevailing market prices, making it highly likely they could immediately re-sell them publicly for a short-term profit.  Kramer and his firms purchased the shares in 35 tranches with no six-month gaps, thus quantifying the transactions as a single, integrated offering through which Laidlaw exceeded the $1 million limit under Rule 504 by raising a total of $1,259,550.  No registration statement was filed for any shares that Laidlaw offered and sold to Kramer and his firms, nor was any registration statement filed for any shares that Kramer and his firms subsequently re-sold into the public market.  Despite exceeding the $1 million limit, Kramer and his firms continued to acquire and sell additional Laidlaw shares and profited by $126,963 from these transactions.

According to the SEC’s order, Kramer and Mazuma Holding Corporation acquired more than one billion shares of Bederra in 2009 and 2010 through 21 separate transactions from the principal of Bederra’s transfer agent, who had misappropriated the Bederra share certificates.  Again they purchased the shares at a significant discount from prevailing market prices.  Kramer and Mazuma Holding Corporation re-sold the misappropriated Bederra shares to the public without any registration statement for a profit of $934,404.

In the settlement, Kramer and his Great Neck, N.Y.-based Mazuma firms agreed to pay disgorgement totaling $1,061,367 plus prejudgment interest of $128,611 and penalties totaling $273,000.  Without admitting or denying the SEC’s findings, Kramer and Mazuma consented to the entry of an order finding that they violated Sections 5(a) and 5(c) of the Securities Act of 1933.  The order requires them to cease and desist from committing violations of Sections 5(a) and 5(c) and not participate in any Rule 504 offerings.  Entry of the order will constitute a disqualifying event for Kramer and the Mazuma firms under the recently-enacted bad actor disqualification provisions of Rule 506.

The SEC’s investigation was conducted by staff in the New York and Denver offices, including Ian Karpel, Kim Greer, Haimavathi Marlier, Laura Yeu, Christopher Ferrante, and Elzbieta Wraga with assistance from examiners Terrence Bohan and Denis Koval.

FINAL JUDGEMENTS ENTERED AGAINST DEFENDANTS IN STOCK MANIPULATION SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
Court Enters Final Judgments by Consent Against SEC Defendants Giuseppe Pino Baldassarre and Robert Mouallem

The Securities and Exchange Commission announced that on August 16, 2013, the Honorable Allyne R. Ross, United States District Court Judge for the Eastern District of New York, entered final judgments by consent against Defendants Giuseppe Pino Baldassarre and Robert Mouallem. The final judgments permanently enjoin Baldassarre and Mouallem from future violations of Sections 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The final judgments also (i) order Baldassarre and Mouallem to pay total combined disgorgement and prejudgment interest of $21,932.03, which is deemed satisfied by the forfeiture orders entered against them in a parallel criminal action, and (ii) bar Baldassarre and Mouallem from participating in any offering of penny stock. In addition, the judgment against Baldassarre prohibits him from acting as an officer or director of a public company.

On December 7, 2011, the SEC filed its complaint against Baldassarre, Mouallem, and Malcolm Stockdale alleging that from at least October 2009, they engaged in a fraudulent broker bribery scheme designed to manipulate the market for the common stock of Dolphin Digital Media, Inc. The complaint alleged that they engaged in an undisclosed kickback arrangement with an individual who claimed to represent a group of registered representatives with trading discretion over the accounts of wealthy customers.

SEC CHARGES FORMER OFFICERS AND INVESTOR IN DEFUNCT COMPANY FOR ROLES IN PENNY STOCK SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Charges Former Officers and Investor in Houston Company in Fraudulent Penny Stock Scheme

The Securities and Exchange Commission today charged two former officers of now-defunct PGI Energy, Inc., as well as an investor in the company, for their roles in a fraudulent penny stock scheme to issue purportedly unrestricted PGI Energy shares in the public markets.

The SEC's complaint, filed in U.S. District Court for the Southern District of Texas, alleges that starting in 2011, PGI Energy's former Chief Investment Officer Robert Gandy and former CEO and Chairman Marcellous McZeal engaged in a scheme that included creating false promissory notes, signing misleading certifications, and altering the company's balance sheet to cause its transfer agent to issue millions of PGI Energy common stock shares without restrictive legends. The SEC also charged investor Alvin Ausbon for his role in the scheme, which included signing false promissory notes and diverting proceeds from the sale of PGI Energy stock back to the company and Gandy.

Gandy is also the CEO of Houston-based Pythagoras Group, which purports to be an "investment banking firm." McZeal is an attorney licensed in Texas. The complaint alleges that Gandy and McZeal made material misstatements and provided false documents to attorneys and a transfer agent who relied on them to conclude that PGI Energy shares could be issued without restrictive legends. The SEC alleges that Gandy and McZeal backdated promissory notes that purported to memorialize debt supposedly owed by PGI Energy and a prior business venture. They also are alleged to have added false debt to PGI Energy's balance sheet, and signed bogus "gift" letters and certifications of non-shell status, all in an effort to get unrestricted, free-trading PGI Energy shares unlawfully released into the market. Ausbon is charged with furthering the scheme by signing bogus promissory notes and remitting proceeds from the sale of PGI Energy shares back to the company and Gandy.

According to the complaint, the scheme collapsed in February 2012 when the SEC ordered a temporary suspension of trading in PGI Energy's securities, due to questions regarding the accuracy and adequacy of the company's representations in press releases and other public statements.

The SEC's complaint charges all defendants with violating Sections 5 and 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The complaint seeks permanent injunctions, disgorgement plus prejudgment interest, a financial penalty, and penny stock bars against all three defendants and officer and director bars against Gandy and McZeal.

Without admitting or denying the allegations in the SEC's complaint, McZeal has consented to the entry of a final judgment enjoining him from future violations of Sections 5 and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. He has also agreed to pay disgorgement plus prejudgment interest thereon of $19,919.37 and a civil penalty of $70,000. In addition, McZeal has agreed to permanent officer and director and penny stock bars. This settlement is subject to court approval. Subject to final settlement of the district court proceeding, McZeal has also agreed to the institution of a settled administrative proceeding pursuant to Rule 102(e) of the SEC's Rules of Practice, pursuant to which he would be barred from appearing before the SEC as an attorney.

STOCK PROMOTER TO PAY OVER $1.6 MILLION FOR INFORMATION ISSUED IN PENNY STOCK PUBLICATIONS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Massachusetts-Based Penny Stock Promoter Ordered to Pay Over $1.6 Million in Penny Stock Fraud Case

The Securities and Exchange Commission announced today that on July 24, 2013, a final judgment was entered by default against Massachusetts-based National Financial Communications, Inc. ("NFC"). NFC is a defendant in an action filed by the Commission in the U.S. District Court for the District of Massachusetts on December 12, 2011, alleging that Massachusetts resident Geoffrey J. Eiten and NFC made material misrepresentations and omissions in penny stock publications they issued.

The judgment enjoins NFC from further violations of the antifraud provisions of the federal securities laws (Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder) and from certain specified activities related to penny stocks, including the promotion of a penny stock or deriving compensation from the promotion of a penny stock. The judgment also imposed a penny stock bar against NFC which permanently bars it from participating in an offering of penny stock, including engaging in activities with a broker, dealer, or issuer for the purpose of issuing, trading, or inducing or attempting to induce the purchase or sale of any penny stock. The judgment orders NFC to pay disgorgement of $605,262, representing NFC's ill-gotten gains, plus prejudgment interest of $38,819 and a civil penalty of $1 million.

The Commission's complaint alleged that Eiten and NFC issued a penny stock promotional publication called the "OTC Special Situations Reports." According to the complaint, the defendants promoted penny stocks in this publication on behalf of clients in order to increase the price per share and/or volume of trading in the market for the securities of penny stock companies. The complaint alleged that Eiten and NFC made misrepresentations in these reports about the penny stock companies they promoted. For example, the Commission's complaint alleged that during 2010, Eiten and NFC issued reports promoting four penny stock companies: (1) Clean Power Concepts, Inc., based in Regina, Saskatchewan, Canada, a purported manufacturer and distributor of various fuel additives and lubrication products made from crushed seed oil; (2) Endeavor Power Corp., based in Robesonia, Pennsylvania, a purported recycler of value metals from electronic waste; (3) Gold Standard Mining, based in Agoura Hills, California, a purported owner of Russia gold mining operations; and (4) Nexaira Wireless Corp., based in Vancouver, British Columbia, Canada, a purported developer and seller of wireless routers. The Commission's complaint alleged that in these four reports, Eiten and NFC made material misrepresentations and omissions, concerning, among other things, the companies' financial condition, future revenue projections, intellectual property rights, and Eiten's interaction with company management as a basis for his statements.

According to the complaint, Eiten and NFC were hired to issue the above reports and used false information provided by their clients, without checking the accuracy of the information with the companies in question or otherwise ensuring that the statements they were making in the OTC Special Situations Report were true.

ATTORNEY CHARGED WITH CHURNING OUT BASELESS LEGAL OPINION LETTERS ON PENNY STOCKS THROUGH HIS WEBSITE

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Mar. 7, 2013 — The Securities and Exchange Commission today charged a California-based lawyer who has been fraudulently churning out baseless legal opinion letters for penny stocks through his website without researching and evaluating the individual stock offerings.

Legal opinion letters are issued to transfer agents on behalf of holders of restricted stock seeking to sell the stock freely in the public markets. Transfer agents typically require a lawyer’s opinion explaining the legal basis for lifting the restriction on the stock and allowing it to be freely traded.

The SEC alleges that Brian Reiss of Huntington Beach, Calif., set up 144lettera.com to promote his legal opinion letter business and advertise "volume discount" rates while noting "penny stocks not a problem." Reiss steered potential customers to his website by making bids on search terms through Google’s AdWords, and then relied on a computer-generated template to draft his opinion letters within minutes absent any true analysis of the facts behind each stock offering. The letters from Reiss ultimately made false and misleading statements and facilitated the sale of securities in violation of the registration provisions of the federal securities laws.

"Reiss flouted his responsibilities as a gatekeeper in the issuance of stock, and churned out opinion letters to make a quick buck," said Andrew M. Calamari, Director of the SEC’s New York Regional Office. "Attorneys who act as gatekeepers in our markets have a solemn responsibility to ensure that they provide accurate information to the marketplace."

Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office, added, "Reiss falsely claimed he had conducted investigations into various stocks and determined them to be exempt from registration under the securities laws. He misrepresented critical facts, and our enforcement action seeks to bring Reiss’s opinion mill to an end."

According to the SEC’s complaint filed in federal court in Manhattan, Reiss began issuing the fraudulent legal opinion letters in 2008. He advertised a $285 rate for each letter and a "volume discount" rate of $195 per letter. Reiss routinely made inaccurate statements bearing on whether the restriction should be lifted, and failed to conduct even a token inquiry into the underlying facts. He knew or recklessly disregarded the fact that shareholders seeking his opinion letters intended to sell their stock in the public markets, and that transfer agents would rely on his opinion letters to issue stock certificates without restrictive legends.

According to the SEC’s complaint, the false and misleading statements that Reiss made in opinion letters induced transfer agents for several public companies to remove the restrictive legends from the stock certificates and permit the sale of free-trading shares to the public. Reiss provided the opinion letters to transfer agents who required assurances in the form of a legal opinion that the transactions qualified for an exemption from the registration requirements under the federal securities laws. With Reiss’s baseless assurances, the transfer agents issued stock certificates without restrictive legends and enabled the stock to be traded freely.

The SEC’s complaint charges Reiss with violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The SEC seeks disgorgement of ill-gotten gains with prejudgment interest and financial penalties. The SEC seeks to bar Reiss from participating in the offering of any penny stock pursuant to Section 20(g) of the Securities Act. The SEC also seeks permanent injunctions – including an injunction prohibiting Reiss from providing legal services in connection with an unregistered offer or sale of securities.

The SEC’s investigation was conducted by Charles D. Riely and Amelia A. Cottrell – members of the SEC Enforcement Division’s Market Abuse Unit – along with Shannon A. Keyes and Kathy Murdocco of the SEC’s New York Regional Office. The SEC’s litigation will be led by Mr. Riely and Ms. Keyes. The New York office’s broker-dealer examination team of Richard Heaphy, Michael McAuliffe, and Simone Celio, Jr. provided assistance with the investigation.

The SEC also acknowledges the assistance of the U.S. Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority (FINRA).

SEC FILES ACTION AGAINST ALLEGED PENNY-STOCK FRAUDSTERS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
June 1, 2012
SEC Files Action Against Three Penny-Stock Fraudsters
The Securities and Exchange Commission ("SEC") today charged three individuals for their roles in a $3.9 million scheme to manipulate the market and to profit from the issuance and sale of Grifco International, Inc. (“Grifco”) stock. The SEC's complaint alleges that the stock manipulation scheme was orchestrated and devised by James Roland Dial, Grifco’s former president, chief executive officer, and sole director, Evan Nicolas Jarvis, a stock promoter and de facto Grifco officer, and Alex W. Ellerman, another stock promoter.

The complaint alleges that between December 2004 through November 2006, Dial and Jarvis caused Grifco, a publicly-traded corporation that claimed to be an international provider of oil and gas services equipment, to issue over 13 million purportedly unrestricted Grifco securities to Ellerman, themselves or their nominees. The complaint alleges that Dial, Jarvis and Ellerman sold the Grifco securities to the investing public shortly after receiving their shares, often times selling those shares into a rising, artificial market they created by disseminating false and material misleading information about Grifco to prospective investors and shareholders. None of the securities transactions were registered with the SEC and the transactions did not satisfy any exemption from registration according to the complaint. The SEC alleges that, as a result of this conduct, Dial, Jarvis, and Ellerman collectively received nearly $3.3 million in ill-gotten gains from the sale of newly-issued Grifco stock. The complaint also alleges that Dial misappropriated at least $600,000 by looting Grifco’s cash account from September 2005 through December 2006.

The SEC’s complaint also alleges that Dial, Jarvis, and Ellerman engaged in a pump-and-dump scheme designed to defraud and deceive existing and potential investors into purchasing Grifco shares while they sold Grifco shares at inflated prices into an artificially active market that they created. The complaint alleges that Dial made false and misleading information about Grifco through press releases, investor conference calls, and other statements to Grifco shareholders that Jarvis and Ellerman, at times, disseminated. Dial, Jarvis, and Ellerman sold many of their own Grifco shares at or near the release of this information, even though they knew that the press releases and other statements contained false and misleading information regarding Grifco’s financial position and projected sales, its products and product development, and the company’s total outstanding shares.

The complaint charges that Dial, Ellerman, and Jarvis violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The SEC seeks permanent injunctions, disgorgement with prejudgment interest, officer and director bars, and penny stock bars against each.

Dial, Jarvis, and Ellerman have consented to the entry of a final judgment that: (i) enjoins them from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; (ii) and bars them from serving as an officer or director of a public company or participating in an offering of any penny stock. Dial, Jarvis, and Ellerman also consented to entry of a final judgment that orders them to pay disgorgement and prejudgment interest in the amount of $1,600,628, $2,095,524, and $939,650, respectively, which will be deemed satisfied upon entry of a restitution order in an equal or greater amount in a related enforcement action brought by the United States Attorney’s Office for the Southern District of Texas (Houston); United States v. Alex Ellerman et al., Cr. NO. H-10-56-S (S.D. Tex.) (U.S. v. Ellerman).

On May 22, 2012, the Honorable David Hittner, United States District Court Judge for the Southern District of Texas, sentenced Dial to a five-year prison sentence for conspiring to commit wire fraud. Today, Judge Hittner also sentenced Jarvis to a five-year term of imprisonment for conspiring to commit wire fraud while Ellerman received a reduced prison sentence of 40 months because he cooperated with the prosecution and provided evidence against his co-defendants. The sentencings followed March 2011 pleas of guilty by Dial, Jarvis and Ellerman for conspiracy to commit wire fraud.

The SEC acknowledges the assistance of the United States Attorney's Office for the Southern District of Texas, the Federal Bureau of Investigation, and the Harris County (Houston, Texas) District Attorney's Office.