SEC scores victory by default over Exotics.com
2006-04-10 20:23 ET - Street Wire
by Stockwatch Business Reporter
The U.S. Securities and Exchange Commission, Canada's finest penny stock regulator, has won a default judgment against Vancouver-based Exotics.com Inc., an alleged market manipulation run through three unwitting Vancouver brokerages. Still presumed innocent are the Vancouverites in the Exotics.com case, James L. Ericksteen, Ingo Mueller, Firoz Jinnah and Barry Duggan, who await trial.
The SEC, announcing the judgment Friday, says the decision bars Exotics.com from any further violations of the securities rules. The SEC did not seek any financial penalties against the company, which is defunct.
The Exotics.com case may get some special attention from Nevada prosecutors, who recently bungled a massive criminal market manipulation case against Exotics.com's Nevada lawyers, Daniel Chapman and Sean Flanagan. That case, which was unrelated to Exotics.com, ended in a mistrial this February.
Prosecutors claimed the lawyers made $14-million as they manipulated several shell companies between 1999 and 2001. Their co-accused in the case, former Las Vegas lawyer Shawn Hackman and Utah transfer agent James Farrell, both pled guilty and await sentencing. (All figures are in U.S. dollars.)
In February, a Nevada judge threw out the 64-count indictment against Mr. Flanagan and Mr. Chapman citing "flagrant, willful and bad faith" misconduct by the lead prosecutor. The judge declared a mistrial when he realized prosecutors were withholding evidence from the defence. This was a change of his stance during the 12-day trial, when he repeatedly overruled protests by defence lawyers about the evidence.
The government is appealing.
In the Exotics.com case, the SEC says Mr. Chapman and Mr. Flanagan sold Exotics.com as a shell to the Vancouver promoters in 2001. In addition to helping the promoters lift the restrictions on eight million shares, the SEC says the Nevada lawyers participated in several manipulative trades of Exotics.com between March, 2001, and May, 2001.
The SEC sued Exotics.com, its Vancouver promoters and officers, and the Nevada lawyers last April. The SEC claimed the promoters manipulated Exotics.com as it went to $5.25 in 2001 with prearranged trading through Yorkton Securities Inc., Global Securities Corp. and Canaccord Capital Corp. The SEC did not make any allegations against the brokerages.
The SEC claimed the company published inflated revenue predictions in an e-mail and fax spam campaign and in news releases. The stock reached a $5.25 high on April 19, 2001, then fell to 80 cents on July 11 and nine cents on Oct. 2.
The SEC says Mr. Ericksteen bought and sold shares of the company through two accounts at Canaccord, one in his own name and the other in the name of his company, R 1120 Holdings Ltd. Mr. Mueller, Exotics.com's president, allegedly bought escrow shares from the Nevada lawyers through accounts at Yorkton and Global.
Most of the Exotics.com accused have filed general denials to the SEC's allegations. The case appears headed for trial in 2007.
Mr. Farrell, a defendant in the Nevada criminal case, and Mr. Ericksteen, the Vancouver businessman in Exotics.com, were both defendants in an unrelated SEC share leasing prosecution in 1997. In that case, the SEC fined Mr. Ericksteen $2.8-million and shut down Mr. Farrell's transfer agent business.
Mr. Ericksteen's fine was later reduced to $100,000 based on his inability to pay. The SEC also won $16.5-milion in fines against Swiss financier Guido Bensberg in that case. Mr. Bensberg unsuccessfully appealed the fine in 2003. |
