HydroFlo Inc (PinkSheets: HYRF)and WebSky Inc (Pinksheets: WKYN) are said by SEC to have been involved in "Pump and Dump" schemes fueled by false announcements about lucrative deals:
U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19755 / July 5, 2006
SEC v. HydroFlo, Inc. and Dennis Mast, U.S. District Court for the Eastern District of North Carolina, Western Division,
Civil Action No. 5:06-CV-270, filed July 5, 2006
SEC Sues HydroFlo, Inc. and its Former CEO, Dennis Mast, for Issuing False Press Releases
The Commission announced that today it charged HydroFlo, Inc. ("HydroFlo") and its former CEO, Dennis Mast ("Mast"), with defrauding investors by making false and materially misleading statements about Hydroflo's water treatment business, contracts, and prospects in a series of press releases in 2005. Without admitting or denying the Commission's allegations, HydroFlo and Mast have consented to entry of injunctions against further violations of the antifraud provisions of the federal securities laws. Mast, of Apex, North Carolina, has also consented to entry of an order requiring him to pay a $100,000 civil penalty, barring him from serving as an officer or director of a public company, and barring him from participating in offerings of penny stock.
The Commission's complaint, filed in the United States District Court for the Eastern District of North Carolina, Western Division, alleges that HydroFlo and Mast misled investors by (i) mischaracterizing an agreement involving a subsidiary's consignment customer as a guaranteed contract worth $210 million to HydroFlo; (ii) touting a positive stock analyst report as "independent" and "unbiased" without disclosing that HydroFlo had paid $19,500 for the analyst coverage; and (iii) repeatedly publishing false statements claiming that HyrdroFlo subsidiaries were providing filtration equipment and water purifying consulting services to government agencies engaged in Hurricane Katrina relief efforts when in fact the company had not shipped any products, nor provided any such services. All of these false press releases had the effect of increasing trading volume in, and the price of, HydroFlo's common stock.
The complaint charges HydroFlo and Mast with engaging in transactions, acts, practices and courses of business in violation of Section 10(b) of Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. HydroFlo and Mast consented to the entry of permanent injunctions against future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Mast also consented to entry of an order requiring him to pay a $100,000 civil penalty under Section 21(d)(3) of the Exchange Act, permanently barring him from serving as an officer or director of a public company under Section 21(d)(2) of the Exchange Act, and barring him from participating in offerings of penny stock under Section 21(d)(6) of the Exchange Act.
U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19805 / August 17, 2006
SEC v. Jeffery Steven Stone, et al., Case No. 06-CIV-6258 (HB) (S.D.N.Y. filed Aug. 17, 2006)
SEC Charges Ex-Con in Stock Manipulation Scheme Involving San Francisco-Based Tech Company
The Securities and Exchange Commission today charged a former felon and his wife with orchestrating a fraud scheme to inflate the price of WebSky, Inc., a San Francisco-based penny stock company, using spam email. The couple pocketed more than $1 million in proceeds as a result of the scam.
The Commission's complaint alleges that Jeffery Steven Stone of Greenwich, Connecticut, and his wife, Janette Diller Stone, using entities they controlled, acquired massive amounts of WebSky stock under false pretenses, hired stock promoters to hype the stock in false spam emails, and then dumped their shares into the unsuspecting market. Stone is a recidivist securities law violator, having been convicted of fraud in a prior market manipulation scheme and found liable in civil proceedings by the Commission.
According to the complaint, Stone and Diller bought 288 million shares from WebSky based on false promises that the shares were being acquired for investment purposes and not as a means of distributing shares to the public. Within days, the two began selling the shares to third parties. Stone and Diller also engineered a spam email campaign that falsely portrayed WebSky - a start-up Internet company with virtually no revenues or profits - as having a successful joint venture in Argentina that would result in over $40 million in annual revenues. In reality, WebSky's CEO had forbidden them from sending the spam email and informed them that WebSky's Argentina deal was no longer viable.
The complaint alleges that, as a result of Stone and Diller's fraud, WebSky's stock price soared by over 300% on trading volume almost 20 times greater than normal, after which Stone and Diller sold their WebSky shares. Combined with proceeds from other stock sales during the scheme, Stone and Diller received more than $1 million in proceeds.
The Commission also brought charges against WebSky and its CEO, Douglas Haffer, of Oakland, California, for selling WebSky shares in a subsequent transaction to an entity controlled by Stone and Diller without registering the transaction or securing an exemption from registration. Subject to court approval, WebSky and Haffer have agreed to settle the action, without admitting or denying the allegations, by disgorging the $35,000 received in the sale and consenting to a permanent injunction against future violations of the registration provisions of the federal securities laws. Haffer also has agreed to pay a $25,000 civil penalty.
The complaint, filed in federal court in New York, New York, charges Stone and Diller with violating the antifraud, registration, and other provisions of the federal securities laws. The complaint also names two entities controlled by the Stones, Crescent Fund, LLC, based in New York, New York, and Pedracar, Inc, a Pennsylvania company.
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