Hi guys,
Sorry for the long post, but hey it's night time, my eyes are sore and I can't find the link. Thought you might find this interesting.
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B.C. Securities Commission - Street Wire
SEC sweep nets another 23 Internet fraudsters
B.C. Securities Commission BCSEC
Mon 5 Mar 2001 Street Wire
MORE FISH IN THE SEA
by Lee M. Webb
On March 1, the United States Securities and Exchange Commission (SEC)
announced its latest success in a continuing crackdown on Internet
securities fraud, bringing 11 enforcement actions against 23 individuals
and companies. While regulators in Canada, including the Ontario Securities
Commission (OSC) and the British Columbia Securities Commission (BCSC),
devote some of their scarce resources to monitoring Internet chat sites and
reviewing suspect Web sites, the SEC has been far more aggressive and
successful in pursuing Internet scams than its Canadian counterparts. The
SEC has a dedicated corps of more than 200 enforcement staff, known as the
CyberForce, specially trained for Internet surveillance. The OSC and BCSC
rely on a relative handful of enforcement personnel, many of whom count
Internet monitoring as only one of several duties.
The latest SEC enforcement actions are the result of its fifth Internet
sweep, bringing the number of Internet-related enforcement actions to more
than 200, involving more than 750 named individuals and entities. On Oct.
28, 1998, the SEC announced its first nationwide Internet sweep, focused
largely on illegal touting. The U.S. regulator filed 23 enforcement actions
against 44 respondents who had received approximately $7-million (U.S.) in
cash and two million shares of cheap stock and options for their touting.
(Subsequent figures are in U.S. currency.) Another touting sweep on Feb.
25, 1999, resulted in four enforcement actions against 13 individuals and
companies, including a registered stockbroker and two former brokers. The
Internet touts used spam E-mails, on-line newsletters, chat site postings
and Web sites to fraudulently tout stocks in return for more than $450,000
in cash and 2.7 million shares and options. In at least one instance, the
fraudsters unloaded their shares immediately following their
recommendation, a practice aptly known as "scalping."
On May 12, 1999, the SEC announced its third Internet fraud sweep, this one
targeting the sale of bogus securities ranging from worthless gold mining
stocks to prime bank notes schemes. In some instances the fraudsters
promised gullible investors guaranteed profits of 2,000 per cent of their
initial investments. Regulators brought 14 enforcement actions against 26
companies and individuals in that sweep and also charged several
individuals with acting as unregistered broker-dealers and selling
unregistered securities.
Last year, the SEC turned its attention to Internet "pump-and-dump" stock
schemes, announcing enforcement actions on Sept. 5, 2000, against 33
companies and individuals for engaging in stock manipulation. The
fraudsters spread false information about the usually thinly traded stocks
through Web sites, E-mail messages and Internet message boards and then
cashed in as investing rubes piled into the worthless stocks, driving the
prices up. Some of the con artists had absolutely no securities experience;
one was a bus mechanic and another a college student who worked as a driver
for a car service. Nonetheless, the perpetrators of the scams pumped up the
market capitalization of the more than 70 microcap stocks involved by more
than $1.7-billion, scooping up more than $10-million in illegal profits.
The latest crackdown also focuses on stock manipulation schemes in which
the fraudsters used the Internet to pump the market capitalization of the
stocks involved by more than $300-million and raise $2.5-million from
investors in both the U.S. and other countries. As with the other schemes,
a variety of Internet media were used including spam E-mails, electronic
newsletters, message boards and Web sites. "Today's cases are a sobering
reminder for investors that, on the Internet, there is no clearly defined
border between reliable and unreliable information," SEC director of
enforcement Richard Walker said. "These actions involve a virtual checklist
of common securities fraud techniques," he went on. "Perpetrators lured
investors with promises of fast and easy profits in thinly traded, or even
privately held, development stage companies that operate in 'hot button'
industries."
Some of the fraudulent schemes involved luring investors with false
promises of an imminent initial public offering (IPO). One private company,
Chidwhite Enterprises Inc., used spam E-mail and a Web site to tout an
imminent SEC-approved IPO at a price of $20 per share to $50 per share. The
company also claimed that it would realize at least $1-billion from its
proposed on-line eyewear sales. In fact no IPO had been approved and the
company had no offices or inventory or any products or services to sell.
The SEC alleges that the company's sole shareholder and chief executive
officer, 26-year old Jerry Chidester, misappropriated investor funds for
his personal securities transactions and for expenses at restaurants,
gambling casinos and adult entertainment clubs. The principals of another
pre-IPO fraud, Smart-Mart Inc., used much of the $2.4-million raised from
investors in the U.S. and Canada for automobile purchases, trips to Cabo
San Lucas, Florida, Hawaii and California, and for home mortgage payments.
Another popular scam technique involves the use of baseless financial
projections. PinkMonkey.com Inc. and its founder and controlling
shareholder, Patrick R. Greene, used that technique to quick effect when
announcing the launch of a purportedly new Web site. According to the
PinkMonkey release, its new service could "quickly reach a significant
market share" in the study aids market, estimated at more than
$400-million. Within an hour of the news release, the previously thinly
traded stock jumped from $1.50 to $4.37 per share on heavy volume, peaking
two days later at $17. According to the SEC, however, the Web site was not
new and it was not likely to garner any significant market share. In fact,
PinkMonkey had operated the Web site for 14 months, ringing up only a
chump-change $30 in sales. Yes, that was $30. The stock subsequently
plunged to 20 cents per share.
Ricky Laine Gaspard used another common tactic to lure investors into his
scheme, claiming a phenomenal success rate for the stock picks served up
through his Web site, WallStreet Prophet. Mr. Gaspard claimed that
WallStreet Prophet's system had an 85-per-cent success rate, adding
elsewhere that his recommendations were 99-per-cent accurate "most of the
time." Mr. Gaspard also claimed to be an experienced trader with more than
14 years of investing experience. In fact, the former roofer opened his
first brokerage account in the spring of 1999 and only executed a limited
number of trades. According to the SEC, the vast majority of those trades
resulted in losses. Sunset Investment Group Inc., James Brown, Pinnacle
Capital Advisors and Austin Tanner also used inflated performance claims,
as well as fake testimonials. A group of three Web sites --
OptionInvestor.com, SplitTrader.com and NetBulls.com -- claimed track
records of from 60-per-cent returns to 240-per-cent returns on their stock
picks. They offered glowing testimonials in support of the purported track
records and claimed to use "a team of experienced traders" to come up with
their picks. According to the SEC, the touted returns were merely
hypothetical, the team of traders was a single individual, and the
testimonials on two of the sites were copied from the third.
Another company had links on its Web site to the reports of a purportedly
"independent analyst" who was nothing of the kind. According to the SEC,
Kenneth W. Schilling, president of iBIZ Technology Corp., provided false
financial projections to a supposedly independent analyst who merely
reprinted the company's fraudulent claims. The SEC claims that iBIZ had
agreed to compensate the analyst for his wonderful report with 200,000
shares of the company's stock. In a similar case, RumorSearch.com and its
owner Jeremy Johnson made false claims about Far East Ventures Inc.,
receiving 95,000 shares of the company in return. While fraudulently
touting the stock, Mr. Johnson managed to unload 66,500 shares for a profit
of $315,848.
While the SEC and its 200-member CyberForce team have tallied an impressive
string of Internet fraud sweeps in just over two years, there are many more
fish in the sea -- both sharks and suckers -- and, increasingly, those fish
are oblivious to international boundaries and separate regulatory
jurisdictions. Even though the SEC has been far more successful in netting
some of the growing stock of cyber-fraudsters than Canadian regulators,
some investors might well wonder at the effectiveness of the rather mild
sanctions that are often levied against securities violators by regulators
on both sides of the border. In some of its most recent Internet-related
enforcement actions, the SEC is seeking civil penalties and disgorgement of
ill-gotten gains as well as various securities-related injunctions. In
other actions, however, the SEC has already entered into consent agreements
with the respondents that call for little more than a promise to abide by
securities regulations in the future. As a number of investors in both
Canada and U.S. caught up in the collapse of Grenada-based Cambridge
International Bank and Trust have discovered recently, the virtual
"catch-and-release" approach to securities violators does not always work.
A central figure in the Cambridge debacle is recidivist Gerry Burns, an
ex-convict and repeat securities violator. Mr. Burns was released by the
Arizona Department of Corrections on Dec. 2, 1991, after serving 31 months
of a five-year sentence for a securities-related fraud conviction. By as
early as 1994, Mr. Burns was plying his trade again, this time getting
nabbed by the SEC for fraudulently selling $2.7-million worth of stock in
VDS Enterprises Inc. to Spanish citizens. The SEC filed a complaint against
Mr. Burns in a Florida court and on Oct. 21, 1998, obtained a judgment
barring him from acting as an officer or director of any public issuer and
ordering him to pay a $100,000 civil penalty, $1.6-million in prejudgment
interest and a disgorgement of $2.7-million. Notwithstanding that rather
hefty judgment, on March 22, 1999, the SEC entered into a settlement
agreement with Mr. Burns that simply barred him from participation in any
offering of a penny stock.
At the same time as Mr. Burns was negotiating his remarkably lenient
sanction with the SEC, he was also launching his new career as a banker
with Cambridge. Among his new colleagues were Canadians David Rowe, the
bank's mastermind, Mr. Rowe's son Daniel, another bank executive, and Len
Mertz, a mere "representative." Mr. Rowe, Daniel Rowe, and Mr. Mertz had
all worked for a time as registered representatives of Canadian Global
Investments Corp., based in Abbotsford, B.C. In 1997, Canadian Global
entered into a settlement agreement with the BCSC after it was found that
the company failed to maintain proper books and records. In a subsequent
audit, the BCSC determined that $5-million of investors' money had not been
accounted for by Canadian Global and "there were significant conflicts of
interest arising as a consequence of many non-arms length transactions."
Canadian Global was put on a short leash by the BCSC, but the Rowes and Mr.
Mertz moved on to greener pastures, as did Mark Kennedy, another former
representative of Canadian Global. Mr. Kennedy went on to head the sham
World Investors Stock Exchange, based in Grenada, before serving as the
chief executive officer of an even bigger scam, First International Bank of
Grenada (FIBG).
Much like FIBG, of which it was a subbank, Cambridge was little more than a
Ponzi scheme. Along with a network of "representatives," Mr. Rowe and his
rogues' gallery of colleagues lured investors in Canada and the U.S. with
promises of interest rates as high as 50 per cent and better on
certificates of deposit. When the scheme began to collapse, Cambridge
introduced another investment vehicle, promissory notes carrying rates as
high as 30 per cent for a 90-day term. While they managed to drain the last
few dollars of savings from many of their victims, some of whom even
mortgaged their homes to come up with more cash, they could not keep the
scam running as more investors began to demand their overdue interest
payments and then their principal.
The collapse may well have been hastened along by Mr. Burns, who was in
control of the bank's so-called investment portfolio. In fact, the
ex-convict and repeat securities violator siphoned off millions of dollars
of depositors' money to purchase speculative stocks, including shares of
Odin Industries Ltd. and Peragis Inc., not all of which were even
registered to Cambridge. Trading in Odin and Peragis was suspended by the
Canadian Venture Exchange on Jan. 23. In addition to Odin and Peragis, Mr.
Burns may have ploughed Cambridge money into as many as a dozen other
securities, broadening the number of potential Cambridge victims to
investors in those companies who have never even heard of the offshore
bank. Exactly how many millions of dollars may be at risk because of the
Cambridge debacle is anyone's guess, but a $50-million lawsuit over the
scam was filed in Grenada on Dec. 8, 2000.
It would be mere conjecture to suggest that a more severe sanction against
Mr. Burns by the SEC or a more thorough investigation of Canadian Global
and its registered representatives by the BCSC might have prevented the
Cambridge imbroglio and even some other scams. However, that is a
conjecture that many of the Cambridge investors on both sides of the
border, as well as shareholders of Odin and Peragis, have been
entertaining. What is not conjecture at all is that Cambridge, Mr. Burns,
Mr. Rowe, Daniel Rowe, Mr. Mertz and a host of other people and companies
connected to Cambridge are now under investigation by securities regulators
in Canada and the United States and by law enforcement agencies including
the Federal Bureau of Investigation.
While the SEC has certainly mounted an impressive and commendable campaign
of hauling in fraudsters in their Internet sweeps, investors can only hope
that some of the con artists who get off with little more than a command to
go forth and scam no more after being caught by regulators keep that
commandment more faithfully than Mr. Burns and others of his ilk.
Comments regarding this article may be sent to lwebb@stockwatch.com
(Readers wanting more information regarding Cambridge International Bank
and Trust, Odin Industries Ltd. and Peragis Inc. are referred to Canada
Stockwatch articles on Jan. 23, 31 and Feb. 9, 16, 19 and 23. Coverage of
earlier SEC Internet sweeps includes articles published on Oct. 29, 1998,
under the symbols ACC, U:EMPG, U:GBIT, U:COII, U:CALP, U:PWTC and U:DSFT;
and articles on Sept. 6, 2000, under the symbols RYS, DVC, U:IBTR, U:POST,
and U:ZSUN.)
(c) Copyright 2001 Canjex Publishing Ltd. stockwatch.com |
