SEC Enforcement Highlights
By Mark McNair
Last updated June 30, 2000
From the archives of The US. Securities and Exchange Commision, Stock Detective scours thousands of public records to display these highlights of the graft and punishment of accused Wall Street "No-Gooders." Use this page for amusement and for an educational dose of reality... lest the next deceived investor be yourself.
Date SEC File Stock Detective Summary
6/26/00 16610 Does Your Investment Advisor Have 15 Cars?-A U.S. District Court Judge for the Northern District of Texas granted a SEC request for a temporary restraining order against Thomas Kearns and his company, Kearns Financial Services Inc., that froze all assets of the company. Thomas Kearns was a licensed insurance agent in Dallas County, Texas who also represented himself as an investment advisor. According to the SEC, he victimized seniors by gaining their trust and then obtaining powers of attorney from the trusting seniors that gave him complete authority over their money. Unfortunately, the defrauded seniors didn't get the safe investments that he had promised. In fact, Kearns obtained at least $1.5 million and apparently did not make any legitimate investments whatsoever for his clients. He loaned more than $300,000 to a friend to start a ginseng vitamin company and used other money to buy a vacation home, home improvements and to acquire 15 automobiles.
--------------------------------------------------------------------------------
6/22/00 16604 This Peat Stock Smells-A U.S. District Court Judge in Chicago entered a judgment against five individuals connected with Exsorbet Industries, including former company president Lee Ogle, in a microcap stock manipulation case. Exsorbet produced a peat moss oil absorbent product supposedly used in environmental cleanup. Unfortunately, according to the SEC, Exsorbet investors were totally deceived about the company and its prospects, as its stock price was manipulated from $1 to $13 a share. Besides giving and receiving bribes to manipulate the stock price, an EPA document endorsing the product was forged and a press release announcing $5 million in sales was bogus, the SEC said. The defendants consented to the judgments without admitting or denying the SEC's allegation and were ordered to pay at least $2.3 million in disgorgement of ill-gotten gains and civil penalties.
--------------------------------------------------------------------------------
6/15/00 16590 Virtual Pyramid Collapses-SG Limited, based in the Caribbean island of Dominica, operated the StockGeneration Web site, touting itself as a “virtual stock exchange” that offered stocks in “virtual companies.” The SEC announced the unsealing of a temporary restraining order and asset freeze issued by U.S. District Court in Boston against the company. Numerous investors flocked to SG and particularly to one "privileged company" it offered. SG told investors that the stock in this company would only rise – even guaranteeing investors a 10 percent monthly return. But it is not a privilege to invest money in a fictitious company. According to the SEC, this virtual arrangement was, in fact, just a classic pyramid scheme.
--------------------------------------------------------------------------------
6/1/00 16579 Chicago Casino is Bad Bet-The SEC filed a complaint in U.S. District Court in Minnesota against Robert Shanks and Mary West and their company, Skyline Group Inc., for misappropriation. Victimized investors were told that all funds raised would be used to finance a Native American tribe's request for the Department of the Interior to return land to the tribe in the Chicago area so that a casino could be built. The SEC did not allege the Native American tribe engaged in any wrongdoing, but charged the defendants with violations of federal securities laws. Specifically, the SEC alleged that the couple diverted $1.36 million of the $3 million to cover their personal debts and expenses, such as their mortgage payment.
--------------------------------------------------------------------------------
5/31/00 16569 Fraud in the Skies-The SEC filed a civil action against Pacific Air Transport and Robert B. Hirsch for an alleged fraudulent securities offering. According to the SEC, Hirsch and his cohorts offered investors nine-month "secured" promissory notes. Investors of the notes were promised returns of 12 to 13 percent and were told that their funds were guaranteed by an offshore insurance company. Pacific Air Transport raised approximately $8 million through this scheme and many of its victims were elderly. Unfortunately, there was no guarantee and the SEC indicates that these investors have lost most, if not all, of their investment.
--------------------------------------------------------------------------------
5/10/00 16548 120 Percent Phony-The SEC announced a civil action to halt an ongoing fraudulent scheme run under the names Oakleaf International, Rosewood International and Meliorations Management. Gullible individuals investing at least $40 million nationwide were promised capital preservation and 120 percent annual returns. It appears that these investors asked few questions. The SEC alleges that Rosewood or the other companies were able to obtain the $40 million without even specifying to their investors how they would obtain the promised 120 percent returns. Clearly, investors were not told how the money was really being used. The SEC alleged that the defendants used the funds to purchase houses and cars for themselves and to transfer money to offshore bank accounts. One item the SEC found particularly appalling: The companies paid 25 percent commissions to their salespeople.
--------------------------------------------------------------------------------
4/10/00 16511 Dial M for Misrepresentation-Allegedly, William H. B. Chan, the former chairman of defunct Empower Communications, and other defendants sold more than $6.5 million in unregistered securities to investors. According to the SEC, these duped investors were told that their investments would be used to build and operate telephone exchanges in Indonesia. Chan and others falsely misrepresented the existence of an agreement with a major telecommunications company, the company's assets and the existence of an independent audit by a nationally recognized public accounting firm. Chan fared rather well at the expense of his investors, using $1.2 million of the offering proceeds for undisclosed expenses of himself and another company. As you would expect, no telephone services were ever provided.
--------------------------------------------------------------------------------
4/3/00 16499 Entertainers Scammed-Dana C. Giacchetto and his Cassandra Group decided to target entertainers rather than widows. Presumably, Giacchetto believed he could make more money that way, and he probably was right. The SEC charged the Manhattan investment adviser with fraudulently diverting more than $20 million from the investment accounts of his clients. To lure his entertainer clients, he claimed a "conservative" investment strategy with the assets kept in trust by an independent custodian. But his claims were a sham, according to the SEC. Allegedly, Giacchetto diverted more than $4 million of his clients' funds to pay Cassandra's operating expenses and his living expenses. He also used more than $12,000 in client funds as a down payment for a Mercedes for a law enforcement officer. According to the SEC, when his clients asked questions, he was quick to respond -- with lies. He often totally misrepresented the stocks comprising his clients' portfolios and discussed stock transactions with clients that never actually took place. To back up his lies, he provided his customers with false order tickets, false portfolio statements, and data regarding nonexistent "escrow" accounts and fictitious "private placements."
--------------------------------------------------------------------------------
3/31/00 16496 Thanks for the House-Kay L. Cahill, a convicted felon, and other defendants allegedly raised approximately $9.5 million for "investments" in foreign bank instruments. Cahill and his cohorts promised investors returns of as much as 1,000 percent per year. Unfortunately, promises of unbelievable returns still attract gullible investors. According to the SEC, Cahill was running an old-fashioned Ponzi scheme. He used some of the proceeds for an 11,000-square-foot $1.2 million house in Tyler, Texas. Of course, a house of that size needs furniture, and Cahill also used investor funds to purchase furniture and automobiles. The SEC's request for an emergency asset freeze and other equitable relief to halt the fraudulent investment scheme was granted. The Judge also entered an order against Robert H. Alberding for his role in soliciting investors for the program in exchange for commissions. Alberding, a self-employed sales and marketing consultant who conducted business under the name CanAmerican Business Capital, was orderee to pay $125,000 he received in commissions.
--------------------------------------------------------------------------------
3/3/00 16461 Law School Fraud Project-The creative efforts of Douglas Colt, a Washington, D.C.-area law student, received the attention of a hometown institution, the Securities and Exchange Commission. Unfortunately, his scheme will look very bad on his resume. According to the SEC, Douglas created an Internet company -- fast-trades.com -- that recommended stocks and then used this company to manipulate the prices of four stocks during early 1999. This scheme generated over $345,000 in profits for himself, his mother, three of his law school classmates and two friends. Allegedly, Colt targeted thinly traded stocks, purchased the shares in advance, and then promoted and recommended the stocks to his subscribers. When the stocks went up, Colt and his law school buddies were in great shape because they already had sell limit orders in place. It took considerable work to attract new victims, thus Colt and his three law school classmates -- Kenneth Terrell, Jason Wychoff, and Adam Altman -- had to post hundreds of false messages to Internet message boards to maintain and expand fast-trades.com subscribers. One wonders if they had time to attend legal ethics classes.
--------------------------------------------------------------------------------
2/22/00 16446 Lifestyles of the Rich and Fraudulent-The SEC announced an emergency enforcement action against David W. Mobley, a hedge-fund manager. Mobley allegedly defrauded investors of at least $59 million since 1993. According to the SEC complaint, he claimed his funds averaged 51 percent return per year, net of his management fees of 30 percent. But Mobley actually lost millions for his investors. Perhaps one reason for his clients' losses was that he had put their money into a number of businesses he owned, including a golf and country club development, a research and polling company, and a cigar lounge. But Mobley did more than smoke cigars. According to the SEC, he diverted millions of dollars of investor funds to pay for a luxurious lifestyle for himself, including a $1 million salary and a $2 million bonus and a Porsche. But it appears his passion was diverting his customers' funds to pay for housing for himself and his family -- an $864,000 home and a $1 million lot in Naples, Florida, homes for his sister and daughter, and a $1.7 million vacation home in Vail, Colorado.
--------------------------------------------------------------------------------
2/1/00 16421 Oil in this Boiler-The SEC filed a civil action against David Lewis and Spartan Oil Corporation alleging fraud in connection with their sale of oil and gas partnership interests. According to the SEC, Lewis and a boiler room sales force raised approximately $1.8 million from misled investors and misrepresented Lewis’ petroleum experience and past results. They also were not truthful about oil leases Spartan owned or other important data about the company's assets and operations. Lewis allegedly misappropriated some of the funds, using some of the money to repay investors of another company, Centurion Oil Production Corporation. Most galling to Spartan's investors, their investments were used to run Lewis' boiler room operation.
--------------------------------------------------------------------------------
1/18/00 16411 In the Rough-Golf Emporium and its President, Frederick Tropeano, may be closing up shop. Allegedly since January 1998, Tropeano and his salespeople raised at least $640,000 through fraudulent misrepresentations to investors, many of whom were elderly. According to the SEC, investors were told that their Golf Emporium investment would appreciate to at least three times its "private placement" price and the company soon would go public. Sadly for investors, the "going public" day never happened. In fact, the defendants failed to even answer the SEC's charges. As a result, the U.S. District Court for the Southern District of New York permanently enjoined Tropeano from further violations of the Federal securities laws and continued the freeze of Golf Emporium's assets so that remaining funds could be disgorged.
--------------------------------------------------------------------------------
1/6/00 16401 The Option to Hang Up-Currency Trading International and six of its principals are accused of bilking investors out of more than $16 million through high-pressure telephone sales of foreign currency options. According to the SEC, 900 investors in four states were told they could double or triple their money in two or three days but never told them how risky the investments were. Once they had someone hooked, they never let go. Investors were not allowed to sell option positions without buying new ones or control their accounts. The defendants allegedly never returned any of the investors' funds and often pressured them into sending more money to cover losses. The SEC is seeking an injunction, return of the $16 million and civil penalties against California-based Currency Trading International, its two owners and four managers.
--------------------------------------------------------------------------------
1/5/00 16399 Scalpers Anonymous-The SEC may be shutting down one of the online world's best-known stock-picking characters, Tokyo Joe (aka Yun Soo Oh Park). Familiar to message board aficionados and paying members alike, Tokyo Joe and his Societe Anonyme are accused of recommending stocks to subscribers on one screen while dumping his own shares of those stocks on another. Societe subscribers pay between $100 and $200 per month for Tokyo Joe's advice. The SEC hasn't put a dollar figure on what it hopes to recover but, at those rates, it should be plenty.
-------------------------------------------------------------------------------- |
