Fraudulent Scheme.
sec.gov
Fraudulent Scheme.
The findings of the District Court, based on the allegations in the complaint, are as follows. At the time of the alleged misconduct, UNDR was not engaged in any revenue-producing business activities. 11/
In August 1999, Harris began discussions with Edward Durante, a stock promoter, concerning financing and stock promotion for UNDR. Durante, who owned and operated Carib Securities Ltd. ("Carib"), offered to raise UNDR's stock price to around $5.00 per share with an average daily trading volume of 250,000, at a time when it was selling for $0.01 per share with little or no trading volume. 12/
In September 1999, UNDR and Carib reached an agreement that UNDR would issue 10 million shares of UNDR stock to entities identified by Carib. Subsequently, Harris, who acted as UNDR's transfer agent, issued 10 million shares to Carib and other entities controlled by Durante, as directed by Durante; the court found that Crews ratified this unregistered stock issuance. Durante later returned most of the 10 million shares to UNDR through Depository Trust Corporation to be cleared or reissued in street name, so the shares could be sold on the OTC Bulletin Board. The District Court found that, after issuing these shares to Durante's entities, Harris knew, or recklessly disregarded, that Durante and his affiliates controlled more than eighty percent of the outstanding shares of UNDR in the market.
Between December 1999 and February 2000, Durante transferred 5.8 million shares of UNDR from accounts held in the name of the entities he controlled to brokerage accounts at Union Securities, Ltd. ("Union"). Beginning in December 1999 and continuing through March 2000, Durante bought and sold UNDR stock through the Union accounts at artificially inflated prices, creating the false appearance of a demand for the stock, prompting market-makers to raise the price of UNDR stock.
Durante was responsible for the majority of buy and sell orders on multiple days of trading. Many of the trades were directly offsetting purchases and sales between Durante's brokerage accounts at Union and were designed to create a larger reported trading volume. These activities caused an increase in the trading volume and price of UNDR stock. By March 13, 2000, when the Commission suspended trading in UNDR stock, Durante had created artificial volume by purchasing more than 3 million shares of UNDR stock in the Union accounts, and by selling more than 3.2 million shares from the Union accounts. This trading successfully moved the stock price from a low of $0.01 per share in September 1999 to $1.25 per share on March 13, 2000.
Overall, Durante spent approximately $2.1 million purchasing UNDR shares, and received approximately $2.2 million from the public sales, generating about $93,000 in profits.
In February 2000, Durante instructed Harris to issue press releases that would generate positive publicity about UNDR and provide a "story" to support UNDR's rising stock price. Harris wrote or dictated the initial drafts of the press releases, provided all substantive information, and personally approved the final versions prior to distribution. As found by the court, Crews "ratified what Harris had written." 13/ Also in February 2000, an investor relations service hired by Durante distributed the UNDR press releases to Business Wire, and several Internet financial news websites reprinted the releases.
The UNDR press releases contained materially false and misleading information. For example, UNDR stated that it was "in the process of acquiring a major gypsum deposit in the western United States" and that it "sign[ed] a letter of intent for funding of $400 million for acquisition of major gypsum deposit in Wyoming." UNDR did not have any funding for that acquisition, nor had any lenders signed a letter of intent to fund the acquisition.
Additionally,UNDR claimed that it "received a signed letter of intent for the acquisition of [a West Virginia oil and gas company] with reserves in excess of $2 billion." In reality, UNDR never had a copy of a signed letter of intent from that company, and no agreement was ever reached.
UNDR also maintained a website that described its business activities. That website, authored by Harris and Crews, contained several materially false and misleading statements and omissions about the company's prospects. The site claimed that UNDR was operating as a holding company and misrepresented that, from an investing point of view, UNDR was "functioning as both a diversified holding company and a composite of the best mutual funds." In reality, an investment in UNDR was not comparable to an investment in any mutual fund, and UNDR had no revenue-producing subsidiaries during the relevant time period. Through some earlier stock issuances, UNDR had acquired a handful of inactive companies and real estate, and had business plans that the company had not yet executed. The website also misrepresented that UNDR would achieve "an average annual return on assets in excess of 25%." This return was never achieved, and UNDR owned no actual investments to generate such a return.
Respondents continue to run UNDR's successor company Global, another penny stock company. At Global, they hold the same titles as officers and directors as they held with UNDR. They continue to seek funding for Global through the offering of stock. Respondents have offered Global shares to others in exchange for assets. Global has never filed a registration statement for its shares. The company is currently seeking funding to finance additional acquisitions. |
