SEC defeats appeal by Freedom Golf's Curshen
2010-04-15 15:26 ET - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
by Mike Caswell
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The U.S. Securities and Exchange Commission has secured another legal victory over Jonathan Curshen, the Florida promoter banned for the 1999 pump-and-dump of Freedom Golf Inc. The SEC, which won the ban and a fine against Mr. Curshen in March, 2009, for touting Freedom Golf in Internet forums, has now defeated his appeal of that decision.
The case dates back to 2003, when the SEC filed a civil suit in Colorado in which it claimed that Mr. Curshen anonymously touted Freedom Golf on Raging Bull without disclosing that he had received shares in return for his efforts. The regulator said he dumped the stock through Vancouver brokerage Union Securities Ltd. while writing the promotional posts. (The SEC did not accuse Union of any wrongdoing. Two of the firm's former employees, Trevor Koenig and Joe Fernando, testified against Mr. Curshen.)
The case originally ended on March 6, 2009, when the judge banned Mr. Curshen from penny stocks for life and fined him $66,235 for the scheme. (All figures are in U.S. dollars.) Mr. Curshen then launched his appeal, arguing that the original judge erred in deciding that his on-line posts were materially misleading. The appeal court disagreed. In an April 13, 2010, decision, the U.S. Court of Appeals for the Tenth Circuit affirmed his penny stock ban and his fine.
Original judgment
The original judge reached his decision after a two-day bench trial. In finding for the SEC, he described Mr. Curshen as a paid promoter who would work for shares, which is how he ended up at Freedom Golf. In the fall of 1999, he and another promoter named Carter Jones started working for the company after Mr. Fernando had recommended the pair to the company's largest shareholder, Timothy Miles.
Mr. Jones prepared a tout sheet on the company, and Mr. Curshen distributed it on-line along with overly optimistic statements about the stock. The sheet stated that the company would earn $1.6-million in 2000, followed by $4.5-million in 2001 and $13.5-million in 2002. None of these figures were realistic, according to the company's president, Gaylen Johnson. He testified that to achieve those figures, the company would have had to heavily market its golf clubs by producing an infomercial, but it never took that step.
Mr. Curshen, meanwhile, continued using the sheet to tout Freedom Golf even though he knew the company was in financial difficulty. He posted messages on Raging Bull under the name Saviour 1999, urging investors to buy the stock. His posts included: "I hear rumblings that some very powerful investor relations people are going to get involved here"; "About to leave the launching pad"; and "All aboard! This train is pulling out ... ."
Mr. Curshen did not disclose that he had been paid 125,000 shares to tout Freedom Golf, and that he was selling those shares as he was writing his posts. He held them in the name of a private Costa Rican company called Triparoo S.A. Although Triparoo's stated beneficiary was an individual named Barry Ross, the judge ruled that Mr. Curshen was actually the controlling mind behind the company. During the scheme, Mr. Curshen directed Triparoo's trading, including the sale of Freedom Golf shares for $128,173. Union wired the money to Surety Bank, which in turn wired $66,235 of it to Mr. Curshen.
The judge rejected Mr. Curshen's argument that the money was not his. He had contended that it was actually repayment of a loan to Mr. Ross under a verbal lending agreement.
Appeal judgment
On appeal, Mr. Curshen said the trial judge should not have considered his posts about Freedom Golf to be anything more than corporate optimism, such as that written in news releases by company officers. The appeal court, however, found that "corporate puffery" is typically done by someone obviously associated with the company.
Investors know how to devalue the optimism of corporate executives, but there was no way an investor would have realized that Mr. Curshen was acting on the company's behalf. He appeared to be a commentator who had personal knowledge of the company and its plans. In one of his posts, he stated: "I have enjoyed speaking with [the CEO]. He appears to have a good short, medium and long term plan for the company."
The appeal court also rejected Mr. Curshen's argument that he was not required to disclose the fact that the company paid him. Mr. Curshen had argued that no reasonable investor would consider such payments important, because he was just an anonymous poster in an Internet forum. The appeal court again disagreed, finding that Mr. Curshen's failure to disclose his compensation made all his statements misleading.
Vancouver witnesses
While the case featured two Vancouver witnesses in Mr. Fernando and Mr. Koenig, neither one testified until the courts compelled them to. The SEC had to secure an order from the Supreme Court of British Columbia which directed the men to provide depositions to the SEC. The regulator asked them who provided trading instructions to the Triparoo account at Union.
For Mr. Koenig, the case was not the first time he helped prosecute former Union clients. In a prior case against now-convicted market manipulator Ed Durante, Mr. Koenig was arrested as he attempted to enter the United States in 2001 and charged as a co-conspirator in the case. He pleaded guilty and then testified against Mr. Durante and others. He returned to Canada in 2003 after he was released from jail.
Criminal case
The SEC case is not the only legal trouble Mr. Curshen is currently facing. He recently pleaded guilty to criminal fraud charges after he was ensnared in an FBI bribery sting. Prosecutors said he offered to bribe an undercover agent who was posing as a person with access to corrupt brokers. The agent said he represented brokers who controlled discretionary accounts. Those brokers, in return for a 25-per-cent kickback, would buy shares of Mr. Curshen's company, Washington State-based Industrial Biotechnology Corp. Mr. Curshen has not yet been sentenced in that case.
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