SEC files suit against stock tout Eiten
2011-12-13 12:34 ET - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
Also Street Wire (U-CPOW) Clean Power Concepts Inc
Also Street Wire (U-EDVP) Endeavor Power Corp
Also Street Wire (U-GSTP) Gold Standard Mining Corp
Also Street Wire (U-NXWI) Nexaira Wireless Inc
by Mike Caswell
The U.S. Securities and Exchange Commission has launched a civil fraud case against Geoffrey Eiten and National Financial Communications Corp., the distributor of OTC Special Situations Report. The regulator cites glowing reports by Mr. Eiten that misrepresented the prospects of four stocks, including Vancouver-based Nexaira Wireless Corp. The SEC says that Mr. Eiten, who holds himself out as "America's Leading Micro-Cap Stock Picker," made projections that had no basis in reality.
Among other things, he told potential investors that Nexaira had developed the "fastest router in the world" and was receiving revenue from Sprint and Comcast. In reality the company had no such deals and, at the time, its router had not received approval from the Federal Communications Commission, the SEC says. Mr. Eiten, who had bought Nexaira shares prior to issuing his report, either knowingly or recklessly misled investors, according to the SEC.
The SEC's complaint, filed in the District of Massachusetts on Monday, Dec. 12, identifies Mr. Eiten, 61, as a broker of 20 years who moved into investor relations in 1991. His business since the mid-1990s has been promoting penny stocks for paying clients through his company, National Financial Communications Corp. One of his promotional tools is the OTC Special Situations Report, a newsletter sent by mass mailings or through spam e-mails.
One of the problems with the reports, according to the SEC, is that Mr. Eiten makes no efforts to ensure the accuracy or truthfulness of what he is printing. With the four companies the complaint mentions, he did no independent research and simply repeated information provided to him by third parties. He knew little about his clients' backgrounds, identities or the interests they may have represented, the SEC says.
One of the examples the SEC lists in its complaint is Gold Standard Mining Corp., a California company that was purportedly mining in Russia. In an Oct. 15, 2010, report, Mr. Eiten said that Gold Standard was "now producing $9.5 BILLION of pure gold -- and you can get in around $2 a share!" The report predicted that the company's revenues would reach $42-million that year and $120-million in the next three years. (All figures are in U.S. dollars.) Gold Standard, however, had no expectation of generating any such revenue from operations, the complaint states. The company would have needed to raise substantial amounts of money to develop underground mining operations.
Also deficient, according to the SEC, was Mr. Eiten's disclosure of his compensation. His report stated that he received $25,000 for preparing the Gold Standard report, but the SEC says that he received wires "far in excess of that amount." They came from two offshore entities that the SEC's complaint does not identify.
Another company for which Mr. Eiten prepared a report was Clean Power Concepts Inc., based in Regina, Sask. The company was purportedly in the business of manufacturing fuel additives and lubrication products made from crushed seed oil. Mr. Eiten's report stated that Clean Power has "positive cash flow" and is "making money." In fact, its most recent financial statements at the time showed that its cash flow was only positive because of financings, the SEC says. Its auditors had listed it as a "going concern," meaning its ability to continue operating into the next year was in substantial doubt. (The stock, which was around $1 at the time of the report, was last at 1.86 cents.)
Also misleading, according to the SEC, was Mr. Eiten's report on Nexaira. He stated that the company had spent $4.2-million developing a wireless router and that it had no debt. The company's own filings showed that it actually had $1.6-million in short-term payables and other liabilities of $1.8-million, the SEC says. (Nexaira was around 45 cents at the time of the report, and was last at 1.52 cents.)
As with the other reports, Mr. Eiten did not fully disclose his compensation, the complaint states. He listed a payment of $16,500 from an entity called Dynamic International, but bank records showed he received two payments that substantially exceeded that amount from a company called Norbaoten Invest Ltd.
The final company the complaint lists is Endeavor Power Corp. Mr. Eiten wrote that Endeavor was "pulling down millions from the hidden gold in high tech." In reality the company was a startup that had only reported revenues of $20,397 in its most recent year-end results, the SEC says.
The complaint seeks an order prohibiting Mr. Eiten from promoting penny stocks, disgorgement of ill-gotten gains and an appropriate civil penalty.
While the case marks the first time the SEC has filed charges against Mr. Eiten, the regulator has mentioned his OTC Special Situations Report in at least one prior suit. In its March, 2009, case against Vancouver promoter Joseph Fernando and others, the SEC claimed that Mr. Fernando had paid for an OTC Special Situations Report on Xpention Genetics Inc., a company that was purportedly developing a cancer vaccine. The SEC said the mailer contained several false or misleading claims about the company. The regulator ultimately obtained $2.87-million default judgment against Mr. Fernando. |
