SEC seeks $644,081 (U.S.) penalty for Boston tout sheet
2012-05-24 14:16 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 is seeking $644,081 in penalties for National Financial Communications Corp., publisher of a tout sheet called the OTC Special Situations Report. (All figures are in U.S. dollars.) The SEC claims that National Financial issued overly optimistic reports touting four stocks, including Vancouver-based Nexaira Wireless Corp. Among other things, the sheet predicted that Nexaira had developed the "fastest router in the world."
The proposed penalty is contained in a default judgment motion that the SEC filed on Tuesday, May 22, in which the regulator is seeking disgorgement of $600,000 in ill-gotten gains, plus interest. According to the motion, National Financial touted Nexaira and the three other companies using baseless projections that it took no steps to verify. Its conduct is sufficiently egregious to warrant both the financial penalty and a permanent injunction against future violations. The company has been promoting penny stocks since the 1990s, and "is likely to continue promoting penny stocks in a similar vein if left unchecked," the motion states.
The SEC is also seeking a permanent penny stock ban for National Financial. "The repeated and egregious misrepresentations demonstrate at a minimal extreme recklessness. Without a bar, it is likely that NFC will continue to promote penny stocks," the motion reads.
The penalty, should the judge grant it, would be a decision by default as National Financial has not filed a proper answer to the case.
SEC's complaint
Details of the allegations against National Financial are contained in a civil complaint the SEC filed in the District of Massachusetts on Dec. 12, 2011, against the company and its owner, Geoffrey Eiten. The regulator identified Mr. Eiten as a Boston resident who held himself out as "America's Leading Micro-Cap Stock Picker." Although he had been touting penny stocks since the 1990s, the complaint only cited him for stocks that he had recently promoted through National Financial.
One of his "picks" was Nexaira Wireless, a Vancouver company that he said was receiving revenue from Sprint and Comcast. He told investors that the company had developed the "fastest router in the world," a claim that the SEC says had no basis. The router had not received approval from the Federal Communications Commission, and Nexaira had no relationships with Sprint or Comcast. (The stock, which traded around 45 cents when he issued the report in June, 2010, was at nine cents by year-end.)
Another stock that the SEC cited him and National Financial for was Clean Power Concepts Inc. of Regina, Sask. He told readers that the company, which made fuel additives from crushed seed oil, had positive cash flow and was making money. In reality, its most recent financial statements stated that its cash flow was only positive because of financings, and its auditors considered the business a "going concern." (The stock, which was around $1 when he wrote the report, was last at 0.66 cent.)
Also one of Mr. Eiten's "picks" was 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, but the company actually had no expectations of such revenue, the SEC said.
Throughout his reports, Mr. Eiten failed to fully disclose his compensation, according to the complaint. With Nexaira, he listed a payment of $16,500 from an entity called Dynamic International, but bank records showed he or National Financial received two payments that substantially exceeded that amount, the SEC claimed.
The complaint sought orders prohibiting Mr. Eiten and National Financial from promoting penny stocks, disgorgement of ill-gotten gains, and appropriate civil penalties.
Mr. Eiten filed a brief answer to the suit on Feb. 28, 2012, in which he simply denied any wrongdoing. The answer, which he filed without the benefit of a lawyer, simply stated "Deny" in response to the complaint's 55 paragraphs. He also filed an answer on behalf of National Financial, but the document was not admissible in court because it was not filed by a lawyer. (A lawyer must represent corporate entities.)
While the case marked the first charges against Mr. Eiten and National Financial, the regulator did previously mention the OTC Special Situations Report in another Vancouver-linked action. In its March, 2009, case against Vancouver promoter Joseph Fernando and others, the SEC claimed that Mr. Fernando paid for misleading coverage in the sheet for Xpention Genetics Inc., a company that was purportedly developing a cancer vaccine. The regulator ultimately obtained a $2.87-million default judgment against Mr. Fernando. There were no allegations against Mr. Eiten or National Financial in that case.
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