SEC wins $1.6-million (U.S.) fine for tout publisher
2013-07-29 12:52 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 won $1.6-million in civil penalties against National Financial Communications Corp., publisher of a tout sheet called the OTC Special Situations Report. (All figures are in U.S. dollars.) The SEC claimed that National Financial issued glowing reports that misrepresented the prospects of four stocks, including Vancouver-based Nexaira Wireless Corp. The newsletter claimed that Nexaira had developed the "fastest router in the world."
The sanctions are contained in a judgment entered on Wednesday, July 24, in Massachusetts. The penalty includes disgorgement of $605,262 in profits plus a $1-million civil penalty. The judge also barred National Financial from promoting any penny stock and from participating in an offering of any penny stock. The decision is a judgment by default, as National Financial did not answer the case.
The charges stemmed from a 2010 scheme that the SEC claims was run by National Financial's founder, Geoffrey Eiten. Mr. Eiten, 61, was a former broker from Boston who held himself out as "America's Leading Micro-Cap Stock Picker." He promoted Nexaira and two other stocks from his residence in Dover, Mass., according to the SEC. In touting the stocks, he failed to disclose his compensation and failed to verify the accuracy of highly promotional statements he was making, the SEC claimed.
Full details of the charges are contained in a civil complaint that the SEC filed against Mr. Eiten and National Financial on Dec. 12, 2011, in the District of Massachusetts. The complaint identified Mr. Eiten as a broker of 20 years who moved into investor relations in 1991. His business since the mid-1990s had been promoting penny stocks for paying clients through National Financial. According to the complaint, Mr. Eiten touted Nexaira and the others stocks in 2010 with the OTC Special Situations Report, a newsletter he sent through mass mailings or through spam e-mails.
With Nexaira, Mr. Eiten told potential investors that the company, in addition to developing the fastest router in the world, was receiving revenue from Sprint and Comcast. Reality, according to the SEC, was much different. Nexaira's router had not received approval from the Federal Communications Commission and the company had no relationships with Sprint or Comcast. (The stock, which was around 45 cents at the time of the June, 2010, report, was at nine cents by the end of the year.)
Another stock he promoted, according to the SEC, was Clean Power Concepts Inc. of Regina, Sask. He told readers that the company, which made fuel additives from crushed seed oil, had "proprietary technology and licenses" that are "held airtight by the company." In reality, Clean Power had one patent pending and did not own any intellectual property, the SEC said. (The stock, which was around $1 when he wrote the report, was last at half a cent.)
Throughout his reports, Mr. Eiten failed to disclose his entire compensation, the SEC claimed. With Nexaira, he listed a payment of $16,500 from an entity called Dynamic International, but bank records showed he received two payments "far in excess of that amount," the complaint stated. The other two stocks identified in the complaint were Gold Standard Mining Corp. and Endeavor Power Corp. There were no allegations of wrongdoing against any of the companies.
The SEC sought disgorgement of ill-gotten gains, appropriate civil penalties, and an order prohibiting Mr. Eiten and National Financial from promoting penny stocks.
While the SEC now has a judgment against National Financial, the case remains outstanding against Mr. Eiten. In a Feb. 28, 2012, self-filed answer he denied any wrongdoing, without providing any specifics. Later, responding to an SEC motion on proposed sanctions, he said that the regulator's assessment of his gains was "misinterpreted and distorted ... and [does] not reflect the real amounts of [profit]." He also pointed to a disclaimer in the newsletters that "relinquishes any responsibility on Mr. Eiten's part, and according to the disclaimer anyone that purchased any stock based on this information could possibly lose their entire investment." A judge has not yet determined liability or, if necessary, a sanction for Mr. Eiten.
Mr. Eiten also filed an answer on behalf of National Financial denying any wrongdoing, but the judge did not accept the answer. A corporate entity must be represented by a lawyer, the judge ruled. In the absence of a proper answer, the SEC later sought and has now won a default judgment.
While the case marked the first time the SEC filed charges against Mr. Eiten, the regulator did mention 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 paid for misleading coverage of Xpention Genetics Inc., a company that was purportedly developing a cancer vaccine. The regulator ultimately obtained $2.87-million default judgment against Mr. Fernando. There were no allegations against Mr. Eiten in that case. |
