SEC wins $727,029 (U.S.) order against Eiten
2014-10-03 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 a $727,029 order against Geoffrey Eiten, the Boston stock tout who held himself out as "America's Leading Micro-Cap Stock Picker." (All figures are in U.S. dollars.) The SEC said that Mr. Eiten misled investors in 2010 with a series of tout sheets that he issued under the name OTC Special Situations Report. Among other things, he falsely claimed that a Vancouver company had developed the fastest router in the world.
Mr. Eiten's sanction is contained in an order handed down on Sept. 30, 2014, in Boston by U.S. District Judge George O'Toole. It includes $605,262 in disgorgement, which is the full amount that the SEC had sought. Mr. Eiten must also pay $71,767 in interest and a $50,000 fine.
In handing down the penalties, the judge ignored Mr. Eiten's pleas for leniency. Mr. Eiten, who did not have the benefit of a lawyer, opposed the sanctions by claiming that the entire matter was an injustice brought on him by authorities. He said that the SEC case only arose after the Commonwealth of Massachusetts accused him of participating in an unrelated $5-million pump-and-dump in 2007, but could not find sufficient grounds to charge him. It then turned his file over to the SEC, which set out to "put [him] out of business."
| | NATIONAL FINANCIAL | | Geoffrey Eiten |
As Mr. Eiten saw it, authorities accomplished just that by destroying his reputation. The publicity surrounding the 2007 case left him unable to carry out his business. As a result he was financially ruined at the age of 63, "all on false accusations." He then could not afford a lawyer to fight the SEC charges, he said. Even worse, he had to rely on food stamps and social security to support his wife and seven children. He asked that the judge impose a $1 fine.
The judge, however, mostly ignored Mr. Eiten's arguments. Financial hardship is not something that the court will recognize in determining disgorgement. Mr. Eiten's only avenue was to challenge the SEC's calculation of his gains from the scheme, which he did not do with any success. The judge found that the SEC's figure appeared reasonable, as it was based on bank records and financial documents provided by Mr. Eiten.
The other problem for Mr. Eiten was that it was not open to him to challenge the charges against him. He had already settled the case out of court, agreeing to an order that bars him from participating in penny stock offerings and from receiving any compensation from promoting penny stocks. As part of the Dec. 13, 2013, settlement, he also agreed to pay a fine, with the judge to set the amount. Mr. Eiten did not admit to any wrongdoing in settling the case, but the judge was entitled to treat the SEC's allegations as true for the purposes of determining an appropriate penalty.
Fast router, $9.5-billion gold mine
The SEC's charges against Mr. Eiten first became public on Dec. 12, 2011, when the regulator filed a civil complaint against him in the District of Massachusetts. The complaint identified him as a broker of 20 years who moved to investor relations in 1991. His business was primarily touting penny stocks for paying clients through his newsletter, OTC Special Situations Report, which he sent out through mass mailings and spam. The problem, according to the SEC, was that Mr. Eiten used false and misleading information to tout some of companies and took no steps to verify much of what he printed.
Among the stocks the SEC cited was Vancouver-based Nexaira Wireless Corp. According to the complaint, Mr. Eiten told potential investors that the company had developed the fastest router in the world and was receiving revenue from Sprint and Comcast. In reality, the company's router had not received approval from the Federal Communications Commission and the company had no relationships with Sprint or Comcast, the complaint stated. (Nexaira was around 45 cents at the time of the report, and was last at 0.07 cent.)
Mr. Eiten also touted Clean Power Concepts Inc. of Regina, Sask., according to the complaint. He allegedly told readers that the company, which made fuel additives, had positive cash flow and was making money. In reality, it was only cash flow positive because of financings, the SEC said. (The stock, which was around $1 at the time of the report, was last at 0.42 cent.)
Another example the SEC listed was that of 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. Gold Standard, however, had no expectation of generating any such revenue and would have needed to raise substantial amounts of money to develop underground mining operations, the SEC said.
In writing his reports, Mr. Eiten also failed to fully disclose his substantial compensation, according to the SEC. With Gold Standard, his report disclosed a $25,000 payment, but the SEC claimed he received far in excess of that amount from two offshore entities. With Nexaira, Mr. Eiten only listed a $16,000 payment, but the SEC said he received substantially more from a company called Norbaoten Invest Ltd.
The complaint sought an order prohibiting Mr. Eiten from promoting penny stocks, disgorgement of ill-gotten gains and an appropriate civil penalty.
While the case marked the first time the SEC filed charges against Mr. Eiten, the regulator mentioned his OTC Special Situations Report in at least one prior suit. In its March, 2009, case against Vancouver's Joseph Fernando and others, the SEC claimed that Mr. Fernando paid for coverage in the OTC Special Situations Report for Xpention Genetics Inc., a company that was purportedly developing a cancer vaccine. The SEC said the report contained several false or misleading claims about the company. The regulator ultimately obtained a $2.87-million default judgment against Mr. Fernando. |
