D. Strebinger and Chapman Coordinate the Stock Promotion that is
Paid for by Chapman
1. The Wollstein Report
78. In or around May 2009, Strebinger hired Oklahoma resident Daniel
Breckenridge (“Breckenridge”) to ghostwrite a report that promoted the Americas
Stock in light of the proposed merger.
79. Under Strebinger’s direction, Breckenridge hired California resident Jarret
Wollstein (“Wollstein”) to be the author of various versions of the report (the
“Wollstein Reports”).
80. In June 2009, Chapman wired $59,975 to Breckenridge’s company for the
reports. Breckenridge paid Wollstein $10,000.
81. Breckenridge was the principal drafter of the reports, even though Wollstein
was the ostensible author.
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82. During the summer of 2009, Breckenridge worked on an initial draft of a
Wollstein Report under Strebinger’s direction.
83. On August 6, 2009, Breckenridge sent Wollstein an e-mail requesting that
Wollstein review the attached report. The report referenced “today’s $1 share
price,” although at that time there was no public trading of the Stock.
84. Breckenridge stated, in his e-mail to Wollstein: “Shares of AECX [i.e.,
Americas] will open at $1” and “I also have good reason to believe that once
underway, AECX will actively keep investors informed by way of news releases,
which should have a positive effect on the growth of the stock.”
85. Strebinger told Breckenridge that the Stock would open at $1.00.
86. By early September 2009, Strebinger and Chapman had arranged for a
California marketing firm (the “Marketing Firm”) to coordinate the distribution of
the Wollstein Reports via e-mail blasts and mass mailings to proprietary lists of
prospective investors maintained by third parties.
87. The Marketing Firm scheduled the first e-mail blast of a Wollstein Report
for September 14, 2009 (the “Initial Wollstein Report”).
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88. The Marketing Firm also scheduled at least one e-mail blast on almost every
business day from September 14, 2009 through February 2010. E-mail blasts
continued sporadically in March and April 2010.
89. In addition, the Marketing Firm arranged for two mass mailings of the
reports in December 2009 and January 2010.
90. The promotional costs for the Wollstein Reports exceeded $3.5 million.
Disclaimers in the Wollstein Reports stated that Bistro funded certain distribution
costs of the reports. However, Chapman and another foreign entity actually paid
the costs for the Marketing Firm’s promotion of the Wollstein Reports. The
Wollstein Reports did not identify Chapman as having funded the reports.
91. The Wollstein Reports typically were presented as special alerts by the
“Intelligent Investor Report,” a monthly newsletter published by Wollstein for
paying subscribers. The reports urged readers to buy Americas Stock immediately
and to become a paying newsletter subscriber.
92. For example, the Initial Wollstein Report contained statements relating to
Americas (referred to in the report by its stock ticker symbol TRET) such as: “I
recommend you start with TRET and buy every share you can get your hands on!;”
“I recommend TRET for a multitude of reasons. Out of the gate, you could easily
22
pocket three times your money based on today’s entry price;” “In a moment, I’ll
present to you pro forma figures that project how TRET could shoot to an
$11 stock in the next 24 months;” and “I’m projecting TRET to nearly triple
your money in 2009.”
93. Fine-print disclaimers at the end of the Wollstein Reports called the report a
“sponsored advertisement,” a “paid advertising issue,” and not “investment
advice.”
94. Despite the reports’ recommendations to buy Americas Stock in light of pro
forma figures, the disclaimers stated that the report “does not purport to provide an
analysis of any company’s financial position and is not in any way to be construed
as an offer or solicitation to buy or sell any security.”
95. The disclaimers in the Wollstein Reports disclosed that Wollstein had been
paid $10,000, but the disclaimers did not report the $49,975 payment to
Breckenridge.
96. The Wollstein Reports misleadingly and confusingly referred to the touted
company as “Americas Energy Company, Inc.,” which was the name of the private
Tennessee Company, while urging investors to buy “TRET” and “AENY,” which
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were the stock ticker symbols for the public company Trend Technology
Corporation later known as Americas Energy Company-AECo.
97. For example, the Initial Wollstein Report stated: “Buy Now: America’s
Energy Company [sic] (OTCBB:TRET).” In addition, the disclaimers stated
that “[m]ore complete information about Americas Energy Company, Inc. is
available from the web site [sic] of the Securities and Exchange Commission, at
sec.gov.”
98. Americas Energy Company, Inc., however, was a private company and had
not filed any public information with the Commission. Instead, the only
information available to the investing public on the Commission’s website would
have been in the public filings of Trend Technology Corporation, later named
Americas Energy Company-AECo.
99. The disclaimers also stated that Bistro owned shares of “Americas Energy
Company, Inc.” that could be “publicly traded (sold) at any time” by Bistro, when
in fact that was the name of the private Tennessee Company and its shares were
not publicly traded.
100. In addition, the Wollstein Reports projected escalating prices for the Stock
based on projected company operations for the private Tennessee Company. For
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example, the Initial Wollstein Report stated (emphasis as in original): “$17.2
million after-tax cash first year! As you can see, TRET hits the ground running.
According to the pro forma business plan posted on the company website,
www.americasenergycompany.com production is expected to be profitable in the
first year of operation.”
101. Purportedly based on the business plan of the Tennessee Company, the
Initial Wollstein Report stated: “At an extremely conservative valuation, TRET
could be trading at $5 or more, especially when you factor in the forward earnings
projections!” Early Wollstein Reports also projected $3.00 “near term” and $11.00
“long term” Stock prices for the public company. Later reports projected $5.00
near term and $20.00 long term Stock prices for the public company.
102. Strebinger decided when the Wollstein Reports were final and how and
when the reports were distributed. Strebinger sometimes created and/or reviewed
the subject lines for the e-mail blasts. Moreover, the Marketing Firm sent e-mails
to Strebinger and Chapman with updates on the promotion, including preliminary
confirmations of the scheduled e-mail blasts. In the first few weeks of the
promotion, the Marketing Firm also provided charts that showed stock price
movements before and after the e-mail blasts.
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2. The Cohen Report
103. In September 2009, Strebinger and Chapman also arranged for a selfdescribed
independent research firm in California, owned by California resident D.
Paul Cohen (“Cohen”), to create and distribute via e-mail another report about
Americas Stock (the “Cohen Report”).
104. Strebinger told Cohen that Chapman would pay for the “report and blast.”
Chapman paid Cohen’s company $30,000.
105. Cohen’s company prepared a “Research Services Agreement” dated
September 29, 2009. The agreement stated that Chapman would edit the final draft
of the Cohen Report, sign off on the final version, and give permission to distribute
the Cohen Report.
106. At Cohen’s request, Strebinger obtained financial and other information
from the Tennessee Company to be used for the Cohen Report. Cohen then
forwarded the information to an “analyst” in India. She drafted the Cohen Report,
in exchange for approximately $650.
107. On October 27, 2009, Cohen sent a draft of the Cohen Report to Strebinger,
asking that he edit the report and adding, “Hope you like it.”
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108. Strebinger replied, by e-mail dated October 29, 2009: “you have the wrong
number of outstanding shares also I dont [sic] think you bringing [sic] into account
the potential of the 350m ton property enough. That property will make this
company. 350m tons is 20 billion dollars worth of coal. That would take this
company to levels that no investor would want not to be part of.”
109. By e-mail dated November 5, 2009, Strebinger told Cohen that “the only
thing that you have to change is shares outstanding to 37 million then you can
release it,” and “yeah thats [sic] final lets get it out.”
110. The final 32-page Cohen Report was dated November 5, 2009. The report
was on the letterhead of “Cohen Independent Research Group, Inc.” and identified
Cohen as the company’s President with an address in San Rafael, California. The
letterhead described the company as “Wall Street’s #1 Independent Research
Firm.” In November 2009, Cohen arranged for the report to be posted on his
company’s website and blasted to prospective investors via e-mail.
111. Like the Wollstein Reports, the Cohen Report misleadingly identified
“Americas Energy Company, Inc.” as the featured company while at the same time
identifying the stock symbol as “TRET.OB.”
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112. In a front-page section titled “Investment Thesis & Recommendation,” the
Cohen Report concluded that Americas was “a compelling investment opportunity
for long term investors who wish to capitalize on improving fundamentals of the
coal industry.”
113. Like the Wollstein Reports, the Cohen Report projected a $3.00 per share
“Short Term Price Target.” The Cohen Report also projected a $5.10 per share
“Long Term Price Target.”
114. Page 18 of the Cohen Report indicated that the price targets were calculated
using a “Discounted Cash Flow Analysis (DCF)” and that the “formula” used to
calculate the “DCF Price Targets” was on page 17 of the report. Page 17 of the
report, however, contained two charts relating only to long term price targets, and
the charts did not adequately describe any purported valuation “formula.”
115. Furthermore, it was the analyst in India, and not Cohen, who was
responsible for the stock price targets, and Cohen did not know what valuation
formula, if any, was used.
116. Cohen merely purchased the report from the analyst and edited the report for
grammar changes; Cohen’s company did not actually perform the purportedly
independent research.
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117. The last two and one-half pages of the Cohen Report consisted of fine-print
disclaimers. Among other things, the disclaimers stated that “Cohen Independent
Research Group, Inc. (CR) distributes report/release/advertisements and other
Information [sic] purchased and compiled from outside sources and analysts,” and
that the “report/release/advertisement is an advertisement.”
118. The disclaimers stated: “Do not base any investment decision on
information in this report.” The disclaimers also stated that “[I]nvestor awareness
distribution programs can materially affect the price of the company’s stock.”
119. In addition, the disclaimers stated: “Brent Chapman has paid $30,000 for
this report/release/advertisement and its distribution.”
E. Strebinger and Chapman Knew, or Were Reckless in Not
Knowing, that the Wollstein and Cohen Reports Contained
Materially False and Misleading Statements
120. Strebinger and Chapman effectively used Breckenridge, Wollstein, Cohen,
and their affiliated entities to create the Wollstein Reports and the Cohen Report,
and then Strebinger and Chapman arranged for and funded the broad dissemination
of the reports to prospective investors.
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121. Strebinger and Chapman knew, or were reckless in not knowing, that these
reports contained materially false and misleading statements, including the false
and misleading statement set forth below.
1. False and misleading statements in the Wollstein Reports
122. First, although the disclaimer in the Initial Wollstein Report stated that
Bistro had 1,000,000 shares that could be publicly sold at any time, the disclaimer
was misleading because it failed to disclose the following facts: 1) that Bistro was
associated with Chapman; 2) that Chapman and his colleague Strebinger directly or
indirectly owned many millions of shares of Americas Stock; 3) that Chapman and
Strebinger were marketing and funding the stock promotion; and 4) that Chapman
and Strebinger directly or indirectly were in fact already selling large quantities of
their Stock while simultaneously causing reports to be widely disseminated that
urged investors to buy the Stock.
123. Strebinger and Chapman each knew, or was reckless in not knowing, that
substantial shares of Stock were being actively sold for their benefit during the
stock promotion.
124. Second, as the dissemination of the Wollstein Reports progressed, the
disclaimers misleadingly reported the distribution costs. The Initial Wollstein
30
Report reported $72,000 of distribution costs to new subscribers. For subsequent
reports disseminated by e-mail blasts, the disclaimers identified distribution costs
ranging from $50,000 to $184,000. For reports disseminated by mass mailings, the
disclaimers identified distribution costs of $700,000. However, total promotional
costs exceeded $3.5 million.
125. As the promotion continued and the distribution costs increased, investors
increasingly were misleadingly informed about the enormous amounts being spent
to promote the Stock. Strebinger and Chapman knew the enormous costs of the
distribution and knew, or were reckless in not knowing, that the disclaimers in the
Wollstein Report about the distribution costs were not accurate.
126. Third, the disclaimers falsely and/or misleadingly reported the source of the
distribution costs. Although the disclaimers stated that Bistro paid for the
distribution costs, at least 37% of the expenses were paid by Chapman. There is no
evidence that Bistro itself paid for any distribution costs.
127. Therefore, while the disclaimer stated that certain costs of the promotion had
been paid for by Bistro, which purportedly held 1,000,000 shares of Stock that
could be sold at any time, in fact, Chapman had paid for a substantial part of the
31
distribution and he owned millions of shares of Stock that he was selling in large
amounts during the promotion.
128. Fourth, after the Cohen Report was released on November 5, 2009, the
Wollstein Reports were revised to include materially false and misleading
statements about the Cohen Report. For example, a Wollstein Report blasted by
email on or about November 9, 2009 included a link to the Cohen Report next to
Wollstein’s signature, and stated: “What’s more, I’m not the only analyst to have
spotted Americas Energy. That multi million valuation I mentioned previously
came from an independent source.”
129. The Wollstein Reports were materially misleading because the Cohen
Report was not in fact independent since it was commissioned by Strebinger and
paid for by Chapman. Strebinger and Chapman were the orchestrators of both the
Wollstein Reports and the Cohen Report.
130. Fifth, the Wollstein Report disclaimers misleading stated that “Jarret
Wollstein, the reviewer [or analyst], has been paid ten thousand dollars in
compensation for preparing and publishing this report.” The disclaimers failed to
disclose the material fact that Breckenridge, the principal drafter of the reports,
32
was paid approximately $49,975 to draft the report. Chapman knew that
Breckenridge had been paid for the report.
131. Finally, the disclaimers also misleadingly stated that Wollstein was the
purported reviewer or analyst, when in fact both Wollstein and Breckenridge
acknowledged that Breckenridge was the principal “analyst” and drafter of the
reports.
2. False and misleading statements in the Cohen Report
132. The disclaimer in the Cohen Report stated that “Brent Chapman has paid
$30,000 for this report/release/advertisement and its distribution,” while also
stating to investors as follows: “Among the various sources and actions that a
reader of our publications may easily avail himself or herself to are: (a) reviewing
SEC periodic reports (Forms 10-Q and 10K [sic]), reports of material events (Form
8-K), insider reports (Forms 3, 4, 5 and Schedule 13D) and other SEC reports that
are easily accessible at www.sec.gov . . . .” Taken together, these statements were
materially misleading to investors.
133. The Cohen Report failed to adequately disclose a conflict of interest relating
to the funding of the report. Although the Cohen Report contained a disclaimer
directing potential investors to review Schedule 13D reports of ownership on the
33
SEC’s website for purposes of assessing conflicts of interest, the disclaimer misled
investors because it suggested that relevant information was available on the SEC’s
website when it was not.
134. Chapman and Strebinger knew that, at a minimum, they had not filed a
Schedule 13D to report their own respective beneficial ownerships of Americas
Stock.
135. The disclaimer was materially misleading because it failed to state that
Chapman and his colleague Strebinger directly or indirectly owned substantial
shares of the Stock that they were already selling at the time of the release of the
Cohen Report.
136. Strebinger and Chapman knew, or were reckless in not knowing, this
information with respect to at least their respective holdings of Stock, and they
knew that they did not file required Schedule 13D reports, which could have
revealed to inquiring investors the roles that Chapman and Strebinger played in the
creation and distribution of the Cohen Report.
137. These omissions were material because a reasonable investor would have
wanted to know that the behind-the-scenes promoters of the Stock were actively
34
selling the Stock while at the same time paying millions of dollars for writers and
distributors to actively promote the Stock.
F. Strebinger and Chapman Sell $17 Million in Americas Stock
while Directing the Stock Promotion
138. Strebinger and Chapman, directly or indirectly, collectively acquired
6,158,000 shares of Americas Stock in private transactions and then sold the Stock
on the public market for $17 million beginning in September 2009.
139. At the same time they were selling the Stock, Strebinger and Chapman were
directing a massive campaign to promote the Stock.
140. Strebinger and Chapman coordinated their fraudulent scheme through the
California Attorney and the Securities Attorney.
141. At the time that Strebinger and Chapman began directly or indirectly
acquiring Stock, there was no reported public trading in the Stock. The last known
public trade had been on or about January 16, 2008, and involved a trade of 100
shares at $0.25 per share.
142. In July 2009, when Americas publicly disclosed the Merger Announcement,
the trading volume did not increase. On September 3, 2009, when Americas
disclosed the definitive Merger Agreement, the trading volume did not increase.
35
143. The bid prices for the Stock in July and August 2009 generally were in the
range of $0.10 per share.
144. Then, beginning on or about three business days before the start of the stock
promotion on September 14, 2009, Muskateer sold 150,000 shares of Stock on the
public market.
145. On or about Wednesday, September 9, 2009, Muskateer sold 10,000 shares
of Stock at $0.40 per share, through an account maintained with a U.S. brokerage
firm. The U.S. brokerage firm purchased the Stock in a proprietary account. The
transactions were the only known trades of the day. The Stock price closed at
$0.40.
146. On or about Thursday, September 10, 2009, Muskateer sold 20,000 shares of
Stock at $0.50 per share through the U.S. brokerage firm, and the U.S. brokerage
firm purchased the Stock in a proprietary account. Canadian trading data indicates
that, on the same day, a Canadian resident purchased 10,000 shares of Stock at
$0.50 per share, through a Canadian brokerage firm.
147. Strebinger knew this Canadian resident. In fact, Strebinger apparently paid
this individual CDN$120,000, as a purported loan, in June 2009. The Muskateer
36
and Canadian transactions were the only known trades of the day. The Stock price
closed at $0.50.
148. On or about Friday, September 11, 2009, Muskateer sold 10,000 shares of
Stock at $0.60 per share, which apparently cleared through a Canadian brokerage
firm. The Canadian resident purchased 10,000 shares of Stock at $0.60 per share,
through a Canadian brokerage firm.
149. Muskateer also sold 110,000 shares of Stock at $0.7122 per share through
the U.S. brokerage firm, and the U.S. brokerage firm purchased the Stock in a
proprietary account.
150. In addition, three Canadian individuals/entities and one U.S. resident
collectively purchased 125,000 shares of Stock at prices ranging from $0.60 to
$0.77 per share. At least two of the Canadian purchasers know Strebinger. The
Stock price closed at $0.70.
151. Strebinger and/or his associates coordinated these relatively small,
incremental trades with the intent to walk up the trading volume and price to build
momentum for the upcoming promotion.
152. In addition, on Thursday, September 10, 2009 (i.e., the same day that
Muskateer sold and the Canadian resident purchased Stock), Americas and the
37
Tennessee Company issued a press release announcing the execution of the
definitive Merger Agreement.
153. Yet, Americas already had filed a Form 8-K/A to disclose the execution of
the Merger Agreement on September 3. The press release was timed to prime the
market for Defendants’ upcoming promotion. The California Attorney, who
represented Strebinger and Chapman, reviewed the press release in advance of its
distribution and arranged for its release.
154. On Monday, September 14, 2009, the first day of the Initial Wollstein
Report blast, the Stock price closed at $0.94, up 33%. The closing price was just
shy of the $1.00 per share predicted by ghostwriter Breckenridge in his e-mail to
ostensible author Wollstein dated August 6, 2009, in which Breckenridge stated to
Wollstein that Americas shares “will open at $1.”
155. Strebinger told Breckenridge that Americas shares would open near $1.00.
Strebinger knew that Americas shares would open near $1.00 because he was
planning to increase the Stock price to close to $1.00 at the time of the start of the
promotion.
38
156. Once the promotion began, the trading volume and the Stock price rose
swiftly. By the end of the first week, the closing price increased to $1.02. By the
end of September 2009, the closing price was $1.35.
157. As the promotion increased, the price fluctuated generally upward and
trading volume increased dramatically. For example, on October 1, 2009, the price
closed at $1.53 and by November 2, the price closed at $1.75.
158. On November 5, 2009, the date of the Cohen Report, the price closed at
$1.67. The next day, the price closed at $1.91. The price reached a closing high of
$5.21 in February 2010.
159. During the promotional period, Americas also issued a number of press
releases on a variety of topics, including the issuance of the Cohen Report. The
California Attorney reviewed and arranged for the distribution of all or
substantially all of the press releases for at least the first few months of the
promotion.
160. When the promotion began in September 2009, Americas had 20,504,595
shares of Stock issued and outstanding. During the promotion, Muskateer, Furla,
Lance and Chapman collectively sold 6,185,000 of those shares, or 30% of the
public float, for more than $17 million.
39
161. The Stock was sold in relatively small amounts over extended periods,
which better disguised the dumping of the Stock. The sales were executed and
cleared through multiple brokerage firms in at least the United States and Canada.
1. Strebinger, Muskateer and Furla acquire and sell Americas
Stock
162. Through Strebinger, Muskateer and Furla acquired and sold 2,485,000
shares of Stock for $4.9 million.
163. Muskateer sold 1,385,000 shares of Stock from September 9, 2009 through
October 20, 2009, for $2.1 million. Muskateer also sold 100,000 shares of Stock
on February 8, 2010, for $462,000.
164. Strebinger purchased 1,385,000 shares of Stock from 20 Americas
shareholders before the Merger Announcement, and Muskateer sold those shares
through a Swiss financial institution.
165. The 20 shareholders were the same shareholders to whom Strebinger wrote
personal checks from March to May 2009. Neither Strebinger nor Muskateer
informed the Transfer Agent of the purchases.
166. At all such times, the 1,385,000 shares represented 6.7% of the 20,504,595
shares of Stock then issued and publicly disclosed. Neither Strebinger nor
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sec.gov |
