Re: SEC v. Schlieben; SEC v. Starwood; SEC v. Stockstowatch.com
SECURITIES AND EXCHANGE COMMISSION v. GEORGE SCHLIEBEN,
Civil Action No. 98CV-5689 (E.D. Pa.)
LITIGATION RELEASE NO. 15951 / October 27, 1998
The Securities and Exchange Commission announced
that, on October 27, 1998, it filed a complaint in the
United States District Court for the Eastern District
of Pennsylvania against George Schlieben, of Yardley,
Pennsylvania. The complaint alleges that Schlieben,
the sole editor and publisher of an online newsletter
called Global Penny Stocks ("GPS"), failed to disclose
the amount of compensation he received from issuers,
either directly or indirectly, for recommending their
stocks, in violation of Section 17(b) of the Securities
Act of 1933 ("Securities Act"), the anti-touting
provision. Based on these violations, the Commission
seeks a permanent injunction and civil penalties
against Schlieben.
The complaint alleges that since approximately
September 1996, Schlieben has posted at least 29
editions of the GPS newsletter, each containing a self-
described "Special Research Report" ("Report"). Each
of these Reports, which are nothing more than paid
advertisements, are available for free on Schlieben's
website located at www.pennystock.com. In each of the
Reports, Schlieben writes favorably about a particular
penny stock company and recommends the purchase of the
stock. As compensation for these favorable reports and
recommendations, Schlieben is paid a fee directly from
the issuer or from an investment relations company
acting on behalf of the issuer. In each of the
Reports, Schlieben discloses in small type that he
receives a fee from the issuer or investor relations
firm to write the Report. However, although Schlieben
charges from $2,250 to $5,150 for each Report, and has
received to date total compensation of approximately
$105,500, he failed to disclose in his newsletters the
amount of compensation paid to him by or on behalf of
the issuers whose stock he recommended, as required by
Section 17(b) of the Securities Act.
=====
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
LITIGATION RELEASE NO. 15950 /October 27, 1998
SECURITIES AND EXCHANGE COMMISSION v. STARWOOD MEDIA GROUP,
INC., and JACK MARKS a/k/a JACOB MESTECHKIN, 98 Civ. 7659
(RO) (S.D.N.Y.)
The Commission sued a New York public-relations firm
and its owner for disseminating information about stocks on
their website, Stock-Line.com, without fully and accurately
disclosing that the featured companies had paid for the
touts. Jack Marks, formerly named Jacob Mestechkin, heads
Starwood Media Group, a small firm in lower Manhattan.
Starwood also publishes a monthly print version of the
internet site, Wall Street Reporter, which is distributed
free of charge. The Commission's complaint alleges that
Starwood's publications do not accurately describes the
compensation arrangements with featured companies, as
follows. At least three of the featured companies have paid
consideration to Starwood Media, in cash, stock, or options,
exceeding $10,000 in value. The three companies are a
start-up motorcycle manufacturer, American Quantum Cycles,
Inc.; a golf-course developer, Golf Ventures, Inc.; and a
technology personnel firm, Infocall Communications Corp.
The stocks of all three companies trade on the Over-the-
Counter bulletin board.
Stock-Line's disclosure, buried in a mislabeled
linkage, understates the amount of compensation received for
the touts, and fails to disclose Starwood's receipt of
potentially valuable options. The disclosure in the Wall
Street Reporter is also misleading in stating the featured
companies either "have purchased or may purchase" investor
relations services, when all companies have paid to appear
in the journal. According to the Commission's complaint,
Marks was on notice of the disclosure requirements, and
persisted in his unlawful conduct even after consulting an
attorney on the legal basis for a competitor's disclosure of
specific amounts of stocks and options from featured
companies. The Commission is seeking permanent injunctive
relief and penalties based on the alleged violations of
Section 17(b) of the Securities Act.
Without admitting or denying the allegations in the
Complaint, defendants Marks and Starwood have consented to
the entry of an order permanently enjoining them from
violations of Section 17(b) and requiring them to pay a
civil penalty of $15,000.
=====
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
LITIGATION RELEASE NO. 15956 / October 27, 1998
SECURITIES AND EXCHANGE COMMISSION v. STOCKSTOWATCH.COM
INC., ET AL., Civil Action No. 98-2198-CIV T-26B (M.D. Fl.
Tampa Division)
SEC CHARGES INTERNET STOCK TOUTER WITH SECURITIES FRAUD
The Securities and Exchange Commission ("Commission")
announced today that it filed a Complaint in the United
States District Court in Tampa, Florida, against
Stockstowatch.com Inc. ("STW"), and its president, Steven A.
King ("King"). STW is an Internet stock touting service
operated from King's home in Sarasota Florida, which claimed
at one time to have over 200,000 subscribers. The
Commission's Complaint charges STW and King with violating
the antitouting and antifraud provisions of the federal
securities laws by touting and "scalping" the securities of
five microcap companies. Scalping is the practice of
recommending the purchase of a security to the general
public while selling the stock at the same time.
In particular, the Complaint alleges the following:
- From October 1997 until at least July 1998, the
defendants fraudulently touted the stocks of at least
five publicly-traded microcap companies in e-mails sent
to STW subscribers and in profiles posted on STW's
Internet website.
- In exchange for recommending that their subscribers and
readers buy the stock of the profiled companies, the
defendants received shares of stock in each company.
- The defendants never informed their subscribers or
website readers that they received shares as
compensation for touting the stocks in each company.
- With respect to almost every stock touted by STW, the
price and/or volume of the profiled company's stock
sharply increased shortly following the STW buy
recommendation.
- STW and King took advantage of the market interest they
created by selling into the inflated market large
amounts of stock they had received as compensation for
their promotional services. The total profit the
defendants received from their stock sales in the five
companies exceeds $1 million.
- STW and King failed to disclose to their readers their
intention to sell the stock contrary to their
recommendations to buy the same stock made on the STW
website and in e-mails. This fraudulent practice is
known as "scalping."
As part of the alleged fraudulent conduct, the
Complaint further alleges that STW and King "scalped" the
securities of the following microcap companies:
Surgical Safety Products
- On April 21, 1998, the defendants sent their
subscribers a very positive profile of Surgical Safety
Products ("SURG"), a Florida based medical firm. The
profile stated, among other things, that the defendants
believed that "SURG will be a $20 stock within 18
months."
- Just prior to the dissemination of the STW SURG
recommendation, SURG stock closed at $0.96. Two days
later, the price of SURG stock surged to its yearly
high of $3.13, an increase of 200%, and the defendants
immediately began selling SURG shares they had received
from the company for a profit. By July 6, 1998, the
defendants had sold 123,360 shares of SURG stock for a
total profit of $573,753.
- The defendants did not disclose that they were selling
SURG stock at the same time they were recommending that
their subscribers and readers buy the stock.
Midland, Inc.
- On May 23, 1998, the defendants profiled Midland, Inc.,
a Texas based company, which claimed to own the patent
rights to a machine that purportedly produced a fuel-
blending additive that dramatically increased the
octane rating for gasoline. The profile sent to STW
subscribers stated, among other things, that Midland
"can become a $75 stock," based on "its ability to
generate long term growth and exit for the investor."
- During the first trading day after the profile was
disseminated, the price of Midland stock increased from
$1.03 to as high as $2.63, before closing at $1.44.
The trading volume during that day was 1.5 million
shares, an increase of over 100% from the previous day.
- Immediately after the release of the profile, the
defendants began selling undisclosed Midland shares
they received from the company for the profile. By
June 11, 1998, the defendants sold 152,000 Midland
shares for a profit of $172,000.
- The defendants did not diclose that they were selling
Midland stock at the same time they were recommending
that their subscribers and readers buy the stock
- On June 16, 1998, Midland announced that its president
had resigned amid fraud charges and that it was
canceling its acquisition of the company which
purportedly owned the patents to the fuel-blending
additive machine.
The defendants' practice of scalping is alleged to have
violated the antifraud provisions found in Section 17 (a) of
the Securities Act of 1933 ("Securities Act") and Section
10(b) of the Securities and Exchange Act of 1934, and Rule
10b-5 thereunder. Additionally, STW and King's failure to
disclose the receipt of shares in the companies they
promoted as compensation, is alleged to have violated the
antitouting provisions contained in Section 17(b) of the
Securities Act. The Complaint seeks a permanent injunction
against STW and King, as well as an accounting, disgorgement
of their unjust profits, and civil penalties. [SEC v
Stockstowatch.com, Inc., et. al. USDC CD/FLA, 98-
(LR- )].
|
