SEC Files charges... A sign of things to come??
SEC Charges 33 Companies and Individuals With Fraud for Manipulating Microcap Stocks
FOR IMMEDIATE RELEASE 2000-124
Fourth Internet Sweep Brings Total Number of Internet Cases Filed in SEC's Nationwide Internet Fraud
Crackdown to More Than 180
Washington, D.C., September 6, 2000 – In its fourth nationwide Internet fraud sweep, the Securities and Exchange
Commission today announced 15 enforcement actions against 33 companies and individuals who used the Internet
to defraud investors by engaging in pump-and-dump stock manipulations. The perpetrators of these market
manipulations "pumped" up the total market capitalization of those stocks involved by more than $1.7 billion. The
actions involve the stocks of more than 70 microcap companies and illegal profits of more than $10 million. The
cases include 11 civil actions filed in U.S. District Courts throughout the country and four related administrative
proceedings.
SEC Director of Enforcement Richard H. Walker said, "What used to require a network of professional promoters
and brokers, banks of telephones and months to accomplish can now be done in minutes by a single person using
the Internet and a home computer. Thinly traded microcap stocks are particularly susceptible to online
manipulations. That's why we have made this area one of our highest enforcement priorities. Ultimately, however,
the best way for investors to protect themselves against all forms of Internet fraud, including pump-and-dump
schemes, is to do their homework and to be highly skeptical of information they receive from strangers on Internet
websites, message boards and chat rooms."
Today the SEC also released an online brochure to warn investors about stock market fraud on the web.
"Pump&Dump.con: Tips for Avoiding Stock Scams on the Internet" advises investors to be skeptical, consider the
source, and independently verify web-based claims about stocks. The brochure is available at
www.sec.gov/consumer/iemmtips.htm.
The cases brought today involve individuals and small entities that spread false information through electronic
newsletters, websites, email messages, and through posts on Internet message boards. Some of the respondents
have no securities industry experience; one of them is a bus mechanic, another a college student who is also a
driver for a car service. Several of today's actions involve foreign entities and individuals who used the Internet to
reach U.S. investors. The sweep also includes a complaint the Commission filed in mid-August alleging a
pump-and-dump scheme primarily orchestrated by two recidivists. SEC v. Broadband Wireless International Corp.
et al., Civil Action No. 00-1375-R (USDC/W.D. Okl). This case required an emergency action filed by the SEC
and state regulators to halt the scheme and freeze the assets of the defendants.
Today's actions are part of the fourth nationwide Internet fraud sweep conducted by the SEC. Previous sweeps
filed in October 1998 and February 1999 dealt with the unlawful touting of publicly-traded companies via the
Internet, while a sweep in May 1999 targeted the sale of bogus securities over the Internet. The SEC has now
brought more than 180 Internet-related enforcement actions. More than one-third of these have been brought in the
last year.
For more information about Internet fraud, visit www.sec.gov/consumer/cyberfr.htm. For more advice on saving,
investing, and avoiding fraud online, visit www.sec.gov/consumer/jneton.htm. To report suspicious activity
involving possible Internet fraud, visit the SEC's Enforcement Complaint Center at
www.sec.gov/enforce/comctr.htm.
Case Summaries & SEC Contact List
1. SEC v. Thor Equity Group, LLC and George E. Mahfouz, Jr.
(U.S. District Court, District of Arizona)
In the Matter of CancerOption.com, Inc. and Arnold C. Takemoto
(SEC Contact: Donald Hoerl, 303-844-1060)
The SEC alleges that George E. Mahfouz, Jr. and his investor relations firm, Thor Equity Group, touted securities
of CancerOption.com, Inc. based on false financial and stock price projections and then sold large amounts of the
stock at inflated prices for illicit profits of more than $180,000. CancerOption and Mahfouz provided analysts with
false information used in reports recommending CancerOption stock to investors. Mahfouz and Thor Equity then
posted the reports on CancerOption's website, and hired touters to spread false information over the Internet. The
SEC also alleges that Arnold C. Takemoto, then chief executive of CancerOption, reviewed these reports, knew
them to be false, but took no steps to remove them from the company's website. Without admitting or denying the
SEC's allegations, Mahfouz and Thor Equity consented to the entry of a permanent injunction and Mahfouz
consented to the entry of an order requiring him to pay a civil penalty of $50,000 and to pay disgorgement and
prejudgment interest of over $180,000. Without admitting or denying the SEC's allegations, CancerOption and
Takemoto consented to the entry of an order which requires them to cease and desist from committing or causing
any violation or any future violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 under
the Exchange Act.
2. SEC v. Lee E. Gahr and Chill Tech Industries, Inc.
(U.S. District Court, District of Nevada)
(SEC Contact: Donald Hoerl, 303-844-1060)
The SEC alleges that Chill Tech Industries, Inc., through its chief operating officer Lee E. Gahr (a resident of
Vancouver, Canada), made numerous false and misleading statements and failed to disclose material facts through
an Internet website, various press releases, phony unsolicited faxes, and a magazine article. These statements
concerned, among other things, the "environmentally friendly" nature of Chill Tech's "Arctic Can," allegedly a
self-cooling beverage can. The Arctic Can actually used Freon, a banned substance. The SEC alleges that all the
fraudulent statements were drafted or reviewed by Gahr, who ran the company pursuant to a management
agreement. Certain of these statements caused the price and volume of Chill Tech stock to increase between 15
percent and 94 percent in the short term. While Gahr was disseminating the false press releases, he personally sold
1,056,500 restricted shares of Chill Tech common stock for a profit of $277,136. The SEC seeks permanent
injunctions against Gahr and Chill Tech as well as disgorgement and prejudgment interest, and a civil monetary
penalty against Gahr.
3. SEC v. Christopher P. Hastings d/b/a/ Stockpicks1
(U.S. District Court, District of Kansas)
(SEC Contact: Donald Hoerl, 303-844-1060)
The SEC alleges that Christopher Hastings, using the screen name "Stockpicks1," touted the stock of ten issuers
through a free email newsletter (with up to 400 subscribers), on an Internet website he maintained, and in messages
he posted on various Internet message boards. Hastings included false and misleading data on his website
concerning the track record for his stock picks, which he claimed averaged a 410 percent increase after his touts.
Further, Hastings also misrepresented his trading intentions in Internet message board postings and email
messages. In two instances, Hastings sold his personal holdings of the touted stocks into the resulting inflated
market for total profits of approximately $70,309. Hastings also coordinated his touting with other touters against
whom the SEC obtained a preliminary injunction in April 2000. Hastings has no experience in the securities
industry; he is currently employed as a school bus mechanic. Without admitting or denying the SEC's allegations,
Hastings has consented to the entry of an order that enjoins him from future violations of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 under the Exchange Act. The order also requires him to disgorge
$70,309 plus prejudgment interest, but waives payment of disgorgement of all but $22,312 and does not impose a
civil penalty based on his demonstrated inability to pay.
4. SEC v. Rajiv Vohra, Sean T. Healey, Lantern Investments, Ltd., Lipton Holdings, Ltd. and Beaufort Holdings,
Ltd.
(U.S. District Court, Southern District of Florida)
In the Matter of Scott Eskew
In the Matter of Platinum Equities, Inc., Blackhealth & Kent Holdings, Inc., John Kenny and Pasquale Forti
(SEC Contact: Richard P. Murphy, 404-842-7665)
The SEC alleges two schemes to defraud investors in connection with the sale of stock in New Directions
Manufacturing, Inc., a small furniture manufacturing company. Two groups that acted both independently and, at
times, together, perpetrated the schemes. The first scheme involved Rajiv Vohra and Sean Healey who acquired
blocks of free-trading shares of New Directions and then used "wash sales" (they bought and sold shares of New
Directions between accounts they controlled) to create the appearance of active trading in the stock. They then
published false and misleading information on the Internet to promote the stock while they were selling their shares
at a profit of more than $500,000. Vohra and Healey attempted to conceal their scheme by conducting much of their
activity through Canadian brokerage accounts held in the name of three Bahamian companies they controlled. Scott
Eskew permitted Vohra and Healey to use his name and falsely characterize him as an independent analyst who
recommended the stock in a research report published over the Internet. Vohra and Healey paid Eskew $1,500 for
his cooperation. The SEC has accepted Eskew's offer of settlement to consent, without admitting or denying the
charges, to a cease-and-desist order.
The second scheme involved Platinum Equities, Inc., a registered broker-dealer in New York City, its two
principals, John Kenny and Pasquale Forti, and its parent company, Blackheath & Kent Holdings, Inc., who all
acquired a large quantity of New Directions shares. Kenny and Forti opened an account at another brokerage firm,
in the name of Blackheath & Kent, to park the stock until they could resell it to their customers. When soliciting
investments in New Directions stock from customers at Platinum Equities, Kenny and Forti concealed their
ownership of the stock. Platinum Equities' customers paid over $1,000,000 for the stock they purchased from
Kenny and Forti.
The SEC seeks a permanent injunction against Vohra, Healey, and the Bahamian companies under their control,
restraining them from further violations of the antifraud provisions of the federal securities laws, an accounting,
disgorgement plus prejudgment interest and civil monetary penalties. The SEC also has instituted cease-and-desist
and administrative proceedings against Platinum Equities, Blackheath & Kent, Kenny and Forti to determine what
remedial action should be taken against them, whether an accounting and disgorgement plus reasonable interest
should be ordered, whether civil monetary penalties should be imposed against them, whether cease-and-desist
orders should be issued, and whether Kenny and Forti should be suspended or barred from participating in an
offering of penny stock.
5. SEC v. Heartsoft, Inc., Benjamin Shell and Jimmy Butler
(U.S. District Court, Northern District of Oklahoma)
(SEC Contact: Spencer Barasch, 817-978-6425)
The SEC alleges that, Benjamin P. Shell and Jimmy Butler, the principals of Heartsoft, Inc. (a developer and
marketer of educational software) issued a series of fraudulent press releases that were simultaneously posted on
Heartsoft's website. These releases included a myriad of false and misleading statements. During the relevant
period, Heartsoft's stock price increased more than 1500 percent from $.21 to nearly $6.00 per share as a result of
the false and misleading press releases. The SEC alleges that these releases were, in fact, the only public
information available to investors, because the company had not filed any of its required quarterly or annual
reports with the SEC from May 1, 1997 until November 1999. Further, Shell and Butler profited from their
fraudulent conduct by dumping substantial amounts of their Heartsoft stock, from which they made more than
$160,000 in illicit profits. Without admitting or denying the SEC's allegations, Heartsoft, Shell and Butler have
consented to the entry of a permanent injunction against future violations of the antifraud and reporting provisions
of the federal securities laws, and Shell and Butler have agreed to disgorge all of their trading profits, pay
prejudgment interest, and pay civil monetary penalties of $50,000 each. In addition, Heartsoft has agreed to
provide all public disclosures to outside counsel for review prior to release for a period of four years.
6. SEC v. Gursel Mandaci
(U.S. District Court, Southern District of New York)
(SEC Contact: Robert Blackburn, 212-748-8185)
The SEC alleges that from February to April 2000, Gursel Mandaci, a college student and driver for a car service,
used the Internet to inflate the price of securities that he had purchased in order to create short-term trading profits.
Mandaci's strategy was to purchase penny stocks using a margin account he holds at an online broker, and then
make large numbers of Internet postings that touted the issuers. These postings included false information about the
issuers and baseless price predictions. Mandaci made more than $23,000 in six stocks he manipulated, including
one stock that increased in price from $0.01 to $0.38. The SEC has filed a civil injunctive action against Mandaci
alleging violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of
1934 and Rule 10b-5 under the Exchange Act. The SEC seeks an order requiring Mandaci to pay disgorgement of
$23,073 plus prejudgment interest, and pay a civil monetary penalty.
7. SEC v. Donald Rutledge and Gregory Skufca
(U.S. District Court, District of Colorado)
In the Matter of John Black
(SEC Contact: Wayne Carlin, 212-748-8178)
The SEC alleges that Donald Rutledge, a Canadian promoter, and Gregory Skufca, an American shell company
broker, embarked on a scheme to take public a development-stage company, Plus Solutions, Inc., at $5.00 per share
without registering a public offering. Their plan was to increase Snelling Travel's float through a 29-for-1 stock
split, and then merge Plus Solutions into Snelling Travel, an over-the-counter issuer. Rutledge and Skufca intended
to create the appearance of demand for the merged company's stock at prices of $5 or more per share, and then sell
large quantities of the stock to the public. The SEC alleges that Rutledge and Skufca began to carry out the scheme,
and engaged in some manipulative trading in the latter half of December 1999, which caused the stock to trade at
more than $5 per share, and John Black, an employee of Rutledge, commenced a message "thread" (an area to post
messages on a specific topic on an Internet bulletin board) about Snelling and posted two misleading messages on
it. The scheme was derailed, however, because Snelling failed to comply with the NASD's notice requirements
regarding stock splits. As a consequence of the resulting confusion over the effective date of the split, the proposed
merger fell apart, and Snelling's stock price plummeted to pennies per share. The SEC seeks permanent injunctions
against Rutledge and Skufca prohibiting violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of
the Securities Exchange Act of 1934 and Rule 10b-5 under the Exchange Act. The SEC also seeks disgorgement,
plus prejudgment interest, against Skufca, and civil monetary penalties against Rutledge and Skufca. Without
admitting or denying the SEC's allegations, Black has consented to the entry of an order requiring Black to cease
and desist from committing or causing any violation and any future violation of Section 17(b) of the Securities Act
of 1933.
8. SEC v. Torsten Prochnow d/b/a/ Stockreporter.de, Dennis C. Hass and World of Internet.com AG
(U.S. District Court, Northern District of California)
(SEC Contact: Donald Hoerl, 303-844-1060)
The SEC alleges that Torsten Prochnow and Dennis C. Hass, residents of Germany, touted the stocks of
approximately 64 U.S. public companies under the name Stockreporter.de. The touts have been disseminated
through postings on Stockreporter.de's Internet website and numerous press releases. As set forth in the complaint,
Prochnow, Hass and WorldofInternet.com AG (a German corporation owned by Prochnow and Hass) targeted U.S.
investors and these investors purchased the touted stocks based on the Stockreporter.de recommendations. The
Stockreporter.de website contained false statements concerning the purportedly "long-term" trading intentions of
Stockreporter.de's principals. The website also contained baseless financial and/or stock price projections
concerning one of the touted issuers. The website also falsely stated that Stockreporter.de's principals were not
compensated for their touting, and both the website and press releases failed to disclose both the nature and source
of the compensation. The touts caused the price and trading volume of the stock of certain issuers to increase
significantly in the short term. Baseless recommendations resulted in price and volume for 28 stocks increasing an
average of between 28 percent and 390 percent. On at least 15 occasions, the SEC alleges that Prochnow and Hass
sold their holdings of the touted stocks into the resulting inflated market, realizing profits of $111,530. Without
admitting or denying the SEC's allegations, Prochnow and Hass have agreed to the entry of an order that enjoins
them from future violations of Section 17(b) of the Securities Act of 1933, Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 under the Exchange Act. The order also requires them, jointly and severally,
to disgorge $111,520 plus prejudgment interest, and for each to pay a civil penalty of $50,000.
9. SEC v. Thomas Carter
(U.S. District Court, Central District of California)
(SEC Contact: Lisa Gok, 323-965-3835)
The SEC alleges that Thomas Carter manipulated the prices of four securities that he owned by disseminating false
material information about the companies. On each occasion, Carter disseminated a mass email purporting to be
from a "momentum trading service" called the "Unity List." Carter's Unity List emails recited purported rumors
about the touted companies and urged the email recipients to purchase the stocks at specified times. The emails
also stated that the author planned to purchase large quantities of the stocks at the same times, implying that the
author did not yet have a position in the securities. Contrary to the implications in his emails, Carter actually had
purchased substantial positions in the stocks of the companies he touted prior to the times that he instructed his
email recipients to purchase the stocks. After acquiring his stock, Carter sent out the emails to thousands of
recipients. Many of the recipients acted upon the emails and purchased the profiled stocks and the stock price and
trading volume rose dramatically. The SEC alleges that on each of the four occasions that he attempted to
manipulate the price of a stock through this scheme, Carter sold his shares in the rising market for illicit profits of
more than $12,000. The four stocks manipulated experienced the following price increases: one touted stock
increased from $0.06 to $0.14 after dissemination of false report; another touted stock increased from $0.048 to
$0.15; another from $0.04 to $0.13; and another from $0.075 to $0.10. The SEC seeks a permanent injunction
against Carter for violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 under the Exchange Act. The SEC also seeks disgorgement, plus
prejudgment interest, and a civil monetary penalty.
10. SEC v. Michael A. Furr
(U.S. District Court, Central District of California)
(SEC Contact: Donald Hoerl, 303-844-1060)
The SEC alleges that Michael A. Furr, a paid promoter of penny stocks, orchestrated a manipulation scheme in
which he touted at least 26 issuers on his free website, in printed research reports, through emails, and on a
national radio show. For at least four of the issuers, Furr included false financial projections and made
misrepresentations about an issuer's business ventures and assets. Furr also engaged in a fraudulent pattern of
trading in the stock of at least 23 of the issuers, realizing proceeds of more than $3.4 million. The same day as, or
within a few days of, issuing reports and emails with buy recommendations, Furr sold his stock in the
recommended securities in a total of at least 751 trades without adequately disclosing his intention to sell. In
addition, Furr either failed to disclose or misrepresented the compensation he received for touting the securities he
recommended. Several of the stocks Furr touted experienced dramatic price increases: one touted stock increased
from $0.13 to $3.38 after dissemination of the report; another increased from $0.18 to $1.26; another increased
from $0.31 to $1.00; and another increased from $2.37 to $9.13. The SEC seeks a permanent injunction against
Furr for violations of Section 17(b) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of
1934 and Rule 10b-5 under the Exchange Act. The SEC also seeks disgorgement, plus prejudgment interest, and a
civil monetary penalty.
11. SEC v. Broadband Wireless International Corporation, BroadCom Wireless Communications Corporation,
Ivan W. Webb and Donald L. Knight
(U.S. District Court, Western District of Oklahoma; Civil Action No. 00-1375-R)
(SEC Contact: Spencer Barasch, 817-978-6425)
On August 11, 2000, the SEC filed an emergency enforcement action against Ivan Webb and Donald L. Knight, two
recidivist securities laws violators engaged in an ongoing manipulation scheme involving the stock of Broadband
Wireless International Corp, traded in the over-the-counter market under the symbol "BBAN." During the fall of
1999, Knight and Webb caused BBAN to issue several press releases and file reports with the SEC that
fraudulently touted the company's purported acquisition of several private telecommunications companies, none of
which ever came to fruition. Knight and Webb further hyped the company's stock on the company's website and on
an Internet bulletin board. The promotional or "pumping" efforts resulted in a dramatic increase in the company's
stock. Between late 1999 and February 2000, the stock price increased 10,000%, from 12 cents per share to over
$12 per share. Concurrently, Knight, who is on criminal probation for a prior securities fraud scheme, sold or
"dumped" millions of shares of restricted BBAN stock, reaping at least $5 million in illicit profits. Later in the
scheme, Knight, in an effort to regain control over BBAN from Webb, conducted a fraudulent Internet proxy
solicitation through BroadCom Wireless Communications Corp. (a company he controlled). On the same day the
suit was filed, a federal court entered orders freezing the assets of all defendants and appointed a receiver to take
control of BBAN and BroadCom. An Oklahoma U.S. Attorney simultaneously filed a petition to revoke Knight's
criminal probation. The Commission also seeks preliminary and permanent injunctions, disgorgement and civil
penalties against Knight, BroadCom, Webb and BBAN.
Additional Materials Available on This Topic
Press Version of the "Pump&Dump.con" brochure (Tips for Avoiding Stock Scams on the Internet)
sec.gov
Last update: 09/06/2000 |
