SEC settles with Freedom Surf figure Chapman
2005-04-27 16:07 ET - Street Wire
by Stockwatch Business Reporter
The U.S. Securities and Exchange Commission has settled with another accused in the Freedom Surf Inc. market manipulation case. John Chapman, who allegedly rigged Freedom Surf's price through trading at four Canadian brokerages, has agreed to a penny stock ban and $201,498 in fines and penalties. (All figures are in U.S. dollars.)
Mr. Chapman, a 63-year-old Salt Lake City resident and an associate of jailed fraudster Allen Wolfson, did not admit to any wrongdoing in reaching the settlement.
The SEC's complaint
Mr. Chapman, according to the SEC's Sept. 30, 2002, civil complaint, was not very co-operative when the SEC first thought there might be trouble at Freedom Surf. "Chapman asserted his Fifth Amendment privilege against self-incrimination and refused to testify in the Commission's investigation in this matter," stated the SEC. Evidently, things have changed.
The SEC, at the time, was investigating suspicious trading that propelled Freedom Surf Inc. from $5 to $40 on the OTC Bulletin Board in the fall of 2000. The company, at the time, touted itself as a maker of stitch-free wetsuits.
The SEC suspected Mr. Chapman and his 15 co-accused were monkeying with the market for Freedom Surf, and said they were using Canadian accounts to do it.
"Six accounts at Canadian broker-dealers generated all of the retail demand for Freedom Surf" during its meteoric rise to $40, according to the SEC's 30-page complaint. The U.S. penny stock policeman alleged Mr. Chapman directed trading in five of the six Canadian accounts and Allen Wolfson's assistant, Bonniejean Tippetts, directed trading in the other.
The SEC identified the Canadian brokerages involved as Union Securities Ltd., Canaccord Capital Corp., Rampart Securities Inc. and Credifinance. There was no evidence to indicate the Canadian brokerages knew the accounts were being used for anything other than legitimate purposes.
The SEC found the Canadian accounts very interesting because they accounted for nearly all of Freedom Surf's buying in a three-month span. Remarkably, it found, "The Canadian accounts collectively purchased 12,950 shares of Freedom Surf from U.S. market makers in ten transactions at increasing prices between July 28 and October 20, 2000." A sample of the trading went like this: July 28, 100 shares at $10; Aug. 8, 200 at $16.25; Aug. 15, 200 at $18.50 ... Oct. 5, 1,000 at $40; Oct. 6, 1,000 at $45.
These Canadian buys neatly coincided with sell orders from U.S. accounts controlled by co-accused Allen Wolfson "near in time to the buy orders and in identical or nearly identical amounts," according to the SEC.
The SEC said Mr. Chapman and his co-accused were able to manipulate Freedom Surf up to $40 because they controlled nearly all of the company's shares, mostly through 26 nominee shareholders.
The penny stock cop said it brought the manipulation to an end on Nov. 30, 2000, when it paid simultaneous surprise visits to Allen Wolfson's Salt Lake City brokerage, Olsen Payne and Company, and another brokerage in Texas used by the Freedom Surf crew, Salomon Grey Financial Corp. It is not clear what transpired at the two visits, but it is clear that the bottom quickly dropped out of the market for Freedom Surf.
Freedom Surf, which was trading at $3.30 the day ahead of the surprise visit (and in the wake of an Oct. 11 4:1 split), slumped to 19 cents by the end of December, 2000.
The stock did recover somewhat in early 2001, however, and the SEC said Mr. Chapman and Ms. Tippetts unloaded 196,000 shares from the Canadian accounts between March and June of that year. (The stock traded at $1.50 on March 1, 2001, but retreated to a six-cent low by June 25.)
Mr. Chapman settles
Mr. Chapman apparently made $64,714 selling these shares. He "is liable for disgorgement of $64,714, representing profits gained," according to his deal with the SEC.
The remainder of Mr. Chapman's $201,498 settlement consists of a $120,000 civil penalty and $16,784 in interest. Mr. Chapman also agreed to a permanent ban from penny stocks.
In the settlement Mr. Chapman did not admit to any wrongdoing, consistent with his Dec. 9, 2002, answer to the SEC's complaint.
In that document, Mr. Chapman repeated, 89 times, the phrase "Defendant lacks knowledge or information sufficient to form a belief as to their truth [the allegations] and therefore denies the averments contained therein." He also denied controlling the Canadian brokerage accounts.
The other Freedom Surfers
Mr. Chapman is the fourth of the 16 accused in the Freedom Surf case to reach a settlement without a hearing. The other three to settle were David Wolfson, Bonniejean Tippetts and Olsen Payne broker Kevin Kirkpatrick. David Wolfson agreed to $157,652 in penalties, Ms. Tippetts agreed to a penny stock ban and Mr. Kirkpatrick was simply barred from getting into any further securities-related trouble.
(David Wolfson, the 26-year-old son of Allen Wolfson, is better known for his alleged involvement in an Asian boiler room that the SEC says defrauded investors of $16-million in 2002. That boiler room featured British national Michael Newman, known for owning fancy houses in Thailand with elaborate security measures, as its mastermind. Mr. Newman was last known to be in a Laotian jail facing charges of illegally removing money from that country. The junior Wolfson denied any involvement with the boiler room.)
(The senior Wolfson, also a co-accused in the Freedom Surf case, is serving time in a New York jail. On March 26, 2003, he was convicted of securities fraud for rigging six penny stocks in 1999. His civil hearing in the Freedom Surf matter, however, has yet to come up.)
The other accused in the Freedom Surf case still await their hearings, and most have filed denials to the SEC's allegations. |
