Apr 28, 2005 (financialwire.net via COMTEX) -- April 28, 2005 (FinancialWire) Do stock promotions naming Intelligent Sports (OTC: IGTS), Ksign International (OTCBB: KSIGE) or Legal Play Entertainment (OTC: LPLE) fit a new U.S. Securities and Exchange Commission "risk based" profile, or are they similar to those that have resulted in some recent SEC trading halts?"
The spam email for Legal Play touted an expected price in the next "7 days" at $0.20. The "publisher" disclosed it had been paid $15,000 from an unnamed "third party" for the promotion.
The "WallStreet Insiders Edge," a spam email hyping Ksign International, said recipients should "Watch it explode and Profit Well," promising a "huge fax promiton launching on Friday night." The only SEC Regulation 17(b) disclosure was, believe it or not, "vicarious tomato." You say "tomato," readers might say "lawbreaker."
The "April Stock Alert," out just in time, is a spam email promising a "Speculative Target price in the next 5 days of $0.12" The disclosure stated the newsletter received $41,500 from an unnamed "third party," and also stated the publisher holds an undisclosed number of shares that it intends to liquidate at any time, despite the exciting times it sees ahead for its stock.
The SEC has recently initiated a new and aggressive campaign to foil what it calls suspected pump and dump promoters by suspending trading in the equities of companies that either participate in or have been targeted by suspicious promotions.
Some observers believe such a "cooling off period" could "cool the ardor" for suspect promotions if investors have an opportunity to further evaluate junk faxes and spam emails they have received, and could prevent some more naive investors from putting their money into stocks that are the subject of large-scale promotion campaigns based on questionable substance or fundamentals.
The companies are among more than 80 recently identified for aggressive stock promotions. It is not known if the companies approved of the junk fax and spam emails. A few of the group have disavowed any connection to the promotions, but most have not commented, and for many, the campaigns continue unabated. One thing consistent with most: after the campaigns end, and often before, their stock prices plummet.
Now even a public company, Atlantis Business Development (OTCBB: ABDE), is claiming credit for many of the promotions through its partially-owned spin-off, E-Direct, as part of its revenue expectations. Both companies' CEO, according to its website, is Christopher Dubeau, who it boasts has "built a fax broadcasting system which uses FOIP and acquired a database of over eight million" of what it calls "opt in" fax numbers from InfoUSA, Dunn (sic) & Bradstreet, "and many other list management companies."
BusinessWeek, published by McGraw-Hill (NYSE: MHP), in an article March 21, said SEC Enforcement Director Stephen M. Cutler is zeroing in on micro-cap fraud with a novel strategy and new tactics.
"In the past, SEC lawyers chased swindlers one company at a time. Now the agency is targeting gatekeepers such as broker-dealers, promoters, and lawyers, who show up in scam after scam. And rather than waiting months until it can prove intent to defraud, the SEC is halting trading in companies that it suspects are about to be monkeyed with as soon as it finds what it considers clear-cut evidence of violations.
"The campaign to squelch micro-cap fraud is part of SEC Chairman William H. Donaldson's push to get ahead of abuses before they cause investors widespread harm."
This theme is echoed in an article by Deborah Solomon of the Dow Jones (NYSE: DJ) Wall Street Journal, published February 2, 2005, "the SEC's move is part of the agency's broader attempt to get ahead of possible fraud before it becomes widespread." The article is at: http://online.wsj.com/search#SB110729717180142868
The SEC has apparently developed a "profile" to determine candidates for potential trading halts. Solomon said the agency has implemented a "risk based" approach to help identify potential problems, and last year took the unusual step of halting trading in the securities of 26 "shell" companies that failed to file timely financial disclosures with the agency.
The SEC recently temporarily suspended trading in Commanche Properties (OTC: CMCH) and Courtside Products (OTC: CSDP), both of which disclaimed any company or executive association with the spam email and/or faxes that triggered the SEC suspensions.
In the case of Courtside, the SEC said it is investigating whether Courtside was misled by stock promoters who advised the firm to go public by relying on an SEC rule that allows companies to issue shares and raise money without registering with the commission, if certain conditions are met. The conditions include issuing a portion of the shares to "accredited" investors.
"Federal securities laws define an accredited investor as certain entities or individuals, such as banks, insurance companies, registered investment companies or trusts," said the Wall Street Journal.
"The SEC is looking into whether the stock promoters, who agency officials declined to identify, may have falsely portrayed themselves as accredited investors in order to gain shares of Courtside. The promoters may have then sought to sell their shares to investors and later drive up the price through spam e-mail and faxes. Investigators want to determine whether the ultimate goal was to artificially stimulate demand for the stock and then dump shares once the price increased.
"The agency is expected to suspend trading in several other companies within the coming weeks and months, according to people familiar with the matter.
"At issue is the potential for so-called pump-and-dump schemes, whereby speculative investors, company insiders or others try to inflate demand for a stock by trumpeting positive-sounding information about a company -- typically via e-mail -- and then cash in their shares at the higher price. Often the information is false and the stock quickly declines again," explained the Journal.
The SEC said that each week, the SEC's internet enforcement division, headed by John Reed Stark, gets thousands of complaints from investors "about spam email plugging stocks and other investments."
"We want to head off possible damage to shareholders before it occurs," John Reed Stark, chief of the SEC's office of Internet enforcement, was quoted as saying.
Investigators want to determine whether the ultimate goal in many of these instances is to "artificially stimulate demand for the stock and then dump shares once the price increased."
The SEC hastened to add that it is not asserting that many of the companies themselves are involved in the schemes. Often they are just bystanders, but sometimes it results from stock issued to offshore and even "promotional" sites and email and fax originators to create "visibility," and the promoters often violate their promises to the companies to sit on the shares.
"Under certain circumstances, an improper stock distribution in violation of SEC regulations can be a prelude to a manipulation," Peter Bresnan, an associate director in the SEC's enforcement division, was quoted as saying.
Investrend Information's (http://www.investrendinformation.com) Investors Resource Center has teamed with JunkFax (http://www.junkfax.org), which allows those receiving unwanted stock promotions to provide the evidence directly to FinancialWire.
Many but not all have missing or incomplete disclosures under U.S. Securities and Exchange Commission Regulation 17(b):
"It shall be unlawful for any person, by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, to publish, give publicity to, or circulate any notice, circular, advertisement, newspaper, article, letter, investment service, or communication which, though not purporting to offer a security for sale, describes such security for a consideration received or to be received, directly or indirectly, from an issuer, underwriter, or dealer, without fully disclosing the receipt, whether past or prospective, of such consideration and the amount thereof."
"The SEC has told FinancialWire that Regulation 17(b) means full and complete compensation for research and any other services provided, including amounts and sources, must be disclosed in 'every press release' as well as other published documents, including emails or faxes. The SEC states that third party compensations must include the relationship of the payer to the issuer.
"In an email to FinancialWire, John J. Nester, a spokesperson for the U.S. Securities and Exchange Commission, confirmed that regulators interpret 17(b) to mean that specific compensation information must be contained in all such communications to the public, and that a link to a disclosure somewhere else, for example, is a violation of the regulation. He further stated that the compensation disclosure required by the SEC includes "amounts and sources" in any and all communications mentioning the company.
The SEC has indicated it is serious about violators. Earlier this year, the SEC charged JM Dutton Associates with violating 17(b) disclosures and penalized the firm $25,000.
One of the major loopholes in current SEC Regulation 17(b) is that there is no present requirement for promoters to transparently identify third parties who pay for promotions, or their stock holdings or agenda with respect to intended stock sales. A proposal from the most recent SEC Forum has asked the full Commission to further qualify all parties' responsibilities in issuing press releases, whether for visibility or promotion. The proposal was submitted by Marshal Shichtman, Esq., representing Investrend Information, a division of Investrend Communications, Inc., and publisher of FinancialWire.
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