Franklin, Andrews, Kramer & Edelstein

[scion]

National Storm's Gordon appeals fraud conviction

2010-11-12 13:50 ET - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
Also Street Wire (U-DPRK) Deep Rock Oil and Gas Inc
by Mike Caswell
http://www.stockwatch.com/News/Item.aspx?bid=Z-U:NLST-1779215&symbol=NLST&news_region=U

David Gordon, the Oklahoma lawyer recently sentenced to 15 years in jail for his role in a $41.8-million pump-and-dump, has launched an appeal of his conviction. (All figures are in U.S. dollars.) On May 3, 2010, a Tulsa jury convicted him of fraud for touting four pink sheets companies with misleading faxes and e-mails. His co-defendants included former Canadian broker Dean Sheptycki, who did not participate in the trial and remains wanted.

Mr. Gordon has not yet stated his grounds of appeal, but he will likely repeat at least some of his arguments from trial. Among other things, he said the government presented no proof that he was responsible for boosting the stocks. The promotional materials that investors received contained vague "puffing" that was so general no reasonable person would rely on it, he argued.

The notice of appeal comes two weeks after U.S. District Court Judge James Payne sentenced Mr. Gordon and another defendant, Oklahoma resident Richard Clark, who received 12 years in jail. In addition to the jail time, the judge ordered each man to pay $6.1-million in restitution.

In his appeal, Mr. Gordon could also argue for a lighter sentence. He had asked Judge Payne for a sentence of five to 10 years, contending that he had already suffered plenty with the loss of his law practice and with a pending penny stock ban. (Mr. Clark had sought a lighter sentence too, asking for six months of home detention. He said the judge should consider that he was a father of seven and that his wife had filed for divorce as a result of the strains of the trial.)

While Mr. Gordon's case has advanced to the point of an appeal, the U.S. government has yet to even capture Mr. Sheptycki. He was initially arrested on the charges on Feb. 11, 2009, in the Bahamas, where he had been living. The U.S. attempted to have him extradited, but the attempt failed when government lawyers did not file necessary paperwork on time. A Bahamian judge then threw out the extradition case and released Mr. Sheptycki. It is not clear where he is now. He and another defendant, Joshua Lankford of Dallas, are considered fugitives by the U.S. government.

Indictment

The trouble for Mr. Gordon and his co-defendants began on Jan. 15, 2009, when prosecutors filed a 24-count indictment against them in the Northern District of Oklahoma. According to the indictment, they manipulated four stocks with misleading or false information and dumped millions of shares. Prosecutors listed the companies as National Storm Management Inc., Deep Rock Oil and Gas Inc., Global Beverage Solutions Inc., and International Power Group Ltd. The scheme ran from April, 2004, to December, 2006.

The National Storm promotion took advantage of hurricane Katrina, the storm that devastated New Orleans in 2005. The men had taken the company public earlier that year, promoting it as a storm reconstruction company. As part of the company's transition from a shell, Mr. Gordon wrote false opinion letters which the men used to issue blocks of free-trading shares, prosecutors said.

In the two weeks after Katrina, Mr. Sheptycki sent out multiple fax and e-mail blasts touting National Storm, according to the indictment. "Katrina means National Storm (NLST) is poised for a massive run up as demand to repair homes skyrockets," one of the faxes read. The stock rose from 53 cents to $2.50 while the spam went out, and fell to 18 cents by year-end.

In addition to the pump-and-dump allegations, prosecutors claimed that Mr. Gordon and Mr. Clark tried to cover up their roles in the scheme. In an interview with the U.S. Securities and Exchange Commission on Sept. 20, 2005, Mr. Gordon denied knowing about the blast faxes that promoted Deep Rock, even though he had paid for them. Mr. Clark also lied about selling shares of Deep Rock, according to prosecutors.

After a 13-day trial, a jury convicted Mr. Gordon of one count of wire fraud, securities fraud and money laundering; nine counts of wire fraud; five counts of securities fraud; five counts of money laundering; and one count of making a false statement to the SEC. The jury found Mr. Clark guilty on one count of conspiracy; seven counts of wire fraud; five counts of securities fraud; and one count of money laundering.

In addition to the criminal charges, the men face a parallel civil suit from the SEC. The regulator filed a motion on Nov. 4, 2010, to lift a stay in the case which had been in place while Mr. Gordon and Mr. Clark awaited completion of their criminal trial. The SEC is seeking civil penalties, disgorgement of ill-gotten gains and penny stock bans.

http://www.stockwatch.com/News/Item.aspx?bid=Z-U:NLST-1779215&symbol=NLST&news_region=U