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SEC targets Curtis, Peever face $3-million (U.S.) fine

2011-08-17 14:17 ET - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
Also Street Wire (U-STLOF) SHEP Technologies Inc
by Mike Caswell
http://www.stockwatch.com/News/Item.aspx?bid=Z-C:*SEC-1872791&symbol=*SEC&news_region=C

The U.S. Securities and Exchange Commission has all but secured $3-million in financial penalties against Vancouver promoters Phillip Curtis and William Todd Peever for the SHEP Technologies Inc. promotion. (All figures are in U.S. dollars.) In an opinion released on Tuesday, Aug. 16, New York Judge Denise Cote has accepted $3-million, plus interest, as the proper figure to fine the pair, and has invited the SEC to prepare a final draft order imposing the penalty.

The fine stems from the 2003 manipulation of SHEP Technologies, an OTC Bulletin Board company that purportedly had a new form of anti-lock brakes. The SEC claimed that Mr. Peever, Mr. Curtis and others secretly sold three million shares after paying for favourable coverage in tout sheets. They and the others grossed $4.3-million selling the stock, the SEC said.

Mr. Peever and Mr. Curtis settled the case in August, 2008. Without admitting any wrongdoing, they agreed to penny stock bans and to pay fines that the judge would determine. The SEC later submitted its recommendations, which the judge has now accepted. Their fines, as specified by Judge Cote on Tuesday, will include $2.9-million in joint disgorgement of ill-gotten gains plus a $120,000 civil penalty for each man. The judge also accepted a recommendation for a $120,000 fine against Robert Chapman, a Florida newsletter writer who ignored the case and received a default judgment on June 18, 2010.

SEC's complaint

The SEC launched the case on Dec. 19, 2007, when it filed a civil complaint against Mr. Peever, Mr. Curtis, Mr. Chapman and others in the Southern District of New York. The defendants included Bermuda brokerage LOM (Holdings) Ltd. and its two principals, brothers Scott and Brian Lines. The suit described the SHEP manipulation as well as another Vancouver-linked promotion that the Lines brothers participated in, that of Sedona Software Solutions Inc.

The SHEP scheme, as described by the SEC, began in January, 2002, when Mr. Peever and Mr. Curtis bought an 83-per-cent interest in a SHEP predecessor for $400,000. They concealed their ownership by using nominee accounts at LOM that Brian Lines provided, the SEC said. When the company became SHEP in December, 2002, Mr. Peever, Mr. Curtis and the Lines brothers controlled nine million tradable shares.

The manipulation started in early 2003, when Mr. Peever and Mr. Curtis paid for favourable coverage in two tout sheets, according to the complaint. One was an electronic newsletter, called the OTC Journal. It stated in a March 29, 2003, report, "If you want upside potential in a microcap, you won't find any story more exciting." Another tout sheet, called The Intrepid Investor, promoted the stock through hard copy newsletters sent to about one million potential investors. It claimed that the company was "on the edge of a potential BILLION DOLLAR ROYALTY GUSHER."

The Intrepid Investor received $600,000 and 42,000 SHEP shares, while the OTC Journal received 100,000 shares, the SEC said. Neither sheet disclosed that Mr. Peever and Mr. Curtis paid for the touting and that they intended to sell shares.

In spite of the favourable coverage, the promotion did not have the start that Mr. Peever envisioned. The complaint quoted a Feb. 24, 2003, phone call in which he explained the slow start to Scott Lines. "Jesus Christ ... we haven't sold a fucking share," he said. "I mean [OTC Journal's publisher] I think just brought the fucking shorts to us."

The next day, Scott Lines assured Mr. Peever that the shorting troubles would end. "Give them a day. I mean, fuck, if they get shorter today, you get more buying and then I think ... they'll start covering. They'll have to cover up because they don't want to be short at the end of the month." (It is not entirely clear where the phone transcripts came from. Evidence presented early in the case indicated that LOM had an internal system that recorded some phone conversations.)

According to the complaint, Mr. Peever and Mr. Curtis had a much easier time selling their shares in the months that followed. Between February and June, 2003, they and the Lines brothers were able to unload three million shares. (The stock hit a $2.98 high in June, 2003, and fell to 55.5 cents by the end of the year. It was last at 0.01 cent.)

While the allegations against Mr. Peever and Mr. Curtis were entirely related to SHEP, the SEC described the Sedona manipulation in the same complaint. That promotion included two other defendants, West Vancouver promoter Anthony Wile and his uncle, Wayne Wew. The SEC claimed that Mr. Wile helped manipulate the stock to $10 in 2003 with misleading news and paid touts. The Lines brothers then sold $1.4-million worth of stock, the complaint stated.

Settlements

The SEC settled with the Lines brothers, Mr. Wile and Mr. Wew on Oct. 15, 2010. Mr. Wile agreed to pay $35,000 and to serve a five-year officer and director ban. The Lines brothers, for their part, agreed that they and various LOM-connected entities were liable for disgorgement of $1.2-million "representing profits gained as a result of the conduct alleged in the Complaint," plus $654,000 in interest. Brian Lines agreed to a three-year penny stock ban and to pay a $100,000 civil penalty, while Scott Lines agreed to a two-year ban and a $50,000 penalty. None of the men admitted to any wrongdoing.

http://www.stockwatch.com/News/Item.aspx?bid=Z-C:*SEC-1872791&symbol=*SEC&news_region=C