Franklin, Andrews, Kramer & Edelstein

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SEC wins $50-million (U.S.) penalty for Gordon

2011-09-30 14:08 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
Also Street Wire (U-NLST) National Storm Management Inc
by Mike Caswell
http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3a*SEC-1886604&symbol=*SEC®ion=C


The U.S. Securities and Exchange Commission has won $50-million in civil penalties against David Gordon, an Oklahoma lawyer jailed for a 2005 market manipulation scheme. (All figures are in U.S. dollars.) The SEC said that he and others, including former Canadian broker Dean Sheptycki, pumped and dumped three companies with faxes, spam and manipulative trades. The promotions included a company the men held out as a storm reconstruction outfit in the wake of hurricane Katrina.

The fine comes on top of a 15-year jail term that Mr. Gordon received in a parallel criminal case. An Oklahoma jury found him guilty on 23 counts of fraud after a 15-day trial in April, 2010. Prosecutors successfully argued that he and others defrauded investors of millions. The government had sought a 30-year jail term, but the judge partly accepted Mr. Gordon's plea for a light sentence. He contended that he had already suffered the loss of his profession and would be banned from penny stocks.

The final matter for Mr. Gordon was the SEC case, which ended on Wednesday, Sept. 28, when Oklahoma Judge Claire Eagan approved the $50-million fine. In addition to the financial penalty, she permanently banned him from penny stocks and entered an order barring future violations of the U.S. Securities Act. In seeking the $50-million, the SEC said there was no genuine issue for trial, as the penalty stemmed from the same conduct for which he was already criminally convicted. The fine includes disgorgement of the entire $43.9-million that he and others made in the pump-and-dumps, with adjustments for interest and $3.9-million that he forfeited in the criminal case.

SEC's complaint

The SEC launched the case on Feb. 19, 2009, when it filed a civil complaint against Mr. Gordon and two others in the Northern District of Oklahoma. The defendants were Mr. Gordon, Mr. Sheptycki and a former broker from Texas, Joshua Lankford. According to the SEC, the men acquired millions of shares in three companies in 2005, relying on fraudulent legal opinions. They then dumped those shares during questionable promotions, realizing millions in profits.

One of the stocks that they promoted was National Storm Management Inc., a purported storm reconstruction company. In 2005, Mr. Gordon and Mr. Lankford acquired nearly all of the company's tradable stock, the SEC said. They then hired Mr. Sheptycki to promote it with mass faxes, and arranged for spam e-mail campaigns.

The faxes typically predicted massive price increases for the stock. The spam, which went out in September, 2005, after hurricane Katrina struck New Orleans, stated that the company "is poised for a massive run up as demand to repair homes skyrockets." The stock went from 50 cents to a $2.80 high (and was last at 0.45 cent).

As the spam went out, Mr. Gordon and Mr. Lankford manipulated the stock through a series of trades they made using nominee accounts, the complaint stated. To keep the price up, they were careful to avoid dumping too much stock. They also supported the buy side when others started selling, the SEC claimed.

The other two stocks the SEC listed in its complaint were Deep Rock Oil and Gas Inc. and Global Beverage Solutions Inc., which the men promoted in a similar fashion. Deep Rock went from 12 cents to $1.13 in 2005, and was last at 0.08 cent.

The SEC sought disgorgement of ill-gotten gains, appropriate civil penalties and penny stock bans.

Sheptycki and Lankford remain fugitives

Mr. Lankford and Mr. Sheptycki did not respond to the case, resulting in the SEC winning substantial default judgments against both men. On March 11, 2011, Judge Eagan ordered Mr. Sheptycki to pay $98.7-million. Roughly half the penalty represented ill-gotten gains, while the remainder was a civil penalty. She entered a similar penalty against Mr. Lankford on July 27, 2011, ordering him to pay $94.3-million. The judge also permanently banned both men from penny stocks.

The criminal case remains outstanding against Mr. Sheptycki and Mr. Lankford. Prosecutors say that Mr. Lankford has fled, and they have no idea as to his whereabouts. Police initially arrested Mr. Sheptycki in the Bahamas on a U.S. warrant in February, 2009. The U.S. then tried to have him extradited, but the attempt failed after U.S. authorities did not file an authority to proceed on time. A Bahamian judge threw out the case and released Mr. Sheptycki.

Before his troubles in the U.S., Mr. Sheptycki worked at the Calgary branch of C.M. Oliver & Company Ltd. He left the firm in 1998, after the Alberta Stock Exchange fined and suspended him for unauthorized trading. The ASE said that he bought $95,427 worth of an ASE listing called Timbuktu Gold Corp. with a client's account. The trading left the client with a debt that was beyond his means. In addition to the fine, the ASE suspended Mr. Sheptycki for 18 months, after which he did not return to the industry.

At the time of the National Storm promotion, he was working for a Florida tout service called Stockwire.

http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3a*SEC-1886604&symbol=*SEC®ion=C