SEC seeks default judgment against Fernando
2010-01-05 14:56 ET - Street Wire
by Mike Caswell
http://www.stockwatch.com/newsit/newsit_newsit.aspx?bid=Z-C:*SEC-1677950&symbol=*SEC&news_region=C
The U.S. Securities and Exchange Commission has filed a motion for a default judgment against Vancouver promoter Joseph Fernando for the pump-and-dumps of two OTC Bulletin Board stocks, Xpention Genetics Inc. and HS3 Technologies Inc. The regulator cites Mr. Fernando's failure to appear at a court-ordered deposition.
The default request comes after repeated attempts by the SEC to question Mr. Fernando about his role in the pump-and-dumps. The regulator claims it has been trying to interview or depose Mr. Fernando since 2006, but has only received excuses for missed dates. As a result, it obtained a court order on Oct. 16, 2009, which instructed Mr. Fernando to attend the SEC's office on Oct. 26, 2009. Mr. Fernando missed that appointment, so the SEC filed its present motion for a default judgment.
The case began on March 9, 2009, when the SEC launched a civil fraud suit against Mr. Fernando and seven other men in the District of Colorado. The regulator claimed that they pumped Xpention Genetics and HS3 Technologies in 2005 with highly paid tout sheets and spam, and then dumped $5.9-million worth of stock. (All figures are in U.S. dollars.)
SEC's motion to compel a deposition
The SEC first publicized its trouble interviewing Mr. Fernando on Oct. 2, 2009, when it sought an order compelling him to attend a deposition ahead of his trial. Depositions are an essential part of most cases, and Mr. Fernando had missed his with no valid reason, the regulator argued. In its motion, the SEC detailed the history of its attempts to question Mr. Fernando and the excuses he provided.
The regulator said it first tried to interview him in May, 2006, when it was initially investigating him for the pump-and-dumps. At first, Mr. Fernando agreed to provide an interview from his lawyer's office in Vancouver, over the phone. He missed that appointment, and later claimed that he was out of town and had become ill. The SEC offered to reschedule the interview, but Mr. Fernando replied that there was a death in his family, so he would be unable to attend. According to the motion, he never did give the interview.
The SEC said it received more excuses from Mr. Fernando in January, 2008, when he was to provide the regulator with a Wells submission, which would contain his version of events in written form. The SEC said he missed the first deadline and three subsequent ones. One of his excuses was that he was receiving "intensive medical treatment as a result of a serious condition."
After a 17-minute hearing on Oct. 16, 2009, Judge Boyd Boland granted the SEC's request, and entered the court order compelling Mr. Fernando to attend, with the SEC to pay for his travel costs.
SEC's motion for default judgment
The SEC filed its motion for a default judgment against Mr. Fernando on Dec. 30, 2009. In it, the regulator points out that the final deadline for pretrial depositions was Nov. 2, 2009, and Mr. Fernando has not only missed the deadline, he has done so when there was a court order compelling him to attend his deposition.
"By refusing to appear ... Fernando has shielded himself from discovery and has declined to answer on the record and under oath questions regarding his activity and that of his co-defendants," the motion reads. As a result, the judge should grant a default judgment, the SEC argues.
Should the SEC succeed in its request, the regulator would then have to make submissions on appropriate penalties for Mr. Fernando.
It is not clear if Mr. Fernando will appear to oppose the SEC's request. His Denver lawyers, Michael MacPhail and Olympia Fay, both sought and received approval from the judge to withdraw from the case on Oct. 28, 2009. They said that they had been unable to communicate with Mr. Fernando since Oct. 1, 2009, in spite of multiple attempts by telephone and e-mail.
SEC's complaint
The details of the allegations against Mr. Fernando are contained in a complaint dated March 9, 2009. In it, the regulator described how he and the other defendants secretly acquired control of the two stocks, then dumped them as paid touts predicted the companies could rise dramatically. The complaint named the other defendants as Scott Gelbard, 33, of Colorado; Aaron Lamkin, 31, of Colorado; Jeffrey Koslosky, 43, of Colorado; John Coutris, 38, of Texas; Michael Coutris, 28, of Colorado; James Coutris, 64, of Ohio; and Dimitrios Gountis, 34, also of Ohio.
The first of the pump-and-dumps was Xpention Genetics, a company that claimed to be developing a cancer vaccine for dogs and potentially for humans. Mr. Fernando's role was to arrange for tout sheets to promote the stock. The SEC said he paid $705,000 for favourable coverage in three newsletters: the SuperStock Investor, the Michael Williams Market Mover and the OTC Special Situations Report. In each case, the newsletters failed to disclose that Mr. Fernando paid for the coverage, and that he had paid for it by selling shares of the company.
After the tout sheets went out, the stock rose to a $1.29 high on May 26, 2005. The SEC claimed that Mr. Fernando and the others then dumped their shares, with Mr. Fernando making $2-million and his associates making $1.5-million.
The other pump-and dump, HS3 Technologies, followed a similar script. The company purported to have a video surveillance system that was unique in that it used Ka-band satellites to relay data. As with Xpention, paid touts wrote favourably about the company without disclosing that Mr. Fernando had paid for the coverage, according to the complaint. The SEC said Mr. Fernando subsequently sold $131,700 worth of the company's stock, and the others sold $330,000.
The SEC sought disgorgement of profits, civil penalties and orders barring the men from participating in penny stock offerings.
The men all denied any wrongdoing. In a joint scheduling order dated May 1, 2009, Mr. Gelbard and Mr. Lamkin said that any shares they sold were properly registered or were exempt from registration. Mr. Koslosky said that he did not induce anybody to buy shares. Mr. Fernando, for his part, simply denied participating in a pump-and-dump. He has not filed formal answer to the complaint.
http://www.stockwatch.com/newsit/newsit_newsit.aspx?bid=Z-C:*SEC-1677950&symbol=*SEC&news_region=C
News 
Market Data 
Discover 
