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Washington, D.C., Jan. 26, 2012 – The Securities and Exchange Commission today charged a Fort Lauderdale-based firm and its founder with conducting a fraudulent boiler room scheme in which they hyped stock in two thinly-traded penny stock companies while behind the scenes they sold the same stock themselves for illegal profits.
The SEC alleges that First Resource Group LLC and its principal David H. Stern employed telemarketers who fraudulently solicited brokers to purchase stock in TrinityCare Senior Living Inc. and Cytta Corporation. While recommending the securities in these two microcap companies, Stern sold First Resource’s shares of TrinityCare and Cytta stock unbeknownst to investors who were purchasing them – a practice known as scalping. As Stern was selling the stocks, he also purchased small amounts in order to create the false appearance of legitimate trading activity and induce investors to purchase shares in both companies.
“First Resource and Stern used a telephone sales boiler room to make inflated claims and defraud investors while simultaneously manipulating the price of the stocks and making profits for themselves,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “The SEC will continue to aggressively pursue perpetrators of microcap stock fraud schemes that hound potential investors to buy stock.”
Since the beginning of fiscal year 2011, the SEC has filed more than 50 enforcement actions for misconduct related to microcap stocks, and issued 63 orders suspending the trading of suspicious microcap issuers. Microcap stocks are issued by the smallest of companies and tend to be low priced and trade in low volumes. Many microcap companies do not file financial reports with the SEC, so investing in microcap stocks entails many risks. The SEC has published a microcap stock guide for investors and an Investor Alert about avoiding microcap fraud perpetrated through social media.
According to the SEC’s complaint filed against Stern and First Resource in U.S. District Court for the Southern District of Florida, they violated federal securities laws by acting as unregistered broker-dealers. Stern hired and trained First Resource’s salespeople and gave them information about TrinityCare to prepare sales scripts and pitch the stock to potential investors. Stern reviewed the draft scripts, made edits, and approved the scripts before the salespeople were allowed to use them.
The SEC alleges that Stern gave the salespeople a list of potential investors to cold call and pitch the stocks. First Resource’s salespeople falsely claimed TrinityCare stock “is going to be $5-7 in 6-12 months” and the company “is going to be a half-a-billion dollar company in five years or roughly a $40 stock.” Stern also disseminated a research report on Cytta to investors and falsely touted: “Sales projections for 2010-2014 should exceed $500 million with a pre-tax net of over $400 million.”
The SEC’s complaint alleges that First Resource Group and Stern violated Section 17(a) of the Securities Act of 1933, and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5. The SEC is seeking permanent injunctions, disgorgement plus prejudgment interest, and financial penalties as well as a penny stock bar against Stern.
The SEC’s investigation was conducted by Jorge L. Riera under the supervision of Elisha L. Frank in the SEC’s Miami Regional Office in coordination with an examination of First Resource conducted by Anson Kwong, Michael J. Nakis, George Franceschini, and Nicholas A. Monaco of the SEC’s Miami office. Edward D. McCutcheon will lead the SEC’s litigation efforts.
The SEC’s investigation is continuing.
# # #
For more information about this enforcement action, contact:
Eric I. Bustillo, Regional Director Glenn S. Gordon, Associate Regional Director Elisha L. Frank, Assistant Regional Director Edward D. McCutcheon, Senior Trial Counsel SEC Miami Regional Office (305) 982-6300
Max - Thank you for your reply. I'm not a member so can't respond privately. I share you concerns (unrelated to Tytan). Happy holidays to you and yours as well.
Max - You've left TYTN. I see that you have VUIFinancial down as one of the crooked IR firms which TYTN had used but supposedly fired. Would you be willing to share what led to your seeming change of heart with TYTN (besides the .0002 share price)?
Add Robert Thayer of SMVI. Blatant scam of a company. Some DD by other scammed investors (including myself) uncovers that Thayer is a crook. See the SMVI IHub board.
The company is now dark (OTCMarkets.com) and so is investors' money.
SEC Toughens standards for Reverse Merger Companies
SEC Approves New Rules to Toughen Listing Standards for Reverse Merger Companies
FOR IMMEDIATE RELEASE 2011-235
Washington, D.C., Nov. 9, 2011 — The Securities and Exchange Commission today approved new rules of the three major U.S. listing markets that toughen the standards that companies going public through a reverse merger must meet to become listed on those exchanges.
Currently, reverse merger companies like other operating companies can pay to be listed on an exchange, where investors can purchase and sell shares of the company. In some cases, regulators and auditors have greater difficulty obtaining reliable information from reverse merger companies, particularly those based overseas. Reverse mergers permit private companies, including those located outside the U.S., to access U.S. investors and markets by merging with an existing public shell company.
In summer 2010, the SEC launched an initiative to determine whether certain companies with foreign operations – including those that were the product of reverse mergers – were accurately reporting their financial results, and to assess the quality of the audits being done by the auditors of these companies. The SEC and U.S. exchanges have in recent months suspended or halted trading in more than 35 companies based overseas citing a lack of current and accurate information about the firms and their finances. These included a number of companies that were formed by reverse mergers. In June, the SEC issued an investor bulletin warning investors about companies that engage in reverse mergers.
“Placing heightened requirements on reverse merger companies before they can become listed on an exchange will provide greater protections for investors,” said SEC Chairman Mary L. Schapiro.
Under the new rules, Nasdaq, NYSE, and NYSE Amex will impose more stringent listing requirements for companies that become public through a reverse merger. Specifically, the new rules would prohibit a reverse merger company from applying to list until:
- The company has completed a one-year “seasoning period” by trading in the U.S. over-the-counter market or on another regulated U.S. or foreign exchange following the reverse merger, and filed all required reports with the Commission, including audited financial statements.
- The company maintains the requisite minimum share price for a sustained period, and for at least 30 of the 60 trading days, immediately prior to its listing application and the exchange’s decision to list.
Under the rules, the reverse merger company generally would be exempt from these special requirements if it is listing in connection with a substantial firm commitment underwritten public offering, or the reverse merger occurred long ago so that at least four annual reports with audited financial information have been filed with the SEC.
Roundtable on the Execution, Clearance and Settlement of Microcap Securities
Roundtable Agenda U.S. Securities and Exchange Commission 100 F Street N.E. Washington, DC Station Place I Multipurpose Room
October 17, 2011
1:00 p.m. Call to Order and Opening Remarks: Chairman Mary Schapiro and Robert Khuzami, Director of the Division of Enforcement
Panel 1 — Compliance Challenges Associated with Microcap Securities
Moderator: Peter Curley, Associate Director, Division of Trading and Markets.
Panelists:
Claire Santaniello — Managing Director and Chief Compliance Officer, Pershing Mihal Nahari — Chief Compliance Officer, The Depository Trust & Clearing Corporation (“DTCC”) Thomas Merritt — Senior Managing Director, Deputy General Counsel and Corporate Secretary, Knight Capital Group Steven Nelson — Chairman, Continental Stock Transfer and Trust Company Marvin Pickholz — Partner, Duane Morris Brian Lebrecht — Founder, The Lebrecht Group, APLC David Chapman — Director, Department of Market Regulation, FINRA
Panel 2 — Anti-Money Laundering Monitoring
Moderator: Sarah Green, Bank Secrecy Act Specialist for the Office of Market Intelligence
Panelists:
Betty Santangelo — Partner, Schulte Roth & Zabel Susan DeSantis — Managing Director and Deputy Chief Compliance Officer, DTCC Lynne Johnston — US Head of Anti-Money Laundering Compliance, RBC Capital Markets Harold Crawford — Global Director of Anti-Money Laundering & Sanctions, Brown Brothers Harriman & Co. Aaron Fox — Managing Director, IPSA International Inc. Jeff Horowitz — Managing Director and Chief Anti-Money Laundering and OFAC Officer, Pershing Bill Park — Director, FINRA Department of Enforcement
Panel 3: Potential Changes to the Regulatory Framework Concerning Microcap Securities
Moderator: John Polise, Associate Director, Office of Compliance, Inspections and Examinations.
Panelists:
David Feldman — Partner, Richardson & Patel LLP Susan Merrill — Partner, Bingham McCutchen Chris Stone— Vice President of Equity Products, FINRA Susan Grafton — Of Counsel, Gibson, Dunn & Crutcher Walter Van Dorn — Partner, SNR Denton US LLP R. Cromwell Coulson — President, Chief Executive Officer and Director, OTC Markets Group
NOTES and Hilites
All panelists agreed that there needs to be communication and transparency between the agencies to be proactive in routing out pump and dump schemes, the selling of unregistered or questionably registered securities, and microcap fraud.
The Gatekeepers of the DTCC have taken affirmative steps to CHILL many stocks that have suspicious trading activities of allegedly unregistered securities or improperly exempted from registration securities. The DTCC does not have the authority to initiate questions to a Security so the DTCC chills a Security until the chilled Security contacts them and remediates the concerns. The DTCC does not advise any Security or the inquiring public on specific remedies or processes to remove a chill because the " bad actors " would quickly find loopholes and other deceptions to circumvent a DTCC Chill.
A panelist commented that due diligence is a " nonsense phrase " when the trustworthiness of the source is highly questionable, and Legal Opinions should be presumed to be worthless because too many lawyers predicate their Legal Opinions on the trustworthiness of the Issuer without conducting any vetting of the Issuer's information which is often false. It was recommended that the SEC impose strict reqirements on Lawyers who write Legal Opinions to thoroughly vet Transfer Agents and Issuers to ensure their Legal Opinions are accurate.
The DTCC have in place a Risk Assessment team to detect suspicious trading activities involving unregistered securities and questionably exempt from registration securities citing severe concerns about Legal Opinion Letters improperly exempting securities from registration. The DTCC raised concerns about Issuers " lawyer shopping " to find a lawyer who will do the Issuer's bidding without any vetting whatsoever and recommended mandatory rules for Lawyers to follow....or many more Issuers can expect DTCC CHILLS. At the onset of clearance and settlement issues the DTCC's Risk and Assessment can and are invoking CHILLS. Securities that originate onshore and then go offshore to avoid registration and to hide share originations are deceptive practices of offenders, particularly repeat offenders. The DTCC suggested that more SEC Suspensions would be even more effective than DTCC Chills once SARs have triggered.
Various panelists talked about red flags and the necessity for Gatekeepers ( eg Broker Dealers, Transfer Agents, Clearing Firms ) to file SARs ( Suspicious Activity Reports ) to the SEC and DTCC on all suspicious trading activities that invariably involve the selling of unregistered or questionably registered shares. The panel agreed that any microcap company that changes business operations should be cause for a SARs. SEC Chairman Schapiro said that one SARs may not be cause for a Suspension or an Inquiry but she exampled that 3 SARs from various Gatekeepers could. She (and other panelists ) state that SARs are accelerating from 578 reports in 2006 to over 1600 in 2011.
Knight Securities stated that Marker Makers have limited resources to discover information on any Issuer and suggested a collective, central base of information be available for all Gatekeepers to access.
The Division of Enforcement and Anti-Money Laundering ( AML ) expect to implement a central repository of information for all Gatekeepers to access. The objective is to identify ALL suspected and proven offenders and to stop repeat offenders who have been successful at starting up new enterprises after a previous enterprise has expired or been routed out as a fraud.
The Division wants ALL non-reporting Issuers to file timely financials and to conduct a yearly audit. The Division wants OTC stocks to file legal disclosures since company disclosures on websites and via news releases can be deceptive.
Panelists noted that an increasing number of Broker Dealers are refusing to allow trading on non-reporting Securities for all of the aforementioned reasons. Regulation Notice 0905 alerts B.D.'s that they may be wittingly or unwittingly selling unregistered Securities or improperly exempted from registration Securities of Issuers and family / friends of Issuers. Bottom line to B.D.'s is to vet all securities for sale.
Cromwell Coulson, CEO of the OTC Group plauded the tier system for being an excellent resource for the SEC to investigate SARs, conduct Investigations, and invoke Suspensions. Coulson advocated for mandatory requirements for Transfer Agents to file all increases in shares of an Issuer.
Coulson stated the OTC Group has a published list of Lawyers who have written questionable Legal Opinion Letters.
Coulson stated the OTC Group has been given more authority to request additional information from all Issuers, and the OTC Group is downgrading an increasing amount of Issuers to Caveat Emptor for failure to provide requested information.
Coulson recommended that Transfer Agents be required to post accurate Outstanding Shares and to post all officers and directors of Issuers.
Coulson recommended that insiders and promoters be restricted from selling new share issuances for one year.
Coulson stated that even with all the warnings and protections the OTC Group provides that they " can't protect dumb investors ".
Closing statements from various panelists addressed dead shells being used to commit microcap fraud, and that vastly improved technologies allow viral frauds to happen quicker than can be detected, therein the need for a central repository for all Gatekeepers to access to identify the repeat offenders in order to expose a current fraud and take action BEFORE they can start their next fraud.
Panelists also discussed recent Bankruptcy companies where the SEC cannot access vital information and whereby the fraudsters are disseminating false information to manipulate the stocks. The SEC has accelerated Suspensions of some BK stocks. General Motors was a cited example of stock manipulation and the SEC's delisting of GM stock.
The panel also recommended that Issuer websites be regulated because too many issuers disseminate false information.
The panel stated that SEC reporting microcaps are becoming a favorite of the fraudsters and schemers because they find ingenious ways to defraud on the strength of the reporting company's apparent legitimacy.
Many other comments were made throughout the Roundtable so interested persons should listen to the broadcast.
U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 22126 / October 14, 2011 Securities and Exchange Commission v. Joseph P. Cillo, Civil Action No. 8:11-cv-02320 (M.D. Fla. October 14, 2011)
On October 14, 2011, the Securities and Exchange Commission (“Commission”) filed a Complaint for Injunctive and Other Relief (“Complaint”) in the United States District Court for the Middle District of Florida in Tampa against Joseph P. Cillo (“Cillo”). This matter involves repeated violations of a penny stock bar by Cillo over a three year period from December 2007 through December 2010.
The Complaint alleges that in November 2007, through a reverse merger with a penny-stock shell company, Cillo became the CEO and controlling shareholder of eFUEL EFN Corp. (“eFUEL”), a purported web development company then based in Tampa, Florida and listed on the OTC Market Group’s “OTC Pink” market tier (formerly the “Pink Sheets”) under the symbol “EFUL.” It further alleges that in connection with an ongoing market manipulation investigation involving eFUEL and other related entities and individuals, the SEC determined that Cillo engaged in various activities related to, and for the purpose of, issuing, trading, and inducing the purchase of eFUEL’s stock. Specifically, Cillo (1) offered and/or issued hundreds of millions of shares of eFUEL stock to third-parties as purported payment for debts and services, (2) drafted and approved multiple press releases touting the company’s business plan and development prospects, and (3) prepared, signed, and submitted periodic reports to the OTC Markets Group in order to comply with the Pink Sheets’ minimal requirements for “adequate current information.” These activities constituted violations of a 1995 Commission order barring Cillo from participating in the offering of any penny stock.
The Complaint alleges that the defendant has violated Sections 21(d)(1) and (e) of the Securities Exchange Act of 1934 (“Exchange Act”) based on his violations of the previous Commission order and Section 15(b)(6)(B)(i) of the Exchange Act. The Commission seeks permanent injunctive relief, an order commanding future compliance with the Commission’s bar, disgorgement plus prejudgment interest, and civil penalties.
i cant pm you. what r u angry about. i hope you know better not to make decisions based on what other people say. or maybe you're just happy bc you think i lost money- thats odd. i didnt see the tankage coming yet i managed to get out green. why havent you posted in public ever since 4/13/09?
"shifting any security to trade-for-trade certainly protects the interests of the existing investors and it also keeps speculative forces/players at bay from manipulating large intra day movements of the price."
Dear Friend,
There are more than one questions asked. So, to make it easier for you to understand, I am pasting your question is Italics and write my answer below it.
You had mentioned that the change to trade for trade status is not done to protect the share structure. Wouldn't this form of trade system protect the company from massive shorting or a takeover of sorts?
Yes, it is surely not to protect the share structure. But shifting any security to trade-for-trade certainly protects the interests of the existing investors and it also keeps speculative forces/players at bay from manipulating large intra day movements of the price.
Also, what did you mean when you said "No Intra day Trading Allowed"? Does this mean that one would not be able to "flip" the security, another words, make a purchase and then sell that same block in the same day?
Yes, you have correctly understood. If your purchase any security which is in trade-for-trade, you cannot sell the same security on the same day.
And one last clarification... As I read your explanation, it seems that on a CNS system it seems this is the common rolling system. If I purchase 1000 shares for 25.00 I pay 25000.00 to the brokerage firm. Then when I sell those same shares the same day I receive the 25000.00 + the extra 5.00 per share; minus any fees of course.
This also you have correctly understood. In the above given scenario, you would pay $25,000 + the brokerage on the purchase and receive $30,000 - the brokerage. However, as mentioned / explained in the preceding question, you will not be able to purchase and sell on the same day and get only the difference of the purchase and sell price.
Now, on the trade for trade scenario you mentioned I would have to pay $25,000.00 to take possession of the security, but wouldn't I have to pay anyways to receive my shares?
No, because if the security is not in trade-for-trade, then you will be able to sell the same block on the same day and get only the difference as mentioned above. However, if you decide not the sell the shares / securities on the same day irrespective of it being in trade-for-trade, ONLY THEN you will need to pay $ 25,000
Then you explained that the quantity hat I sell would "Have to be Presented for Delivery" what did you mean exactly? would I have to have a physical certificate of sorts? I did not fully understand that.
I will explain. For example, the shares you bought are in trade-for-trade. So, when you purchase the shares, you will not be able to sell it on the same day. So, it will result into "delivery". This means, you will receive shares , either physically in certificate or in dematerialized form (electronic form) in your account. Now, when you sell it, you will "Present" these shares, i.e. give these shares that you have received towards your sell.
LFBG - Splitting 1 for 500. From PRE 14c filed 9/23/11:
"This Information Statement informs stockholders of actions taken and approved on September 23, 2011 by the principal stockholders of the Company’s Common Stock and Series C Preferred having the voting rights equivalency of 10,122,333,092 shares of Common Stock (collectively, the “Majority Stockholders”). The Majority Stockholders are the beneficial owners of approximately 55.04% of the issued and outstanding shares of voting capital stock of the Company. The only item approved by written consent of the Majority Stockholders was as follows:
(i) To effect a One (1) for Five Hundred (500) reverse stock split (1:500), whereby, on October 24, 2011 (subject to FINRA review of the reverse split and its notification date to the markets), for every five hundred shares of Common Stock then owned, each stockholder shall receive one share of Common Stock, with fractional shares being rounded up the nearest whole number.
On the date of the actions taken and approved by the written consent by the Majority Stockholders, there were issued and outstanding (i) 8,379,641,409 shares of Common Stock, (ii) 3,586,245 shares of Series A Preferred Stock, (iii) 7,890,529 shares of Series B Preferred Stock, (iv) 10,000 shares of Series C Preferred Stock, and (v) 9 shares of Series D Convertible Preferred Stock (collectively, the “Preferred Stock”). Each share of Common Stock, Series A Preferred Stock and Series B Preferred Stock is entitled to one vote. Each share of Series C Preferred Stock has the voting equivalency of one million (1,000,000) shares of Common Stock which means the 10,000 issued and outstanding shares of Series C Preferred Stock have the voting equivalency to 10 billion shares of Common Stock. All of the issued and outstanding shares of Series C Preferred Stock is held by Troy A. Lyndon, the Company’s Chief Executive Officer, President and Chairman. The shares of Series D Convertible Preferred Stock have no voting rights, however, each share of Series D Convertible Preferred Stock is immediately convertible into one million (1,000,000) shares of the Company’s Common Stock."
I was an OTC MM for about 10 years ending in the late 80's. Since then I have been strictly an investor. Since I have not been that up to date in MM rules I will only make statements that I feel fairly confident are still accurate regarding these activities. By and large most MM don't have a clue nor do they care to learn, about the fundamentals of the stocks they trade.
They just try to make orderly markets. When dealing with BB stocks it is very easy for a MM to get trapped into being short in dealing in a fast moving market. Reason being; most of the MM's in this stock are what are called "wholesalers" this means they don't have retail brokers "working" the stocks.
So they have to rely on what's known as the "call" from larger retail houses. If a "Big" retail firm like an E-trade calls up a market maker to purchase say 5,000 shares of a stock, they expect to get an "execution" from that market maker. If he turns them down, or only gives a partial then the "Big" firm will go to another MM.
If this second MM "fills the order" then that "Big" firm has a moral obligation to continue to give future "business" in that stock to that MM who performed (his life blood). This will go on until he "fails" to perform and so on.
Contrary to popular opinion the "Big" firms Do NOT neccessarily go to the "Low Offer" to fill a buy order (Or high bid for a sell). They "Go" to who they think will perform to fill the order and expect that MM to "match" the "low offer" in the case of a buy (bid in the case of a sell). Even though this MM might in fact be the "high bid" and not really want to sell any more.
As a wholesaler he must perform or he will get a reputation as a "non-performer" with the "Big" houses and will cease getting "calls" which means he will soon go out of business. I mentioned above that this activity is very significant to BB stocks. I say this because most of the trades in these BB stocks are "unsolicited" and are done through discount houses.
With the above groundwork laid, let me try to explain how market makers get short even if they like the Company; Lets say that a stock (shell) has been lying quietly at $.25 bid $.50 offered. A limit order comes into one of the MM's to Buy at $.50 for a thousand shares. Prior to this trade that MM may be "flat" (neither long or short any shares). He fills the order and is now short 1,000 shares. He may raise his bid hoping to find a seller to "flatten" out his position. But before he realizes it a wave of buyers have come in and cleared out all the $.50 offers. Now the stock is $.50 bid .75 offered. Here comes that "Big" firm he just sold the 1,000 shares to at .50 with another bid for 1000 at .75. He makes this print. Now he is short 2,000 at an average of .625. The market keeps moving and now its .75 bid 1.00 offered. Now he has to make a decision.
Just like investors, MM Hate to take a loss. So 9 times out of 10 he will now sell 2000 at 1.00 making him short 4000 but with an average .81. At this time he would love to see a seller at .75 so he can cover his short and make a few bucks.
But instead the market keeps moving up. Now it is 1.00 to 1.25 and here comes the buyer again at 1.25. He doesn't want to lose the call so now he needs to sell 4,000 at 1.25 to keep his break even point above the bid. Now he is short 8,000. Market moves up to 1.25 bid 1.50 offer here comes the buyer now he feels he must sell 8000 here because "stocks don't go up forever".
Now he is short 16,000. And so on and so on. If the stock keeps moving up, before he realizes it he could be short 50k or 100k shares (depending how big his bank is). _________________________
Finally the market closes for the day and on paper he may look all right in that his "break even" price may be around the closing price. But now he has to figure out how to entice sellers so he can cover this short. It is important to note that if this happened to one MM it has probably happened to most all of them.
Some ways MM's entice sellers; Run the stock up with a "tight spread" in a fast market, then "open" up the spread to slow down the buying interest. After it has "cooled off" for a little while lower the offer below the last trade right after a small piece trades on the offer then tighten the spread so that the sellers feel they can take a "quick profit" by "hitting the bid" on the tight spread.
Once the selling starts the MM's will walk it down quickly by only making small prints on the way down with the tight spread. Another way is by running the stock up in the morning, averaging up their short then use the above technique to walk it down in the afternoon.
Hopefully after doing this for several days, it will demoralize the buyers. The volume will dry up and the sellers will materialize thinking that the game is over.
Contrary to popular opinion, MM usually Do Not Cover in Fast moving markets either Up or Down if they are short. They Short More. They usually try to cover after the frenzy is out of the market. There are many other techniques they use but the above are the most popular.
This technique works about 9 times out of 10 particularly in a BB market. However that is because 9 out of 10 BB stocks are BS. Remember what I said above. Most MM's don't have a clue as to the value of a Company until they get trapped. If the Company has solid fundementals and a bright future. Then the stock will do very well. And the activity that caused the situation will prove to even help the future stock activity because it created an audience."
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