Conversion Solutions and CEO hit with restraining order
2006-10-26 21:02 ET - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
by Lee M. Webb
Conversion Solutions Holdings Corp. and its chief executive officer Rufus Paul Harris have been slapped with a temporary restraining order issued by U.S. District Court Judge Clarence Cooper on Oct. 26.
The U.S. Securities and Exchange Commission (SEC) filed a fraud suit against semi-literate Mr. Harris and the OTC Bulletin Board promotion in the U.S. District Court for the Northern District of Georgia on Oct. 24. The U.S. regulator issued a 10-day trading suspension against Conversion on the same day.
As previously reported by Stockwatch, Conversion claims to have assets, primarily bonds, worth approximately $7.3-billion and a touted book value of $70.71 per share.
According to the allegations in the Oct. 24 SEC complaint, however, Conversion's claims with respect to approximately $6.8-billion worth of Republic of Venezuela bonds are false.
Moreover, the sworn declaration of SEC accountant David W. Elzinga indicates that he could find no evidence "that Conversion owned, wholly or partially" any of the other bonds that the company claims to have in its fantastic portfolio.
The defendants have not yet filed a response to the SEC complaint and the allegations are unproven at this point.
In conjunction with its complaint, the SEC filed an emergency application for a temporary restraining order and other relief.
In its emergency application, the SEC claims that the "repeated and outlandish nature of misleading statements by Conversion and Harris shows recklessness, if not outright knowledge of the falsity of their claims."
"As discussed above, Conversion and Harris are engaged in what appears to be an accelerating pattern of flagrant securities laws violations that has been going since at least late September 2006," the U.S. regulator states in arguing that emergency injunctive relief is appropriate.
"Absent a temporary restraining order and preliminary injunction, it appears that the defendants will continue to violate the federal securities laws," the SEC says.
Among other things, the U.S. regulator asked the court for an order preventing the alteration, destruction or concealment of relevant documents.
Citing "the ongoing nature of the violations," the SEC also asked for an order expediting discovery, which would allow the regulator to move ahead quickly to depose witnesses and subpoena documents.
The hearing
Moving quickly, the Georgia court heard the SEC's emergency motion on the morning of Oct. 25.
The SEC was represented at the hearing by district trial counsel William P. Hicks, senior trial counsel Alana R. Black and staff attorney Debbie T. Hampton.
Mr. Harris and his regular sidekick, Conversion's chief operating officer Benjamin Stanley, appeared for the defendants.
During the hearing, the court admitted 10 exhibits from the defendants, Conversion and Mr. Harris, one of which was filed under seal.
According to the minute sheet for the proceedings, the court advised Mr. Harris "to hire an attorney for the next hearing, since a corporation cannot represent itself."
Perhaps only to the surprise of naive members of Conversion's cult-like following, the court granted the SEC's motion for a temporary restraining order and expedited discovery.
The hearing lasted one hour and five minutes.
The order
According to Judge Cooper's Oct. 26 order, it appears that, pending final determination of the lawsuit, Conversion and Mr. Harris may continue to violate securities laws unless they are restrained. The judge also says it appears that immediate discovery is necessary.
Judge Cooper set Nov. 7 as the date for the defendants to "show cause, if any there be," why a preliminary injunction requested by the SEC should not be granted.
Coincidentally, Nov. 7 is the date that Conversion will be booted down to the pink sheets or, more precisely, the grey market following the expiration of the SEC's 10-day suspension against the OTC-BB promotion.
Meanwhile, Judge Cooper ordered that the SEC may take expedited discovery, as requested in its emergency application.
The court order allows the U.S. regulator to take depositions upon oral examination subject to three days notice.
Among other things, the order further compels the defendants to answer all of the SEC's interrogatories and produce all documents within three days of service.
Conversion and Mr. Harris, along with their agents, employees, attorneys and others actively participating with them are restrained from employing any device, scheme or artifice to defraud and from making any untrue statement of material fact.
The temporary restraining order also restrains the defendants from filing materially untrue, incorrect or misleading reports with the SEC.
Mr. Harris is further enjoined and restrained from filing any false certifications with the U.S. regulator.
Pending determination of the motion for a preliminary injunction, Mr. Harris and Conversion's officers, along with others including any bank or financial institution holding any assets of the defendants "are restrained and enjoined from destroying, transferring or otherwise rendering illegible all books, records, papers, ledgers, accounts, statements and other documents" regarding the business activities of the defendants.
While the Oct. 26 order clearly marks an early win for the SEC, that might be difficult to decipher from an Oct. 26 Internet message that Mr. Harris posted for the company's devoted followers.
The following
As previously remarked, Conversion has attracted a cult-like following of naive investors, many of whom believe that the company's stock should be trading for $100 per share or more.
Interestingly, Conversion seems to be following a pattern very similar to Urban Casavant's revoked pink sheet woofer, CMKM Diamonds Inc. In fact, more than a few CMKM stuckholders have piled into Conversion.
Conversion has been a hot topic on a number of Internet chat sites including InvestorsHub.com and Raging Bull, but the company's most devoted followers congregate on HotStockMarket.com where they have logged hundreds of thousands of posts.
Mr. Harris, the grand pooh-bah of a purported multibillion-dollar company, has also posted to a number of Internet chat sites, but HotStockMarket.com is his personal favourite.
Mr. Harris visited HotStockMarket.com on Oct. 26 to apparently alert his followers that he would be calling in to an Internet radio stock talk show, SubPennyRadio.com, that evening.
"Have Simon ready tonight," Mr. Harris wrote, a reference to the SubPennyRadio host. "A Press Release will be out tonight before the show. invite all."
As previously reported by Stockwatch, Mr. Harris and other Conversion officers have participated in several marathon SubPennyRadio interviews, some of which have run into the wee hours of the morning.
Indeed, Mr. Harris was nattering away on the program until well past midnight on the eve of the Georgia court hearing on the SEC's emergency application.
Not surprisingly, after Mr. Harris posted his first Oct. 26 message, the company's HotStockMarket followers wanted some indication of how things were proceeding.
"All is well; right on schedule," Mr. Harris replied.
Some people might wonder at Mr. Harris's assessment of the situation, given that Conversion is currently suspended, the SEC is suing the company and its chief executive officer for fraud and the U.S. regulator has won a temporary restraining order against the defendants.
Mr. Harris went on to offer an off-topic comment.
"Flicka was a great family movie; really helps a parent understand their kid's passions for things and life," Conversion's leader offered.
"Hope all gets (sic) to hear tonight," Mr. Harris continued. "Maybe the few of you that can patch the broadcast into pall-talk (sic) can help everyone get an opportunity to hear."
Paltalk is an Internet site that permits audio and text messaging in virtual rooms that can host up to 1000 participants. Paltalk was a very popular site with CMKM's cult-like followers.
Mr. Harris has participated in a Paltalk session before, but has since expressed concerns about viruses "coming through" from the site.
Indeed, Mr. Harris said that the purported virus caused some rather weird things to happen to his computer.
"It was like watching a monkey hump a football," Mr. Harris said of the experience.
Apparently Mr. Harris and his Conversion sidekick Mr. Stanley were also put off because some investors who called them had taped their conversations and then played them on Paltalk.
In any event, Mr. Harris is evidently willing to have whatever he might say on SubPennyRadio tonight shared with the Paltalk followers.
Meanwhile, some of the company's HotStockMarket Internet followers have been tuned into SubPennyRadio since early afternoon to make sure that they do not miss Mr. Harris's chat.
Perhaps Mr. Harris will serve up some explanation of his claim that all is well and right on schedule.
Conversion last traded on Oct. 23 when the stock closed at $1.99.
Stockwatch will continue to follow developments.
Comments regarding this article may be sent to lwebb@stockwatch.com.
