PROFIT TAKER'S & MONEY MAKER'S

[harr449]

Taking a risk

Why would anyone send out 87 million faxes, or tens of millions of e-mails?

Because, experts say, in some cases, they're a good way to separate investors from their money.

Researchers at Purdue University and Oxford University recently found that electronically pumped stocks show "a significantly positive return" at first and then tend to collapse, leaving unsuspecting investors with big losses that they often attribute to the gamble of the stock market.

"What are you going to do? It was a risk and I took it," said Jon Browar, a Consolidated Sports shareholder who owns a screen-printing business outside Kansas City. "My kids aren't going to go without because of this, but in the same respect, there's a lot more I can do with $3,000."

Federal and state laws prohibit the distribution of unsolicited faxes to hype a stock. Both junk faxes and spam e-mails may violate securities laws if they contain falsehoods about a company or if promoters don't disclose that they have been paid to tout a stock.

For example, the SEC alleged that the Artec faxes understated Artec's debt and the number of shares available to make each share appear more valuable.

Moreover, while Mr. Shrewder's faxes urged other investors to buy shares, he was selling them.

"Shrewder was actively selling Artec shares for less than $.50 while he was recommending that others buy them until the price reaches between $2 and $4," the SEC said in its complaint.

Mr. Shrewder said in a court filing that he was unaware of any misrepresentations in the faxes. He also said he had disclosed in the faxes that he might trade in the shares. In an interview, he said his faxes only went to people who asked to receive them.

Expanded inquiry

The SEC opened its Artec investigation in December 2004 after officials noticed suspicious trading and price movements. By June 2005, the investigation had expanded to reflect interest in the larger circle of people who appeared to be involved in what the SEC came to call the "shell creation group."

After Katrina, e-mails and faxes enticed investors to buy shares in National Storm and in Deep Rock Oil & Gas Inc., an Oklahoma energy company. National Storm's stock price rose from 51 cents to $2.41. Deep Rock's price increased tenfold, to $1.11. Within months, both fell to less than a quarter a share.

Phone records of a Florida investor – who the SEC alleges played a role in producing and disseminating the faxes – showed several calls to numbers associated with the Dallas-based shell group, the SEC said.

Some of those phone calls, listed in SEC court documents, trace back to Mr. Gordon, the Tulsa lawyer for Deep Rock who also helped take National Storm public.

National Storm has sued Mr. Gordon, accusing him of masterminding stock manipulation schemes.

"The Shell Creation Group's activities frequently prove ruinous to the legitimate private companies they deceive," National Storm said in court documents.

Mr. Slim, who is representing Mr. Gordon and others in the lawsuit, said the company's counterclaim is a distraction from the original complaint. The lawsuit was filed against National Storm by Trucolor Inc., which is partly owned by Mr. Gordon.

Trucolor alleged in the lawsuit that National Storm cheated it by breaching a loan that had been induced through fraud.

In an interview, Mr. Gordon said that he had followed all securities laws and that he believed the information released by Deep Rock and National Storm was accurate. He said he didn't know who distributed the blast faxes.

"Believe me, I do not do pump-and-dumps," he said.

Consolidated Sports

The Consolidated Sports lawsuit alleges Mr. Offill and others made millions of dollars by perpetrating a pump-and-dump scam on the company's stock.

The company says Mr. Offill arranged for a merger with an inactive corporation to use a legal loophole that gave investors millions of freely tradable shares that didn't have to be registered with the SEC. Mr. Offill brought investors into Consolidated Sports, including companies that he controlled, the lawsuit says.

In November 2004, a junk fax went out touting the stock. Consolidated Sports lawyers say the fax was approved by Mr. Offill and drafted by one of his associates.

"The specific intent behind the blast fax was to cause the price of the stock in CSMG to spike upward, after which Offill's friends, clients and business associates, and entities controlled by Offill, would sell their stock, leaving the other shareholders and the innocent purchasers to bear the losses," Consolidated Sports' lawsuit says.

Mr. Offill, who has also been a lawyer for Artec, declined to be interviewed, referring questions to his lawyer, Richard Sayles. In January, Mr. Offill left Godwin Pappas to pursue his own practice, Mr. Sayles said. Mr. Offill said in a deposition that he didn't know about the blast fax until after it was sent.

"A fax of this nature – that appears oriented towards providing investor awareness on a public basis – is something that an issuer should never send," he said.

A trial in the Consolidated Sports lawsuit is expected this year.

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