Franklin, Andrews, Kramer & Edelstein

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SEC revokes Lexington Resources

2009-06-05 14:51 ET - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
Also Street Wire (U-LXRS) Lexington Resources Inc
by Mike Caswell
http://www.stockwatch.com/newsit/newsit_newsit.aspx?bid=Z-C:*SEC-1614128&symbol=*SEC&news_region=C

The U.S. Securities and Exchange Commission has issued an order revoking the registration of Lexington Resources Inc., the pink sheets company allegedly used in a pump-and-dump by Vancouver promoters Grant Atkins and Brent Pierce. The order comes 10 months after the regulator filed an administrative case in which it claimed that Mr. Pierce and his associates made $13-million dumping Lexington as the stock rose to $7.50. (All figures are in U.S. dollars.) The order named Mr. Pierce, Mr. Atkins and Lexington Resources as respondents.

To settle its part of the case, Lexington agreed to today's order revoking its registration. The SEC notes in the order that the company is delinquent in its filings, having not filed an annual report since May 17, 2007, and that it liquidated its only operating subsidiaries in Chapter 7 bankruptcy proceedings.

The SEC's case

The SEC launched the case in an administrative order dated July 31, 2008. It identified Mr. Pierce, 52, as a Canadian living in Vancouver and the Cayman Islands, and Mr. Atkins, 49, as a Vancouver resident. The regulator claimed that Mr. Pierce co-ordinated spam e-mails and newsletters touting the company while he sold his shares through an offshore bank. He allegedly failed to disclose that he controlled as much as 60 per cent of the company.

The SEC said the scheme began in November, 2003, when Mr. Atkins and Mr. Pierce formed Lexington through a reverse merger with a shell company called Intergold Corp. Mr. Atkins was the sole officer and director of the company and Mr. Pierce was a "consultant" who received millions of shares in improper S-8 offerings, the SEC claimed. "Between November 2003 and March 2006, Atkins caused Lexington to issue more than 5 million shares to Pierce and his associates purportedly registered on Form S-8. Pierce told Atkins who should receive the shares and how many," the order stated.

Shares issued in S-8 offerings are normally reserved for those who are not involved in promoting or selling a company's stock, an exemption that did not apply to Mr. Pierce, the SEC said. He allegedly raised all of the money for Lexington's first year of drilling by finding investors who provided loans. The SEC said he transferred some of his S-8 shares to those investors.

In addition, the SEC alleged that he used his S-8 shares to pay for an extensive promotional campaign. He arranged for spam e-mails, newsletters and advertising on investing websites, according to the order. He also distributed promotional kits to thousands of potential investors, the SEC claimed. As a result of the promotion, the stock went from $3 to $7.50 per share, with average trading volume increasing from 1,000 to about 100,000 shares per day, the SEC said. (The stock subsequently collapsed, and last traded for two cents.)

During the promotion, Mr. Pierce and his associates allegedly sold 2.5 million shares that they had deposited at an offshore bank, generating $13-million in proceeds, the SEC claimed. "Pierce personally sold at least $2.7 million in Lexington stock through the offshore bank in June 2004 alone. Pierce's sales were not registered with the Commission," the order read.

The SEC also cited Mr. Pierce for failing to disclose his ownership of the company. It said he controlled between 10 per cent and 60 per cent of Lexington's shares between November, 2003, and May, 2004, but did not file a single Schedule 13D disclosing any share ownership until July 25, 2006. When he did file the belated Schedule 13D, it inaccurately stated that he owned or controlled between 5 per cent and 10 per cent of the company in late 2003, the SEC claimed.

The SEC did not state what penalties it is seeking for the alleged pump-and-dump. Mr. Atkins settled with the regulator on Nov. 26, 2008, agreeing to an order barring him from future violations of the U.S. Securities Act. With the Lexington settlement, the case only remains outstanding against Mr. Pierce.

vFinance case

In a related case, the SEC fined Florida brokerage vFinance Investments Inc. $100,000 on Nov. 7, 2008, for failing to produce e-mails during the Lexington investigation. The SEC said it was seeking information on two of the firm's clients. It identified one as Newport Capital, and the other as Hypo Alpe-Adria Bank of Liechtenstein. (The SEC made no allegations against either client, but one, Hypo Alpe, received a cease trade order from the B.C. Securities Commission on May 28, 2008. The regulator stated that Hypo Alpe was a conduit for suspicious trading. The bank had refused to disclose the identities of clients who had sold $165-million worth of stock in several pink sheets and OTC Bulletin Board companies, citing privacy laws in Liechtenstein.)

The SEC claimed that the brokerage permitted one of its employees, Nicholas Thompson, to use an external webmail service, against brokerage policies. This allowed him to circumvent the brokerage's e-mail storage system. The SEC also sought to examine Mr. Thompson's computer, but he did not produce it until six months later. When the SEC did finally receive the computer, it found no useful information. The regulator said it hired a forensic investigator, who determined that somebody had run a data destruction program on the drive.

BCSC previously banned Pierce

On June 8, 1993, the BCSC banned Mr. Pierce for 15 years, after he improperly received money from Bu-Max Gold Corp., a former Vancouver Stock Exchange listing. According to an agreed statement of facts, the company raised $210,000 in May, 1989, for exploration. It paid $100,000 of that money to a private company controlled by Mr. Pierce "for purposes which did not benefit Bu-Max," the statement read.

In addition to the 15-year ban, Mr. Pierce agreed to pay a $15,000 fine. That ban expired on June 8, 2008.

http://www.stockwatch.com/newsit/newsit_newsit.aspx?bid=Z-C:*SEC-1614128&symbol=*SEC&news_region=C