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SEC seeks $3.55-million (U.S.) judgment against Winick


2010-04-07 14:14 ET - Street Wire

Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission

by Mike Caswell

The U.S. Securities and Exchange Commission has filed a motion for a default judgment and $3.55-million in penalties against Sandy Winick, the Ontario man facing civil charges for improperly creating 59 shell companies and selling them. (All figures are in U.S. dollars.) The regulator says it served Mr. Winick with the charges on July 16, 2009, but he has not answered them. He has also failed to hire a lawyer to represent him.

Mr. Winick's proposed fine includes disgorgement of $3.2-million, interest of $229,465 and a $130,000 civil penalty. Assuming the judge grants the SEC's request, the case will be closed unless Mr. Winick challenges the default judgment. The only remaining matter will be for the SEC to collect the $3.55-million.

SEC's complaint

The SEC filed a civil fraud complaint against Mr. Winick on June 12, 2009, in the Southern District of New York. It identified him as a resident of Toronto, who ran a two-year scheme to improperly create shell companies and sell them. The shells, which he created as spinoffs from an existing public company, had no meaningful disclosure and were simply created so that Mr. Winick could have an inventory of public shells to offer for sale, the complaint stated.

The shells were spun off from First Canadian American Holding Corp., a pink sheets listing controlled by Mr. Winick. He held 83 per cent of the company himself, and secretly controlled another 16.5 per cent through his wife and friends, the SEC said. With Mr. Winick holding complete control of First Canadian, he also held complete control of each shell that he spun off from First Canadian.

According to the SEC, Mr. Winick sold the shells to people looking to raise money in the market. Some of the shells later became targets of touting campaigns, while others experienced several changes of control. The SEC claimed that Mr. Winick received between $50,000 and $100,000 for each shell he sold, and retained some of stock in the companies for later sale.

The companies produced from this scheme included five stocks that the SEC suspended in 2007 as part of Operation Spamalot, a crackdown on spam stocks. These were Amerossi International Group Inc., Relay Capital Corp., Wataire Industries Inc., WayPoint Biomedical Holdings Inc. and Koko Petroleum Inc. (One of these companies, Koko Petroleum, had links to B.C. In April, 2004, B.C. promoter Robert Shull registered the domain name for Koko Petroleum, www.kokooil.com, and his wife owned five million of the company's shares. The SEC did not accuse Mr. Shull of any wrongdoing in connection with Koko Petroleum. In an earlier, separate case, it fined him for the alleged Fairmont Resources Inc. market manipulation.)

Another First Canadian spinoff, ZNext Mining Corp., became the target of an SEC enforcement case in June, 2009. (The regulator alleged that ZNext's principal, Elvira Gamboa, issued several false and misleading news releases between 2004 and 2008 claiming that the company owned a mine in the Philippines. Mr. Gamboa has not responded to that case, and the SEC is seeking a default judgement against him as well.)

The SEC also cited an instance in which Mr. Winick sold a shell to a convicted securities violator from Kansas, and then served as a straw president of the company so the unnamed Kansas man could secretly operate it. The company, which was called HEE Corp., touted a drug supplement that could purportedly cure Type II diabetes. The stock went to a high of 94 cents on July 20, 2004, and fell to under a penny on Dec. 21, 2004.

The SEC sought appropriate civil penalties against Mr. Winick, plus disgorgement of profits. It also asked for an order that he cancel shares of any penny stocks he controls, and an order banning him from participating in penny stock offerings. In filing the case, the SEC acknowledged the assistance of the Ontario Securities Commission.

http://www.stockwatch.com/newsit/newsit_newsit.aspx?bid=Z-C:*SEC-1706620&symbol=*SEC&news_region=C