Posted by: doogdilinger In reply to: None Date:2/22/2008 12:33:28 PM Post #of 43551
I figured rosebud would be interested in this announcement as it pertains to market readiness of a product, misleading news releases & funding/share issuing schemes...
SEC Nabs Penny Stock Pump-and-Dumpsters By Matthew Dublin February 22, 2008
The SEC has charged a Washington-based company, its CEO, and a stock promoter, with orchestrating a pump-and-dump scheme that defrauded investors of more than half a million dollars in just six months.
The Commission charged Strategic Management & Opportunity Corporation (SMPP), CEO Robert Pratt and stock promoter Jeffrey Brommer with distributing misleading news releases about the market readiness of the company's new kiosk system. The kiosk system was intended to provide directions and other information to patrons in airports and shopping malls.
According to the Commission, SMPP did not actually have a product ready for distribution, despite what it told investors. The company also lied about a series of funding contracts and claimed SMPP would distribute 50 million restricted shares to four entities for $41.8 million. But the company only obtained $1.25 million of the supposed $41.8 million in capital they claimed to have raised in press releases.
Using the misleading releases, the defendants were able to increase the SMPP’s share price starting on February 2, 2004 at $.10 per share to a high of $4.50 per share on June 10, 2004, the SEC claims. In addition to increasing the share price, the complaint also alleges that the distribution of the restricted shares dramatically increased the number of outstanding shares.
That enabled Pratt to sell many more shares than normally would have been allowed under SEC regulations. Pratt allegedly sold over 320,000 of his company’s shares into the artificially pumped up market, enabling him to net an illicit profit of $628,947.
As compensation for so-called “investor relations services,” Brommer received 50,000 SMPP shares worth roughly $46,000. The regulator alleges that he netted $25,000 by selling his shares. At the height of the market pumping, these shares were worth roughly $225,000, stated the complaint.
Without admitting or denying the charges, Brommer has already consented to a proposed final judgment ordering him to disgorge $24,916 and pay $1,084 in prejudgment interest as well as a $40,000 civil money penalty. This final judgment could also bar him from taking part in any more penny stock offerings and permanently enjoin him from further securities violations.
The regulator is also seeking permanent injunctions, plus disgorgement, prejudgment interest, civil penalties and penny stock bars against Pratt. In addition, the SEC is seeking an officer and director bar against him.
According to the complaint, the first fraudulent releases went out to investors during February and March of 2004. They claimed that the company had begun its first round of financing with one of the four entities supposedly lined up to provide funding, Learn Waterhouse, Inc. (LWI), based out of Texas. The release also announced that the manufacture and marketing of the kiosk was imminent. That was false as there was only one available working prototype of the technology, stated the complaint.
The releases also claimed that LWI possessed “new technologies that have immediate market value.” But according to the complaint, LWI was actually a Ponzi scheme that was later halted by the SEC in October of 2004. For these, as well as other releases, Pratt drafted and approved of their content.
Despite an agreement that required SMPP to issue stock to LWI in four stages, for a total of 12.5 million shares, Pratt failed to inform investors that SMPP had issued all of the 12.5 million shares to LWI in one fell swoop. The defendants used the three other shell companies in a similar fashion throughout the remainder of the alleged scheme. The defendants would dole out millions of shares to their shell companies while SMPP received only a fraction of funding reported in the promotional releases.
In April 2004, SMPP announced that it had retained Brommer and his company Investments 101. The statements, which he helped Pratt draft, claimed that Brommer was knowledgeable when it came to SMPP’s kiosk technology and that he had followed the company for three years and could vouch for its good business ethics. All of those claims were false and intended only to pump the value of SMPP shares, stated the complaint.
Brommer also failed to disclose to investors a previous brush with the Commission. In September 1999, he settled with the SEC in another pump-and-dump scheme involving an over-the-counter issuer. He consented to an injunction that included an 18-month bar from associating with any investment adviser.
This settlement is still subject to the approval of the US District Court for the Western District of Washington.
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