01/26/2012 04:24 PM EST
FOR IMMEDIATE RELEASE 2012-18
Washington, D.C., Jan. 26, 2012
– The Securities and Exchange Commission today charged a Fort
Lauderdale-based firm and its founder with conducting a fraudulent
boiler room scheme in which they hyped stock in two thinly-traded penny
stock companies while behind the scenes they sold the same stock
themselves for illegal profits.
The SEC alleges that First
Resource Group LLC and its principal David H. Stern employed
telemarketers who fraudulently solicited brokers to purchase stock in
TrinityCare Senior Living Inc. and Cytta Corporation. While recommending
the securities in these two microcap companies, Stern sold First
Resource’s shares of TrinityCare and Cytta stock unbeknownst to
investors who were purchasing them – a practice known as scalping. As
Stern was selling the stocks, he also purchased small amounts in order
to create the false appearance of legitimate trading activity and
induce investors to purchase shares in both companies.
“First
Resource and Stern used a telephone sales boiler room to make
inflated claims and defraud investors while simultaneously
manipulating the price of the stocks and making profits for
themselves,” said Eric I. Bustillo, Director of the SEC’s Miami
Regional Office. “The SEC will continue to aggressively pursue
perpetrators of microcap stock fraud schemes that hound potential
investors to buy stock.”
Since the beginning of fiscal year
2011, the SEC has filed more than 50 enforcement actions for
misconduct related to microcap stocks, and issued 63 orders suspending
the trading of suspicious microcap issuers. Microcap stocks are
issued by the smallest of companies and tend to be low priced and
trade in low volumes. Many microcap companies do not file financial
reports with the SEC, so investing in microcap stocks entails many
risks. The SEC has published a microcap stock guide for investors and
an Investor Alert about avoiding microcap fraud perpetrated through
social media.
According to the SEC’s complaint filed against
Stern and First Resource in U.S. District Court for the Southern
District of Florida, they violated federal securities laws by acting as
unregistered broker-dealers. Stern hired and trained First Resource’s
salespeople and gave them information about TrinityCare to prepare
sales scripts and pitch the stock to potential investors. Stern
reviewed the draft scripts, made edits, and approved the scripts
before the salespeople were allowed to use them.
The SEC
alleges that Stern gave the salespeople a list of potential investors
to cold call and pitch the stocks. First Resource’s salespeople
falsely claimed TrinityCare stock “is going to be $5-7 in 6-12 months”
and the company “is going to be a half-a-billion dollar company in
five years or roughly a $40 stock.” Stern also disseminated a research
report on Cytta to investors and falsely touted: “Sales projections
for 2010-2014 should exceed $500 million with a pre-tax net of over
$400 million.”
The SEC’s complaint alleges that First Resource
Group and Stern violated Section 17(a) of the Securities Act of 1933,
and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934
and Rule 10b-5. The SEC is seeking permanent injunctions, disgorgement
plus prejudgment interest, and financial penalties as well as a penny
stock bar against Stern.
The SEC’s investigation was
conducted by Jorge L. Riera under the supervision of Elisha L. Frank
in the SEC’s Miami Regional Office in coordination with an examination
of First Resource conducted by Anson Kwong, Michael J. Nakis, George
Franceschini, and Nicholas A. Monaco of the SEC’s Miami office. Edward
D. McCutcheon will lead the SEC’s litigation efforts.
The SEC’s investigation is continuing.
For more information about this enforcement action, contact:
Eric I. Bustillo, Regional Director
Glenn S. Gordon, Associate Regional Director
Elisha L. Frank, Assistant Regional Director
Edward D. McCutcheon, Senior Trial Counsel
SEC Miami Regional Office
(305) 982-6300
Source: http://www.sec.gov/news/press/2012/2012-18.htm
