UNITED STATES OF AMERICA
In the Matter of
RICKY LAINE GASPARD,
The Securities and Exchange Commission ("Commission") deems it appropriate that a cease-and-desist proceeding be, and hereby is, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against WallStreet Prophet ("WSP") and Ricky Laine Gaspard ("Gaspard").
In anticipation of the institution of these proceedings, WSP and Gaspard have submitted an Offer of Settlement ("Offer") to the Commission, which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, prior to a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R. §201.100, et seq., and without admitting or denying the findings contained herein, except that WSP and Gaspard admit the jurisdiction of the Commission over them and over the subject matter of this proceeding, WSP and Gaspard each consent to the issuance of this Order Instituting Cease-and-Desist Proceeding, Making Findings and Imposing Remedial Sanctions ("Order").
Accordingly, IT IS ORDERED that a proceeding pursuant to Section 21C of the Exchange Act be, and hereby is, instituted.
On the basis of this Order and the Offer submitted by WSP and Gaspard, the Commission finds that:
1. WallStreet Prophet, a Texas City, Texas based entity, provides a stock recommendation service through its web site in return for varying levels of subscription fees. Despite representations of corporate status, WSP is not incorporated. WSP is not registered with the Commission in any capacity.
2. Ricky Laine Gaspard, age 44, is a resident of Texas City, Texas and is the founder, owner and sole operator of WSP. Gaspard is not registered with the Commission in any capacity.
Between at least January 2000 and October 2000, the WSP web site, located on the World Wide Web at www.cbroftx.com, and Gaspard, WSP's owner and operator, violated the antifraud provisions of the Exchange Act by disseminating false and misleading statements. These statements were designed to induce investors to sign up for and continue to use WSP's self-proclaimed expert stock picking services in return for varying levels of subscription fees. During that time, several hundred investors have subscribed to WSP based upon these false and misleading statements concerning probable investment returns and the uniqueness of the WSP stock recommendation system.
2. WSP's "Day-Trading" and Related Services
WSP began operations in January of 2000 under the sole control of Gaspard. The site offers daily stock recommendations to subscribers in amounts ranging from $50 per month for the basic stock picks system to over $900 per year for the basic program and day-trading services. These day-trading services consist of little more than general information summarizing the services that are available to subscribers through independent day-trading companies. The WSP web site also includes a multi-level marketing program that enables subscribers to be compensated through referral bonuses for referring new members to the program. This "matrix compensation plan" pays subscribers through seven levels of referrals in varying amounts of compensation, depending on where both the referring and referred members fall into the WSP multi-level marketing plan. There is no additional cost associated with the multi-level program, although subscription to the basic stock recommendation service is required to be eligible for the referral bonuses. Approximately 85 per cent of all monthly subscription fees collected by WSP are paid out to referring members.
WSP currently has approximately 730 subscribers, although a number of these individuals have discontinued their subscriptions since the program's inception. Subscribers are provided daily stock tips in the form of buy, sell and hold recommendations for primarily thinly-traded microcap issues that the WSP web site claims are posted every evening after the close of the trading markets.
3. False and Misleading Claims on the WSP Web Site
From its inception until October of 2000, the WSP web site has prominently described Gaspard as an experienced trader with over fourteen years of investing expertise. Additionally, the site has represented that other investing professionals, including an alleged mutual fund portfolio manager, assisted Gaspard in making stock pick recommendations posted on the site. These individuals were portrayed to be officers of WSP and members of its board of directors, each of whom was "dedicated to YOUR success!" All of these statements were false or misleading. In truth, WSP has always been run by one person, Gaspard, who has very limited personal securities trading experience and has never received any formal securities training or licenses or worked for a securities or investment firm. Furthermore, Gaspard first opened a securities brokerage account in the spring of 1999, and since then, has placed a limited number of trades, the vast majority of which resulted in realized losses. Moreover, WSP, which is not incorporated, has never had a board of directors and Gaspard makes all of the stock picks posted on the web site. The purported board members listed on the site were merely subscribers to WSP and played no role in selecting the stocks recommended on the web site.
In addition, Gaspard misrepresented the WSP stock recommendation system as follows:
In truth, the software that Gaspard utilized to select his stock picks was not proprietary or otherwise unique to the WSP system. Rather, the software was available to the public for purchase and could be accessed over the Internet.
Finally, the WSP web site also featured misleading advertising concerning the returns to be expected by use of its stock recommendations. These statements included the following:
The claim that WSP's stock recommendations have earned as much as 860 per cent is based on a purported subscriber testimonial contained on the web site. However, the subscriber has expressly disavowed that claim and denies authoring the testimonial. Further, Gaspard has acknowledged that the claims regarding an 85 and 99 per cent success rate were also misleading or false and not supported by his track record.
C. LEGAL ANALYSIS
Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit material misrepresentations or omissions in connection with the purchase or sale of securities. Fraudulent conduct prohibited by these provisions includes employing any device, scheme or artifice to defraud, making any untrue statement of material fact, or omitting to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading.
Information is material if there is a substantial likelihood that a reasonable investor would consider it important to an investment decision. Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988); TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976). WSP's misrepresentations concerning the nature of its stock selection system are material. See Hoxworth v. Blinder, Robinson & Co., 903 F.2d 186 (3d Cir. 1990) (finding misrepresentation that a broker's "research department" was recommending a stock to be material). In addition, the forward-looking misrepresentations concerning the returns to be expected are specific enough to be material. See SEC v. Hasho, 784 F.Supp. 1059 (S.D.N.Y. 1992)(prediction of a substantial increase in the price of a security, without a reasonable basis for making such a prediction, is material).
The Supreme Court has held that the "in connection with" element is satisfied when the deception "touches" the purchase or sale of securities. Superintendent of Insurance v. Bankers Life & Casualty Co., 404 U.S. 6 (1971). The statements that WSP possesses proprietary technology and is comprised of a professional staff that has created a unique and proprietary system for the selection of stocks influence an investor's subsequent trading decisions and therefore "touch" each resultant purchase and sale based on a WSP recommendation. Because these misstatements are likely to influence the investing decisions of WSP subscribers, the "in connection with" standard is satisfied. SEC v. Jakubowski, 150 F.3d 765, 680 (7th Cir. 1999).
Scienter is also a required element of a 10b-5 violation. Aaron v. SEC, 446 U.S. 680, 695 (1980). Recklessness is sufficient to satisfy the scienter requirement. See, e.g., Hollinger v. Titan Capital Corp., 914 F.2d 1564, 1568-69 (9th Cir. 1990)(en banc)(as amended), cert. denied, 499 U.S. 976 (1991). WSP, through Gaspard, and Gaspard individually acted with scienter. While acting as WSP's principal employee and sole operator, Gaspard drafted or directed the drafting of the entire content of the WSP web site. Gaspard either knew, or was reckless in not knowing, of the material misrepresentations and omissions on the WSP web site.
Accordingly, the Commission finds that WSP and Gaspard violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
In view of the foregoing, the Commission deems it appropriate to accept the offer submitted by WSP and Gaspard and impose the sanctions specified in the Offer.
Accordingly, IT IS HEREBY ORDERED that:
1. pursuant to Section 21C of the Exchange Act, WSP and Gaspard cease and desist from committing or causing any violation and any future violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; and
2. WSP and Gaspard provide a copy of this Commission Order to all current WSP subscribers, and all prospective subscribers, for a period of one year from the date of the entry of this Order.
By the Commission.
Jonathan G. Katz
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