Securities and Exchange Commission
1801 California Street, #4800
Denver, Colorado 80202
Telephone No.: (303) 844-1000
Facsimile: (303) 844-1010
Attorneys for Plaintiff
Blaine T. Welsh
(Nev. Attorney Reg. No. 4790)
United States Attorney's Office
333 Las Vegas Boulevard, Suite 5000
Las Vegas, Nevada 89101
Telephone No.: (702) 388-6336
Facsimile: (702) 388-6787
Associate Resident Counsel
IN THE UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
Securities and Exchange Commission,
Plaintiff,
v.
Andrew L. Pope,
Defendant.
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CVS 02-1014- RLH (RJJ) |
COMPLAINT
Plaintiff Securities and Exchange Commission ("Commission"), for its Complaint alleges as follows:
I.
SUMMARY
1. This case involves a fraudulent scheme to promote the stock of six "microcap" companies. Between February 8 and May 12, 2000, the defendant, Andrew L. Pope, a convicted felon, disseminated a large number of unsolicited "spam" e-mails, each of which publicized the stock of one of six issuers. The e-mails contained false and misleading statements concerning: (1) Pope's trading intentions, compensation, and success "track record" with respect to the stocks he was promoting via e-mail to investors; (2) stock price projections; and (3) the financial condition of the publicized issuers.
2. Pope profited from his fraudulent scheme. After disseminating the spam e-mails and fraudulently generating investor interest, Pope sold stock of all six of the issuers into the resulting inflated markets, thereby realizing profits of approximately $669,000.
3. Pope's conduct constitutes violations of the registration and antifraud provisions of the federal securities law set forth in Sections 5(a), 5(c) and 17(b) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. §§ 77e(a), 77e(c) and 77q(b)], and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder [15 U.S.C. § 78j(b)].
4. The Commission brings this action pursuant to the following authorities conferred upon it: Section 20(d) of the Securities Act [15 U.S.C. § 77t] and Section 21(d)(3) of the Securities Exchange Act [15 U.S.C. § 78u(d)] for civil money penalties; and Section 20(b) of the Exchange Act [15 U.S.C. § 77t] and Section 21(d)(1) of the Exchange Act [15 U.S.C. § 78u(d)] for an order permanently restraining and enjoining Pope and granting other equitable relief, including disgorgement.
5. The Commission seeks a permanent injunction, disgorgement and prejudgment interest, and third tier penalties pursuant to Section 20 of the Securities Act and Section 21 of the Exchange Act against Pope.
II.
JURISDICTION AND VENUE
6. This Court has jurisdiction over this action pursuant to Section 22(a) of the Securities Act [15 U.S.C. § 77v(a)] and Section 27 of the Exchange Act [15 U.S.C. § 78aa]. In connection with the transactions, acts, practices, and courses of business described in this Complaint, defendant Pope, directly and indirectly, has made use of the means or instrumentalities of interstate commerce, of the mails, and/or of the means and instruments of transportation or communication in interstate commerce.
7. Venue lies in this Court pursuant to Section 22(a) of the Securities Act and Section 27 of the Exchange Act because certain of the transactions, acts, practices and courses of business constituting the violations of law alleged herein occurred within this judicial district. In addition, during the time period at issue in this action, Pope resided in this judicial district.
III.
DEFENDANT AND RELATED PARTIES
A. Defendant: Andrew L. Pope
8. Pope, age 57, is a former resident of Las Vegas, Nevada. During relevant times, Pope provided bulk e-mail services to various businesses and individuals under the name "Ticker Tape." In April 2002, a federal grand jury in New York indicted Pope and others for: (a) conspiracy to commit securities fraud, wire fraud and commercial bribery; (b) securities fraud; and (c) wire fraud, based upon his dissemination of some of the fraudulent E-mail spams discussed herein. In August 1993, Pope pleaded guilty to conspiracy to make counterfeit U.S. currency and, thereafter, was imprisoned for 18 months following his guilty plea.
B. Related Parties: Microcap Issuers Promoted by Pope
9. UBuyHoldings, Inc. f/k/a E-Pawn.com, Inc. ("E-Pawn") is a Nevada corporation with its principal offices in Coral Springs, Florida. The company claimed during the relevant period to operate an Internet auction site and that it planned to acquire complimentary electronic commerce businesses. E-Pawn's stock formerly was quoted on the Bulletin Board (a quotation service operated by the NASD). On June 14, 2000, the Commission suspended trading in E-Pawn's stock for ten days due to questions about the accuracy of publicly available information about the company, and possible manipulative conduct. The stock has since been quoted in the National Quotation Bureau's Pink Sheets ("Pink Sheets").
10. Hightec, Inc. ("Hightec") is a former Delaware corporation, the charter of which was revoked on March 1, 1999. Just before Pope's fraudulent e-mail spams, Hightec stock traded in the $.10 to $.60 range. Hightec, which has no current operations, is registered under Section 12(g) of the Exchange Act. Stock of Hightec is quoted in the Pink Sheets. On April 25, 2002, the Commission issued administrative proceedings against Hightec under Section 12(j) of the Exchange Act to determine whether revocation of its registration with the Commission is appropriate in light of, among other things, Hightec's failure since 1996 to file periodic reports as required by the federal securities laws.
11. Global Connections, Inc. ("Global Connections") is a Nevada corporation with its principal offices in Denver, Colorado. The company provides insurance technology marketing and support for consumers and insurance agents. It does not have reporting obligations under the Exchange Act. Global Connections' stock is quoted in the Pink Sheets.
12. Dimensional Visions, Inc. ("Dimensional Visions"), is a Delaware corporation with its principal offices in Phoenix, Arizona. It sells multi-dimensional and animated visual effects for products, packaging and marketing communications. Stock of Dimensional is quoted on the Bulletin Board.
13. JenaNet.com, Inc. ("Jenanet") is a Delaware corporation with its principal offices in Ft. Worth, Texas. It claims to have developed a turbine engine data management system that provides engine data management, fault forecasting and diagnostic capabilities for commercial, corporate and military fleet engine maintenance. The company does not have reporting obligations under the Exchange Act. Stock of Jenanet is quoted in the Pink Sheets.
14. Accufacts Pre-Employment Screening, Inc. ("Accufacts") is a Delaware corporation with its principal offices in New York, New York. It provides pre-employment screenings and background checks for clients. Stock of Accufacts is quoted on the Bulletin Board.
IV.
POPE'S VIOLATIONS OF THE FEDERAL SECURITIES LAWS
A. Pope's Spam E-Mails
15. Between February 8 and May 29, 2000, Pope disseminated, or caused to be disseminated, a large number of "spam" e-mail messages publicizing Global Connections, E-Pawn, Hightec, Dimensional, Jenanet and Accufacts. The Global Connections spams were disseminated on February 8, March 13-14, and May 4 and 12, 2000. The Hightec spams were disseminated between February 22-24 and May 10, 2000. The E-Pawn spams were disseminated on March 3, 2000. The Dimensional spams were disseminated between May 1 and 3, 2000. The Accufacts spams were disseminated on May 16, 23 and 29, 2000. The Jenanet spams were disseminated on May 4, 2000.
16. Pope received stock as compensation for publicizing five of the six issuers: E-Pawn [70,000 shares], Jenanet [10,000 shares], Accufacts [100,000 shares], Dimensional Visions [100,000 shares] and Hightec [at least 200,000 shares]. Pope received cash as compensation for publicizing two of the six issuers. Pope was paid $345,350 to promote E-Pawn and at least at least $37,215 to promote Global Connection. The spams were sent to a large number of Internet users nationwide.
17. All of the e-mail spams were similar in format. All were captioned "Ticker Tape Stock Pick of the Week," or "Stock Pick of the Day," advised recipients to "Take a Close Look At This Stock," contained copies of one or more recent press releases issued by the companies, and contained so-called "target prices" which significantly exceeded the stocks' then-current trading prices.
18. Further, the e-mail spams for five of the companies contained a "disclaimer" written by Pope, which stated:
[I]nvesting in Micro-cap or Small-cap securities is highly speculative and carries a degree of risk. The stocks of these companies profiled by `Ticker Tape' may experience huge gains in a short time frame upon dissemination of this report. `Stock Pick of the Day received no direct compensation from [ticker symbol of publicized issuer] for this announcement, but is merely passing on to you what is believed to be a very good investment.
19. The e-mails disseminated by Pope for one of the issuers (Hightec) contained only the first two sentences of this disclaimer, omitting any mention of compensation. Finally, spams for two of the issuers contained performance claims, and spams for one issuer described the publicized stock as a "strong buy."
B. Pope's Trading
20. Pope sold stock of all six of the issuers after disseminating spam e-mails concerning the stocks. Through these fraudulent sales, Pope generated illicit profits of approximately $669,000. Of the Hightec stock sold by Pope, at least 200,000 shares came directly from its sole officer. Pope started to sell these shares within six days after receiving them. Pope also sold small quantities of Hightec and Global Connections stock that he had purchased on the open market shortly before dissemination of the spams.
C. Pope's False And Misleading Statements
21. The spam e-mails disseminated by Popes contained false and misleading statements, as set forth below.
1. Pope's Scalping, Compensation, and Track Record
22. By knowingly selling stock into the market he had inflated by his fraudulent e-mails, while advising investors to buy stock, Pope engaged in illegal scalping. Further, Pope's disclaimer statements that he had "receive[d] no direct compensation" from the publicized issuers and was "merely passing on" advice to investors were false and misleading, because Pope was directly compensated for the e-mails and was not providing disinterested investment advice.
23. Pope's e-mails also contained track record claims that were similarly false. Some of the Global Connections spams stated that "Our Last 4 Picks Have All Tripled in Value or More." This statement was false because as of the time of the spams, Pope had publicized only two stocks, and the closing price of one of the two had declined 15% from its pre-tout price. Similarly, the Hightec spams stated, "If You Have Followed Us The Last Two Weeks You Have More Than Doubled Your Investment With Both Of Our Selections." This statement was false because as of the time of the e-mail, Pope had publicized only one stock, rather than two, as he indicated.
2. Stock Price Projections
24. Pope's e-mail spams contained stock price projections in the form of "target" or "sell" prices. The projections for three of the issuers were baseless because (1) they exceeded the then-current stock prices by between 395% and 485%; (2) they significantly exceeded the stocks' six-month high closing prices; (3) the issuers had no current reported earnings, or their reported earnings did not support such valuations; and (4) the stocks did not reach the predicted prices. At the time he made these projections, Pope knew, or was recklessly unaware, of their falsity.
3. Financial Condition of Accufacts
25. Spams disseminated by Pope on May 16, 23 and 29, 2000 described Accufacts as "a company with FUNDAMENTALS and PROFITS." This statement was false, since Accufacts' Form 10-K for the year ended December 31, 1999, which was filed with the Commission on April 11, 2000, reported a $215,566 net loss, and its Form 10-Q for the quarter ended March 31, 2000, which was filed on May 12, 2000, reported a $6,360 net loss. At the time he made these statements, Pope knew, or was recklessly unaware, of their falsity.
D. Price And Volume Movement in Microcap Stocks Touted by Pope
26. The price and trading volume of each of the issuers' stocks significantly increased as a result of Pope's spam e-mails. Shortly after dissemination of the spams, the closing price of all six issuers' stocks increased by between 15% and 610% for an average of 137%. Volume for five of the stocks increased by between 95% and 1,515%, for an average of 347%.
V.
FIRST CLAIM FOR RELIEF
ANTIFRAUD VIOLATIONS [Violations Of Section 10(b) Of The Exchange Act And Rule 10b-5 Thereunder (15 U.S.C. § 78j(b)]
27. Paragraphs 1 through 26 are hereby realleged and incorporated by reference.
28. Defendant Pope, directly and indirectly, with scienter, in the offer or sale and in connection with the purchase or sale of securities, by use of the means or instrumentalities of interstate commerce or by use of the mails, has employed devices, schemes, or artifices to defraud; has made untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or have engaged in acts, practices, or courses of business which have been and are operating as a fraud or deceit upon the purchasers or sellers of such securities.
29. By reason of the foregoing, Defendant Pope has violated, and unless restrained and enjoined will continue to Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
SECOND CLAIM FOR RELIEF
UNDISCLOSED COMPENSATION FOR STOCK PROMOTION
[Violations of Section 17(b) of the Securities Act (15 U.S.C. § 77q(b)]
30. Paragraphs 1 through 26 are hereby realleged and incorporated by reference.
31. Defendant Pope, through the use of the means or instruments of transportation or communication in interstate commerce or by use of the mails, published and circulated articles and communications that, though not purporting to offer securities for sale, described certain securities.
32. Defendant Pope, directly and indirectly, received and was to receive consideration for such activities from the issuers of these securities and did not fully disclose the past or future receipt of such consideration and the amount thereof.
33. By reason of the foregoing, Pope has violated, and unless enjoined will continue to violate, Section 17(b) of the Securities Act.
THIRD CLAIM FOR RELIEF
SECURITIES REGISTRATION PROVISIONS
[Violations Of Sections 5(a) And 5(c) Of The Securities Act
(15 U.S.C. §§ 77e(a), 77e(c)]
34. Paragraphs 1 through 26 are hereby realleged and incorporated by reference.
35. During the time period relevant to this action, Pope received at least 200,000 shares of unregistered Hightec stock directly from an officer of the company. Pope sold this unregistered stock to the public. No exemptions from the registration requirements of the federal securities laws applied to Pope's sales.
36. By reason of the foregoing, Pope has violated, and unless restrained and enjoined will continue to violate, Sections 5(a) and 5(c) of the Securities Act.
PRAYER FOR RELIEF
WHEREFORE, the Commission respectfully requests that the Court:
1. Find that Defendant Pope committed the violations alleged herein.
2. Enter an injunction, in a form consistent with Rule 65(d) of the Federal Rules of Civil Procedure restraining and enjoining Pope and persons in active concert or participation with him from violating, directly or indirectly, Sections 5(a), 5(c) and 17(b) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
3. Order Pope to account for, and disgorge, all ill-gotten gains, including compensation for fraudulent touting and stock sale proceeds, together with prejudgment and post-judgment interest as provided by law;
4. Determine the proper amount of civil penalties to be assessed against Pope pursuant to Section 20(d) of the Securities Act; and
5. Order such further relief, equitable and legal, as the Court may deem just and proper.
DATED: July 30, 2002
Respectfully submitted,
/s/
Julie K. Lutz
Michael R. MacPhail
Attorneys for Plaintiff
Securities and Exchange Commission
http://www.sec.gov/litigation/complaints/comp17637.htm
