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U.S. Securities and Exchange Commission

WAYNE M. CARLIN
Regional Director
Attorney for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
Northeast Regional Office
233 Broadway
New York, NY 10279
(646) 428-1510

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK


SECURITIES AND EXCHANGE COMMISSION,
 
                Plaintiff,
 
        v.
 
SAMUEL AARON MELTZER,
 
                Defendant.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
03 Civ.   COMPLAINT
 

 

Plaintiff Securities and Exchange Commission ("Commission"), for its Complaint against defendant Samuel Aaron Meltzer ("Meltzer"), alleges as follows:

PRELIMINARY STATEMENT

  1. Defendant Meltzer is a professional Internet "spammer" who used the Internet to commit securities fraud. In return for compensation from stock promoters and issuers, Meltzer sent millions of unsolicited emails and created numerous websites to promote various penny stocks. In order to conceal his identity - and to avoid the detection of web hosts seeking to stop Internet spam - Meltzer operated under at least thirty different assumed Internet identities.
     
  2. Meltzer's spam and websites made false and misleading representations about the stock he helped to promote. First, Meltzer falsely stated that his recommendations represented his own investment opinions based on his review of the issuer's public filings and his interviews with the issuer's management. In fact, Meltzer did not review the issuers' filings, did not interview their management, and simply republished recommendations and representations that he received from the promoters who had hired him.
     
  3. Second, in his emails and websites, Meltzer knowingly or recklessly made false and misleading representations concerning the issuers' current business and projections of future performance that had no reasonable basis in fact.
     
  4. Between 1998 and 2001, Meltzer touted the stocks of at least twelve issuers and received at least $159,619.62 in stock and cash as ill-gotten gains as a result of his fraudulent conduct.
     
  5. Meltzer violated and, unless restrained and enjoined, may again violate Section 17(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. § 77q(a), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5.
     
  6. The Commission seeks to enjoin Meltzer from engaging in the transactions, acts, practices, and courses of conduct alleged in this complaint, and seeks disgorgement, payment of civil penalties, a penny stock bar and such other relief as the Court may deem appropriate.

JURISDICTION AND VENUE

  1. The Commission brings this action pursuant to authority conferred upon it by Sections 20(b), (d) and (g) of the Securities Act, 15 U.S.C. §77t(b), (d) and (g), and Sections 21(d) and (e) of the Exchange Act, 15 U.S.C. §78u(d) and (e), to permanently enjoin Meltzer from future violations of the federal securities laws and for other relief.
     
  2. This Court has jurisdiction over this action, and venue is proper, pursuant to Section 20(b) and (d) and 22(a) of the Securities Act, 15 U.S.C. §77t(b) and (d) and 77v(a), and Sections 21(d) and 27 of the Exchange Act, 15 U.S.C. §§78u(d) and 78aa. Venue lies in this District because certain acts or transactions constituting the violations occurred in this District.
     
  3. Meltzer, directly or indirectly, made use of the means or instruments of transportation or communication in interstate commerce, or of the mails, in connection with the acts, transaction, and practices alleged herein, some of which took place in New York, including, but not limited to, the dissemination of materially false and misleading materials through emails sent to residents in New York and the formation and performance of contracts to disseminate stock touts for a New York-based entity whose principals reside in the Eastern District.

DEFENDANT

  1. Meltzer, age 37, is a resident of St. Paul, Minnesota. During the relevant time period, Meltzer owned and operated Interstock Inc., a private Nevada corporation, and Hoek Industries, Inc., a private Minnesota corporation. Both entities offered web hosting, web design, and unsolicited emails advertising services to clients.

FACTS

Meltzer's Spam

  1. Beginning in at least 1998 and continuing through at least February 2001, Meltzer contracted with various stock promoters and issuers to disseminate stock recommendations over the Internet. Meltzer promoted the stocks of at least twelve issuers. Each of the stocks that Meltzer touted were quoted on the over-the-counter bulletin board ("OTCBB") and were registered with the Commission pursuant to Section 12 of the Exchange Act.
     
  2. In order to flood the Internet with promotional materials, Meltzer launched numerous websites, each having a different Internet address, and registered these websites under various business names, such as GrowthStocks2000 and Wisestocks2000. Meltzer then engaged in a pattern of sending to potential investors millions of unsolicited emails, which contained stock recommendations and/or links to Meltzer's promotional websites, and which purported to originate from numerous, distinct sources. Meltzer assumed multiple, distinct Internet "identities," including domain names and business names, which enabled him to establish a large Internet presence to tout a company's stock and to avoid detection by web hosts who seek to prevent Internet spam. Meltzer used at least 30 different names under which he conducted his business.
     
  3. As a result of the fraudulent conduct described herein, Meltzer received ill-gotten gains of at least $159,619.62 in cash and securities, which he sold.
     
  4. The stocks Meltzer recommended were penny stocks. By virtue of the conduct described herein, Meltzer engaged in activities with issuers, brokers, dealers and promoters for purposes of issuing, trading, inducing or attempting to induce the purchase or sale of penny stock and therefore was a person participating in an offering of penny stocks.

Misrepresentations Concerning
the Basis for Meltzer's Stock Recommendations

  1. In communications that he distributed concerning the issuers, Meltzer falsely represented his stock picks as the product of his own investment analysis.
     
  2. In the emails and websites touting the twelve issuers, Meltzer included substantially the following language:

All statements of opinions are those of [Meltzer Entity]. [Meltzer Entity] relies exclusively on information gathered from public filings on featured companies, as well as, in certain circumstances, interviews conducted by [Meltzer Entity] of management of featured companies.

  1. These representations were materially false and misleading. In fact, the opinions contained in Meltzer's communications were not his own, and Meltzer did not rely on information gathered from the issuers' public filings or conduct any interviews of management of any company he profiled.
     
  2. Meltzer's emails and websites merely repeated statements provided to him by the promoters who hired him and Meltzer performed no due diligence or independent research on the issuers he recommended. Meltzer failed to disclose that fact. As a result, his recommendations were materially false and misleading.

Misrepresentations Concerning the Issuers' Business

  1. In his emails and websites, Meltzer made materially false and misleading representations about the business prospects and financial condition of the issuers. Set forth below, are examples of Meltzer's misrepresentations.

CityView Energy Corp, Ltd. ("CityView")

  1. Beginning in December 1999 and continuing through February 2001, Meltzer flooded the Internet with touts concerning CityView. Meltzer set up at least five websites, each having a unique Internet address, to recommend CityView's securities. Meltzer directed potential investors to the websites by sending millions of unsolicited emails containing hyperlinks to the various websites.
     
  2. Meltzer touted CityView on a website and in emails sent in December 1999 and March 2000, all purportedly originating from an entity called "Stock-Vest." Those touts stated, "After speaking to management, we believe that down the road [CityView] could be a potential takeover target. Also, according to company management, a future acquisition is possible. Based on its proven oil and gas reserves the share price should be valued at over ten times its current share price. It is approximately one-tenth its potential value."
     
  3. These representations were false and misleading. Meltzer never spoke with CityView's management and his statements regarding CityView's future prospects had no reasonable basis in fact.
     
  4. Meltzer's subsequent CityView touts featured CityView's acquisition of an interest in an Australian private company, which purportedly owned a Business-to-Business software product. The touts spoke of CityView and its deal with the Australian company in glowing terms and directed readers to one of Meltzer's websites, which included financial projections for CityView and the Australian company. For the years 2001 through 2004, the projections stated the Australian company's total estimated revenues at $1.8 million, $6.7 million, $20.22 million, and $37.8 million respectively.
     
  5. These financial projections were false and misleading and had no basis in fact. Meltzer did not review CityView's filings, did not speak with its management and, instead, merely repeated false and misleading representations, including projected financial results, from the promoters that hired him.
     
  6. Meltzer's touting of CityView corresponded to sharp increases in the price and volume of trading in CItyView's stock. For example, between December 1999 and January 2000, following Meltzer's first email spam concerning CityView, its stock increased in price from 31 cents, with average daily trading volume between 100,000 and 200,000 shares, to a high price of $2.50 on January 24, 2000, on trading volume of over 12 million shares. There were similar increases in the price and volume of CityView's stock in February, March and April, each correlating in time with Meltzer's emails.

Bach-Hauser, Inc. ("Bach-Hauser")

  1. In November and December 2000, Meltzer disseminated millions of emails touting the stock of Bach-Hauser and directing recipients to websites he had launched containing a profile of Bach-Hauser. Meltzer sent bulk emails under the name "Stockmarket Profile," containing hyperlinks directing the recipient of the emails to his websites. Meltzer set up at least two websites to tout Bach-Hauser, purportedly run by entities named "Wisestocks2000," and "StockMarketLetter."
     
  2. Meltzer's Bach-Hauser touts generally included glowing reviews of Bach-Hauser's business prospects. In fact, according to its public filings at the time, Bach-Hauser was a shell corporation, with no revenues since its inception in 1995, with only $4,500 in assets (all of which were intangible), and with no financing plans.
     
  3. Certain of Meltzer's touts of Bach-Hauser stated, "After speaking with Management, we are aware that the Company is in advanced negotiations to acquire possibly four or five additional cutting edge technologies."
     
  4. These representations were false and misleading. In fact, Meltzer never spoke with Bach-Hauser's management and Meltzer omitted that Bach-Hauser's purported negotiations to acquire technologies were contingent upon its receiving $100 to $200 million in financing, which was not available to Bach-Hauser.
     
  5. Another of Meltzer's Bach-Hauser touts stated that Bach-Hauser had acquired a 40% interest in the "Biochex Project" that was expect to generate $100 Million in royalty income to Bach-Hauser.
     
  6. These representations were false and misleading. In fact, Bach-Hauser had not acquired any interest in any such project.

Envirokare Tech Inc. ("Envirokare")

  1. In February 2001, Meltzer recommended Envirokare on a website, which purportedly originated from an entity called "StockMarketLetter." On the website, Meltzer projected annual income for Envirokare for 2001, 2002 and 2003 of $2.2 million, $4.3 million and $6.6 million, respectively. These projections lacked a reasonable basis in fact. According to its public filings, Envirokare was a development stage company that had reported zero revenue since its inception in 1998.

Silk Botanicals.com Inc. ("Silk Botanicals")

  1. In April 2000, Meltzer touted Silk Botanicals in emails directing investors to a website located at http://www.stock-researcher.com. The emails projected potential sales for Silk Botanicals of over $52 million a year, with a potential for an additional $60 million in annualized sales. The website projected revenues for Silk Botanicals for 2001, 2002, and 2003, of $11.9 million, $20.5 million, and $31.5 million respectively. These projections lacked a reasonable basis in fact. According to its Form 10-SB, Silk Botanicals had minimal capital available to meet future obligations and to carry out its planned operations. Silk Botanicals' pending registration statement reported a net loss, a negative working capital, stockholders' deficit, and stated that, as of May 31, 1999, the company had not commenced the marketing and distribution of its product.

CLAIM ONE
(FRAUD IN VIOLATION OF SECTION 17(a) OF THE SECURITIES ACT)

  1. The Commission re-alleges and incorporates by reference the allegations contained in Paragraphs 1 through 33 above.
     
  2. Meltzer, directly or indirectly, in the offer or sale of securities, by the use of means or instruments of transportation or communication in interstate commerce or by use of the mails, has knowingly or recklessly: (a) employed devices, schemes, or artifices to defraud; (b) obtained money or property by means of untrue statements of material fact and omissions to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and (c) engaged in transactions, acts, practices and courses of business which operated or would operate as a fraud upon purchasers of securities and upon other persons.
     
  3. As part of and in furtherance of this violative conduct, Meltzer knowingly or recklessly made the false and misleading representations described in paragraphs 15-33 above. The foregoing misrepresentations were material and were made in the offer and sale of securities.
     
  4. By reason of the foregoing, Meltzer has directly or indirectly violated, and unless restrained and enjoined, will again violate, Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a).

CLAIM TWO
(FRAUD IN VIOLATION OF SECTION 10(b) OF THE EXCHANGE ACT
AND RULE 10b-5 THEREUNDER)

  1. The Commission re-alleges and incorporates by reference the allegations contained in Paragraphs 1 through 33 above.
     
  2. Meltzer, directly or indirectly, by the use of the means or instrumentalities of interstate commerce, or of the mails, or of the facilities of a national securities exchange in connection with the purchase or sale of securities, knowingly or recklessly, has: (a) employed devices, schemes or artifices to defraud; (b) made untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and (c) engaged in acts, practices or courses of business which operated or would operate as a fraud or deceit upon purchasers of securities and upon other persons.
     
  3. As part of and in furtherance of this violative conduct, Meltzer knowingly or recklessly made the false and misleading representations described in paragraphs 15-33 above. The foregoing misrepresentations were material and were made in connection with the purchase and sale of securities.
     
  4. By reason of the foregoing, Meltzer has directly or indirectly violated, and unless restrained and enjoined, will again violate, Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5.

RELIEF REQUESTED

WHEREFORE,the Commission respectfully requests that this Court:

I.

Enter an Order permanently restraining and enjoining Meltzer from violating Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)] in the offer or sale of any security by the use of any means or instruments of transportation or communication in interstate commerce or by use of the mails, directly or indirectly:

(a)  to employ any device, scheme, or artifice to defraud;
 
(b)  to obtain money or property by means of any untrue statement of a material fact or any omission of a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or
 
(c)  to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.

II.

Enter an Order permanently restraining and enjoining Meltzer from violating, directly or indirectly, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 promulgated thereunder [17 C.F.R. § 240.10b-5], by using any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange, in connection with the purchase or sale of any security:

(a)  to employ any device, scheme, or artifice to defraud;
 
(b)  to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or
 
(c)  to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.

III.

Enter an Order requiring Meltzer to account for and to disgorge all monies obtained through the illegal activities described above, plus prejudgment interest thereon.

IV.

Enter an Order requiring Meltzer to pay civil penalties pursuant to Section 20(d) of the Securities Act, 15 U.S.C. §77t(d), and Section 21(d) of the Exchange Act, 15 U.S.C. § 78u(d).

V.

Enter an Order, pursuant to Section 20(g) of the Securities Act and Section 21(d) of the Exchange Act, permanently prohibiting Meltzer from participating in an offering of penny stock, including engaging in activities with a broker, dealer, or issuer for purposes of issuing, trading, or inducing or attempting to induce the purchase or sale of any penny stock.

VI.

Enter an Order granting such other relief as this Court may deem just and appropriate.

Dated:
 
February 18, 2003
New York, New York
Respectfully submitted,
 
 
 __________________________________
WAYNE M. CARLIN (WC-2114)
Attorney for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
Northeast Regional Office
233 Broadway
New York, NY 10279
Telephone No.:(646) 428-1510

Of Counsel:
 
Mark K. Schonfeld
Caren N. Pennington
Valerie A. Szczepanik
Mark F. Vilardo

 

http://www.sec.gov/litigation/complaints/comp17985.htm

Modified: 02/19/2003