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U.S. Securities and Exchange Commission

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
(Orlando Division)


SECURITIES AND EXCHANGE COMMISSION,

Plaintiff,

v.

DAVID S. HEREDIA and RAYLEN PARRA,

Defendants.


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CASE NO.
COMPLAINT FOR
INJUNCTIVE AND
OTHER RELIEF

Plaintiff Securities and Exchange Commission ("SEC" or "Commission") alleges as follows:

INTRODUCTION

1. The Commission brings this action to enjoin David S. Heredia ("Heredia") and Raylen Parra ("Parra") from continuing to violate the federal securities laws in connection with their now defunct broker relations firm Norrstar Advertising, Inc. ("Norrstar"). From approximately September 1998 to September 1999 ("the relevant time period"), at the direction and under the supervision of Heredia and Parra, Norrstar's staff of "broker relations executives" disseminated false and misleading information to the investment community concerning the stock of at least five public companies quoted on the Over-the-Counter ("OTC") Bulletin Board. The broker relations executives at Norstarr made hundreds of thousands of telephone calls to registered representatives of registered broker-dealers, and sent faxes of "bullet sheets" -- prepared by Heredia and Parra -- containing false and misleading material misrepresentations and omissions about the public companies touted. While touting the stock of the public companies, Norrstar's principals, Heredia and Parra, reaped illegal profits of more than $3.4 million by engaging in the practice of "scalping" -- selling the stock of the public companies they were simultaneously recommending to others to purchase, in violation of Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. Heredia and Parra also failed to disclose the compensation they received for their touting services in violation of Section 17(b) of the Securities Act.

In addition to the permanent injunction against Heredia and Parra, the SEC also seeks disgorgement of Defendants' ill-gotten gains, and prejudgment interest thereon, and the imposition of a civil money penalty pursuant to Section 20(d) of the Securities Act and Section 21(d) of the Exchange Act.

DEFENDANTS

2. Defendant Heredia resides in Apopka, Florida and was a director of Norrstar from September 1998 to October 1998. During the relevant time period, Heredia directed and supervised all activities of Norrstar.

3. Defendant Parra resides in Orlando, Florida and was, at all relevant times, the president and chief executive officer of Norrstar. During the relevant time period, Parra also directed and supervised all activities of Norrstar.

JURISDICTION AND VENUE

4. This Court has jurisdiction over this action pursuant to Sections 20(b), 20(d) and 22(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. §§ 77t(b), 77t(d) and 77v(a), and Sections 21(d), 21(e), and 27 of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78u(d), 78u(e) and 78aa.

5. Defendants, directly and indirectly, have made use of the means and instrumentalities of interstate commerce, the means and instruments of transportation and communication in interstate commerce, and the mails, in connection with the acts, practices, and courses of business complained of herein.

6. The Middle District of Florida is the proper venue for this action. Certain of the acts and transactions constituting violations of the Securities Act and the Exchange Act have occurred within the Middle District of Florida. The principal offices of Norrstar were located within the Middle District of Florida and Defendants Heredia and Parra reside in the Middle District of Florida. Defendants have engaged in many of the acts and practices complained of herein within the Middle District of Florida.

THE FRAUDULENT SCHEME

A. Norrstar's "Consulting" Agreements

7. Norrstar, a dissolved Florida corporation formerly doing business in Daytona Beach, Florida, was purportedly in the business of providing consulting and investor relations services to public companies listed on the OTC Bulletin Board (the "issuers" or "clients"). Heredia and Parra were responsible for obtaining clients for Norrstar and maintaining those client relationships.

8. From as early as September 1998, Heredia and Parra, on behalf of Norrstar, entered into at least five consulting agreements - two in writing - with issuers. The two written agreements, titled "Consultant Agreements," were executed by Parra on behalf Norrstar. Each Consultant Agreement provided that Norrstar would, among other things, (1) provide consulting and public relations services in connection with the issuers' public relations dealings with broker-dealers and the investing public; (2) aid the issuer in developing a marketing plan directed at informing the public as to the business of the issuer; (3) aid and advise the issuer in establishing a means of securing nationwide interest in the issuer's securities and (4) aid and consult the issuer in the preparation and dissemination of press releases and news announcements. Norrstar also entered into oral agreements with at least three other issuers to provide similar promotional services.

9. Despite the numerous activities detailed in the Consultant Agreements, Norrstar's principal activity was merely to tout the issuers' stock through high pressure tactics. Norrstar's stock promotion activities during the relevant time period related to at least the following five clients:

    (a) from at least March 1999 to July 1999, Norrstar touted the stock of ISM Holding Corp. ("ISM"), a sports management company;

    (b) from at least March 1999 to September 1999, Norrstar touted the stock of Concorde Strategies Group, Inc. ("Concorde"), an incubator of Internet companies;

    (c) from at least January 1999 to September 1999, Norrstar touted the stock of Access Power, Inc. ("Access Power"), an Internet telephony service provider;

    (d) from at least December 1998 to April 1999, Norrstar touted the stock of Jreck Subs ("Jreck"), a franchiser of submarine sandwich and pizza restaurants;

    (e) from at least September 1998 to November 1998, Norrstar touted the stock of Key Capital, an e-commerce membership club that purportedly provided member discounts and benefits from its "alliance" partners.

All of the companies other than Key Capital had experienced millions of dollars of losses in 1998 and 1999. Key Capital had little or no revenues.

10. In consideration for Norrstar's services, Norrstar received approximately 4.4 million shares of stock from the five issuers.

B. Norrstar's General Stock Touting Practices

11. Between September 1998 and September 1999, at the direction and under the supervision of Heredia and Parra, Norrstar's broker relations executives made hundreds of thousands of phone calls to registered representatives touting Norrstar's clients, using scripts drafted by Heredia and Parra. The scripts contained false and misleading representations and omissions about the issuers, including baseless stock price predictions, false claims of upcoming news releases, unspecified "inside" information, and other misinformation about the client companies.

12. In addition to the scripts, Heredia and Parra also frequently "briefed" the broker relations executives at meetings, where Heredia and Parra repeated the false and misleading investment "hype" that they were supposed to pass on to registered representatives during their telephone calls. Heredia and Parra, who each had the authority to hire and fire Norrstar's broker relations executives, supervised the calls that the broker relations executives made to registered representatives touting Norrstar's clients by listening in to conversations and, on occasion, participating in the calls.

13. Norrstar, through Heredia and Parra, created a high pressure sales environment. The broker relations executives employed high pressure and aggressive tactics to tout the issuer's stock by repeatedly calling the same registered representatives in order to interest them in the stocks. The broker relations executives would also typically follow up phone calls to registered representatives by faxing them a "bullet sheet" - a short summary description of the public company. The bullet sheets sent by Norrstar were drafted Heredia and Parra and contained material misrepresentations and omissions about the issuers. Heredia and Parra knew that the bullet sheets would be used by the registered representatives to provide investment advice to their own clients and, in many cases, passed on to investors directly.

14. None of the bullet sheets created by Heredia and Parra and sent to registered representatives disclosed the nature and amount of consideration received by Norrstar for its touting services. Moreover, since neither Heredia nor Parra ever disclosed to the broker relations executives the exact nature and amount of the compensation received, the broker relations executives who communicated with registered representatives did not make the required disclosures under Section 17(b) of the Securities Act. To the contrary, Heredia and Parra instructed their broker relations executives to avoid talking about compensation and, if asked, to inform the registered representative that Norrstar had been paid in cash, which was false.

15. Heredia, using an alias, further touted many of Norrstar's client companies on an Internet stock message board. While touting the issuers' stock on the Internet stock message board, Heredia reiterated many of the false and misleading information relayed to the investment community through their investor relations brokers and contained in the bullet sheets.

C. Norrstar's Material Misrepresentations and Omissions

in Connection with its Stock Touting Activities

16. Norrstar, at the direction of Heredia and Parra, made materially false and misleading statements in telephone calls and in written bullet sheets sent to registered representatives, knowing that the materially false and misleading information would be passed on from the registered representatives to investors. Norrstar, through Heredia, also disseminated the false and misleading information to the investment public by posting the information on an Internet message board.

17. Norrstar's broker relations executives, at the direction and under the supervision of Heredia and Parra, falsely informed registered representatives that they had unspecific "inside" information on Norrstar's issuer clients. They further falsely informed registered representatives that a positive news release would be forthcoming from the issuer whose stock Norrstar happened to be touting at the time.

18. Norrstar, at the direction of Heredia and Parra, also made baseless stock price predictions about Norrstar's issuer clients. For example, Heredia and Parra directed broker relations executives to predict in telephone calls to registered representatives that Concorde's stock would be valued at $9 in six to nine months when the stock was then trading at less than $3.50. This price prediction was not founded upon any financial analysis and was unreasonable in view of Concorde's lack of profitable operations and history of losses.

19. Heredia repeated the false information and baseless price predictions on an Internet message. Heredia made baseless predictions that the stock price of some issuers Norrstar was touting would increase between approximately 100% to 700%. For instance, Heredia made a message board prediction that Concorde's stock would reach $30 despite trading at less than $3.75 at the time.

20. With respect to another issuer, Access Power, Heredia predicted that this company would trade at $5 at a time when it was trading at about $1.25, and on another occasion, Heredia claimed the stock would trade in the double digits when it was actually trading at less than a dollar.

21. Norrstar, at the direction of Heredia and Parra, made other false and misleading statements concerning its issuer clients' operations and financials in the bullet sheets it produced and disseminated. The bullet sheets provided misleading descriptions of the issuers' businesses, set forth purported revenue figures that bore no relation to each issuer's actual revenues, and falsely described the issuers' market share.

22. Norrstar's bullet sheet on ISM, for example, falsely represented that dog and horse racing were available on the company's Internet gaming website when no such services were available on its website. Norrstar's ISM bullet sheet also misleadingly described ISM's celebrity management services and accompanying revenue.

23. Norrstar's bullet sheet for Concorde misleadingly touted the company's purported upcoming acquisitions without disclosing that the company did not have the cash or financing to consummate the acquisitions.

24. Norrstar's bullet sheet on Access Power falsely claimed that the company had a twenty percent market share and was a world recognized leader in telephone communications on the Internet. Norrstar also failed to disclose that Access Power had lost over four million dollars in 1998 and 1999.

D. Defendants Engage in Illegal Scalping of Stock

25. Norrstar's promotion was designed to "pump up" or increase the price of the stock of the companies it was promoting. In fact, the stock price of the issuer clients' stock Norrstar touted increased as a result of Norrstar's activities:

    (a) during March 1999, Concorde's stock price soared from around $2 on volume of around 50,000 shares to almost $6 on volume of about 200,000 shares;

    (b) during April 1999, ISM's stock price increased from around $1 on volume of around 10,000 shares to $2 on volume of around 100,000 shares;

    (c) from March 1999 through May 1999, Access Power's stock price rose from around $0.10 on volume of around 800,000 shares to over $1 on volume of over one million shares;

    (d) during February 1999, Jreck' stock price rose from less than $0.25 in on volume of approximately 250,000 shares to almost $0.50 on volume of more than 1.5 million shares;

    (e) during October 1998, Key Capital's stock price rose from around $0.75 on volume of approximately 100,000 shares to over $4.50 on volume of around 600,000 shares.

26. During the time that they were touting the stock of the five issuer clients through Norrstar, Heredia and Parra sold the stock of the five issuer clients through multiple foreign accounts under various names. Heredia and Parra sold their stock while the price of each stock was inflated as a result of their stock touting activities.

27. Heredia and Parra, through Norrstar, sold at least 1,562,207 shares of stock of Concorde, Access Power, ISM, Jreck and Key Capital during the same time they were recommending to the investment community the purchase of those stocks and predicting huge stock price increases, reaping profits of at least $3,459,913.

COUNT I

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

28. The SEC realleges and repeats its allegations set forth at paragraphs 1 through 27 of this Complaint as if fully restated herein.

29. Since a date unknown but since at least September 1998 through September 1999, Defendants Heredia and Parra, directly or indirectly, by use of the means and instrumentalities of interstate commerce or of the mails, or of any facility of any national securities exchange, in connection with the purchase or sale of the securities, as described herein, have knowingly, willfully or recklessly: (a) employed devices, schemes or artifices to defraud; (b) made untrue statements of material facts and 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 and courses of business which have operated, are now operating and will operate as a fraud upon the purchasers of such securities.

30. By reason of the foregoing, Defendants, directly and indirectly, have violated and, unless enjoined, will continue to violate Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240. 10b-5, thereunder.

COUNT II

FRAUD IN VIOLATION OF SECTION 17(a)(1)
OF THE SECURITIES ACT

31. The SEC realleges and repeats its allegations set forth at paragraphs 1 through 27 of this Complaint as if fully restated herein.

32. Since a date unknown but since at least September 1998 through September 1999, Defendants Heredia and Parra, directly and indirectly, by use of the means or instruments of transportation or communication in interstate commerce or by use of the mails, in the offer or sale of securities, as described herein, have knowingly, willfully or recklessly employed devices, schemes or artifices to defraud.

33. By reason of the foregoing, Defendants, directly and indirectly, have violated and, unless enjoined, will continue to violate Section 17(a)(1) of the Securities Act, 15 U.S.C. § 77q(a)(1).

COUNT III

FRAUD IN VIOLATION OF SECTIONS 17(a)(2)
AND 17(a)(3) OF THE SECURITIES ACT

34. The SEC realleges and repeats its allegations set forth at paragraphs 1 through 27 of this Complaint as if fully restated herein.

35. Since a date unknown but since at least September 1998 through September 1999, Defendants Heredia and Parra, directly and indirectly, by use of the means or instruments of transportation or communication in interstate commerce or by the use of the mails, in the offer or sale of securities, as described herein, have: (a) obtained money or property by means of untrue statements of material facts and omissions to state material facts necessary to make the statements made, in light of the circumstances under which they were made, not misleading; and (b) engaged in transactions, practices and courses of business which are now operating and will operate as a fraud and deceit upon purchasers and prospective purchasers of such securities.

36. By reason of the foregoing, Defendants, directly and indirectly, have violated and, unless enjoined, will continue to violate Sections 17(a)(2) and 17(a)(3) of the Securities Act, 15 U.S.C. §§ 77(q)(a)(2) and 77(q)(a)(3).

COUNT IV

FAILURE TO DISCLOSE IN VIOLATION
OF SECTION 17(b) OF THE SECURITIES ACT

37. The SEC realleges and repeats its allegations set forth at paragraphs 1 through 27 of this Complaint as if fully restated herein.

38. Since a date unknown but since at least September 1998 through September 1999, Defendants Heredia and Parra, by the use of the means or instruments of transportation or communication in interstate commerce or by the use of the mails, published, gave publicity to, or circulated communications that, though not purporting to offer securities for sale, described certain securities.

39. Defendants, directly and indirectly, received consideration for such activities from issuers and did not fully disclose the past or future receipt of such consideration and the amount thereof.

40. By reason of the foregoing, Defendants, directly or indirectly, have violated and, unless enjoined, will continue to violate, Section 17(b) of the Securities Act, 15 U.S.C. § 77q(b).

RELIEF REQUESTED

WHEREFORE, the Commission respectfully requests that the Court:

I.

Declaratory Relief

Declare, determine and find that Defendants Heredia and Parra have committed the violations of the federal securities laws alleged herein.

II.

Permanent Injunctive Relief

Issue a Permanent Injunction, enjoining Defendants Heredia and Parra, their agents, servants, employees, attorneys, and all persons in active concert or participation with them, and each of them, from violating Sections 17(a)(1), 17(a)(2), 17(a)(3) and 17(b) of the Securities Act, 15 U.S.C. §§ 77q(a)(1), 77q(a)(2), 77q(a)(3) and 77q(b), and Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5, thereunder.

III.

Disgorgement

Issue an Order directing Defendants Heredia and Parra to disgorge all profits or proceeds that he has received as a result of the acts and/or courses of conduct complained of herein, with prejudgment interest thereon.

IV.

Penalties

Issue an Order directing Defendants Heredia and Parra to pay civil money 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)(3).

V.

Retention of Jurisdiction

Further, the Commission respectfully requests that the Court retain jurisdiction over this action in order to implement and carry out the terms of all orders and decrees that may hereby be entered, or to entertain any suitable application or motion by the SEC for additional relief within the jurisdiction of this Court.

 

Respectfully submitted,

February ____, 2002 By: _____/s/_________
Teresa J. Verges*
Regional Trial Counsel
Florida Bar No. 997651
Direct Dial: (305) 982-6384

Michael J. Rogal
Senior Counsel
Florida Bar No. 0041645
Direct Dial: (305) 982-6335

Attorneys for Plaintiff
SECURITIES AND EXCHANGE
COMMISSION

1401 Brickell Avenue, Suite 200
Miami, Florida 33131
Telephone: (305) 536-4700
Facsimile: (305) 982-6394

* Designated as Trial Counsel pursuant to Local Rule 1.05(c)


http://www.sec.gov/litigation/complaints/complr17390.htm

Modified: 03/05/2002