U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 20645 / July 15, 2008

Securities and Exchange Commission v. Homeland Safety International, Inc. F/K/A Sniffex, Inc.; Mark B. Lindberg, Petar D. Mihaylov, Yuri Markov, Paul B. Johnson, and Nicholas V. Klausgaard and Ilona V. Klausgaard, Civil Action No. 3:08 CV 11970 (N.D. Tex. July 15, 2008)

Securities and Exchange Commission v. Mark B. Lindberg, Civil Action No. 08 CV 402 CVE SAJ (N.D. Okla. July 14, 2008)

SEC Files Two Market Manipulation Enforcement Actions With a Common Defendant

Cases Each Include a Settlement with Mark B. Lindberg; Sniffex Case Includes Other Defendants

The Securities and Exchange Commission filed two separate market manipulation enforcement cases: one filed today involving Homeland Safety International, Inc. (originally incorporated as Sniffex, Inc.), a Nevada corporation with a principal place of business in Irving, Texas ("Sniffex"), and the other filed yesterday involving three issuers â€" National Storm Management Group, Inc., a Nevada corporation with its principal place of business in Glen Ellyn, Illinois ("NLST"); Deep Rock Oil and Gas, Inc., a Nevada corporation with its principal place of business in Tulsa, Oklahoma ("DPRK"); and Global Beverages Solutions ("GBVS"), a Nevada corporation with its principal place of business in Tulsa, Oklahoma. The companies traded over the counter under the symbols SNFX (now HSFI), NLST, DPRK and GBVS, respectively. Mark B. Lindberg, 40, of Coppell, Texas, was charged in both cases and has settled them without admitting or denying the allegations in the two complaints. In the Sniffex complaint, the Commission also named Sniffex; its President Paul B. Johnson, 60, of Colleyville, Texas; Petar D. Mihaylov, 28, of Pazardjik, Bulgaria; Yuri P. Markov, 50, of Sofia, Bulgaria; Nicholas V. Klausgaard, 22 of Denmark; and Ilona V. Klausgaard, 49, of Denmark as defendants.

Allegations in the Sniffex Complaint

The Commission's complaint filed in the Northern District of Texas alleges that from October 2004 through April 2006, defendants Mihaylov and Markov acquired control of Sniffex â€" and carried out a $32 million pump-and-dump fraud scheme in concert with the other defendants. They acquired Sniffex in 2004 as a "shell" company from defendant Lindberg who agreed to provide them 15 million shares of so-called "free-trading" stock. To do this, Lindberg, Mihaylov, Markov, and Johnson, Sniffex's President, participated in a sham SEC Rule 504 stock offering that ultimately resulted in scheme participants obtaining virtually all of the company's purportedly free-trading stock.
 
The complaint further alleges that Mihaylov, Markov, and Johnson then engaged in a fraudulent promotional campaign intended to inflate the share price and trading volume in the public market for Sniffex stock. The campaign characterized Sniffex's primary product, a purported hand-held bomb detector invented by Markov, which was also called Sniffex, as a critical breakthrough in the global war against terrorism. At the behest of Mihaylov and Markov, Johnson drafted and issued 33 press releases on Sniffex's behalf. The press releases contained materially false information about tests regarding the product's ability to detect explosives and the company's financial situation. These fraudulent claims were parroted by Mihaylov in a spam-email campaign and in a glossy direct-mail piece.

According to the complaint, as a result of the fraudulent promotional campaign, Sniffex's share price increased from $0.80 to $6.00, giving the bogus company a market capitalization of $474 million at the scheme's peak. The individual defendants profited handsomely by disregarding re-sale restrictions and selling their scheme-derived shares into the artificially inflated market. Lindberg sold approximately 2.071 million shares for a net gain of approximately $315,481; Mihaylov sold approximately 3.73 million shares for approximately $11.3 million; Markov sold approximately 2.8 million shares for approximately $8.6 million; and the Klausgaards sold approximately 3.75 million shares for approximately $12.3 million. Neither the Sniffex press releases nor other public statements made in the scheme disclosed that Markov and Mihaylov controlled Sniffex, that they and the Klausgaards controlled virtually all of the company's public float, and that this group intended to sell, and was selling, millions of secretly owned shares into the market.

The Commission's complaint charges Sniffex, Lindberg, Mihaylov, Markov, and Johnson with violations of the securities-registration provisions and the anti-fraud provisions of the federal securities laws, specifically Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5, and charges the Klausgaards with violations of the securities-registration provisions, Sections 5(a) and 5(c) of the Securities Act. The Commission seeks the following relief from Mihaylov, Markov, Johnson, and the Klausgaards: permanent injunctions against future violations of the federal securities laws, disgorgement plus prejudgment interest, civil monetary penalties, penny-stock bars, and accountings. Lindberg, without admitting or denying any allegations in the complaint, has agreed to a permanent injunction, an officer-and-director bar, and a penny-stock bar.

Allegations in the National Storm, Deep Rock, and Global Beverage Complaint

The Commission's complaint filed in the Northern District of Oklahoma alleges that defendant Lindberg and other members of a Shell Creation Group ("SCG") manipulated at least three penny stocks from 2004 through 2006, including NLST, DPRK, and GBVS. Lindberg and the other members of the SCG, including attorneys, stock promoters, and financiers, worked together to acquire unrestricted shares of the three issuers and to profit by selling these shares into the market while manipulating the price of the stock by means of distributing promotional materials and coordinated trading. The SCG reaped profits in excess of $20 million from the sale of NLST, DPRK, and GBVS stock, and Lindberg personally reaped over $6.2 million in ill-gotten gains from this illegal conduct.

The complaint alleges that the SCG exploited the devastating effects of Hurricane Katrina to manipulate the stock of NLST and DPRK. NLST purported to be a "storm restoration firm specializing in residential home repair from the effects of wind and hail damage." DPRK purported to be "an oil and gas exploration and production company." Lindberg and other members of the SCG assisted these companies reverse merge with SCG controlled shell companies. Throughout the reverse merger process, SCG members obtained control over large quantities of NLST and DPRK stock for its members and/or their nominees, which was issued without restriction based on legal opinion letters predicated on false information. In or about August and September 2005, the SCG began to orchestrate and pay for promotional campaigns, including faxes, spam emails, and glossy promotional pamphlets touting NLST and DPRK, claiming that Hurricane Katrina would result in greater profits and higher share prices for the companies. Some of the promotional materials encouraged readers to purchase the stock and included price targets. None of the NLST or DPRK promotional materials disclosed that the persons who ultimately orchestrated and paid for the promotional campaigns, the SCG, owned or controlled significant positions in the stocks and that they intended to sell stock while encouraging readers to purchase it. Additionally, the emails falsely indicated that NLST and DPRK made filings with the SEC.

The complaint further alleges that in the spring and summer of 2005, the SCG obtained control of a company that had elected business development status under the Investment Company Act of 1940 and had registered its securities under Section 12(g) of the Exchange Act. The SCG renamed the company GBVS, and used it to acquire a company named Rudy Beverages. The SCG obtained control over large quantities of unrestricted shares of GBVS for its members and/or their nominees. Like NLST and DPRK, the SCG orchestrated and paid for promotional campaigns, including faxes, spam emails, and glossy promotional pamphlets touting GBVS. Some of the promotional materials encouraged readers to purchase the stock and included price targets. None of the GBVS promotional materials disclosed that the persons who ultimately orchestrated and paid for the promotional campaigns, the SCG, owned or controlled significant positions in the stock and that they intended to sell the stock while encouraging readers to purchase it.

According to the complaint, in some instances, accounts controlled by members of the SCG, including Lindberg, bought and sold NLST, DPRK, and GBVS stock in an effort to increase the volume in the market and to increase the price shown for the stocks. This trading activity and other trading activities were sometimes coordinated on a daily basis. During the SCG's promotional campaigns for all of the issuers, the price and daily trading volume of the stocks increased significantly. Throughout the promotional campaigns, Lindberg and other members of the SCG engaged in heavy selling of NLST, DPRK, and GBVS stock for prices far below the value predictions asserted in the promotional materials. The SCG and Lindberg personally profited through their sales of NLST, DPRK, and GBVS stock into the manipulated market.

The complaint further alleges that the NLST and DPRK shares were sold by members of the SCG, including Lindberg, without being registered with the Commission and without a viable exemption from registration.

The Commission's complaint charges Lindberg with violations of the securities-registration provisions and the anti-fraud provisions of the federal securities laws, specifically Sections 5(a), 5(c), and 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5. Lindberg, without admitting or denying any allegations in the complaint, has agreed to a permanent injunction, an officer-and-director bar, and a penny-stock bar.

Acknowledgements

The Commission acknowledges the assistance of the U.S. Attorney's Office for the Northern District of Oklahoma, the Federal Bureau of Investigation; the Internal Revenue Service; the U.S. Postal Inspection Service; and FINRA.

The Commission's investigations in these matters are ongoing.

The Commission has published guidance for investors concerning investments in microcap stocks. See: http://www.sec.gov/investor/pubs/microcapstock.htm

Complaint v. Homeland Safety International, Inc. et al.
Complaint v. Lindberg