U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22115 / October 6, 2011
Securities and Exchange Commission v. StratoComm Corporation., et al., Civil Action No. 1:11-CV-1188 (N.D.NY)
Securities and Exchange Commission v. Stewart A. Merkin, Civil Action No. 1:11-cv-23585 (S.D.FL)
On October 4, 2011, the Securities and Exchange Commission (SEC) filed a complaint in United States District Court for the Northern District of New York charging StratoComm Corporation, its CEO Roger D. Shearer, and its former Director of Investor Relations, Craig Danzig, with violating the antifraud provisions of the securities laws and with illegally selling securities in unregistered transactions. On October 3, 2011, the SEC filed a complaint in United States District Court for the Southern District of Florida alleging that attorney Stewart A. Merkin, StratoComm’s outside counsel, also committed securities fraud.
The SEC’s complaint filed in Albany, New York alleges that StratoComm, acting at Shearer’s direction and with Danzig’s assistance, issued and distributed public statements falsely portraying the company as actively engaged in the manufacture and sale of telecommunications systems for use in underdeveloped countries, particularly Africa. In reality, the company had no product and no revenue. The SEC’s complaint also alleges that StratoComm, Shearer and Danzig sold investors approximately $3 million worth of StratoComm stock in unregistered transactions. Shearer used much of that money for his own purposes, including paying a substantial part of the restitution he owed in connection with his guilty plea in a prior criminal proceeding.
The SEC’s complaint charges StratoComm with violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. It charges Shearer with violating Sections 5(a) and 5(c) of the Securities Act, aiding and abetting StratoComm’s violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and with being liable as a control person for StratoComm’s violations. The SEC’s complaint charges Danzig with violating Sections 5(a), 5(c), and 17(a) of the Securities Act, with violating Section 15(a) of the Exchange Act, and with aiding and abetting StratoComm’s violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC’s complaint seeks permanent injunctions, disgorgement of unlawful proceeds plus prejudgment interest, and a financial penalty from all defendants. It also seeks an order prohibiting Shearer from serving as an officer or director of a public company and prohibiting Shearer and Danzig from participating in the offering of a penny stock.
The SEC’s complaint filed in Miami, Florida alleges that Merkin wrote four attorney representation letters for posting on the website of Pink Sheets LLC and its successor, Pink OTC Markets, Inc. In those letters Merkin disclaimed knowledge of any investigation into possible violations of the securities laws by StratoComm or any of its officers or directors. However, the SEC’s complaint also alleges that Merkin was representing StratoComm and several individuals in connection with the SEC’s investigation at the time. Nevertheless, in order that StratoComm’s shares would continue to be quoted, the SEC’s complaint alleges that Merkin falsely stated that to his knowledge StatoComm was not under investigation. The SEC’s complaint charges Merkin with violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. It seeks a permanent injunction, disgorgement of unlawful proceeds plus prejudgment interest, a financial penalty, and an order prohibiting Merkin from participating in the offering of a penny stock.