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U.S. SECURITIES AND EXCHANGE COMMISSION

Lit. Release No. 22317/April 5, 2012

Securities and Exchange Commission v. Online-Registries, Inc. and David Stern, 10-CA-433-M-DLM (District of Rhode Island, Complaint filed October 19, 2010)

COURT HOLDS DEFENDANT IN CONTEMPT IN SEC ACTION INVOLVING RHODE ISLAND-BASED OFFERING FRAUD

The Securities and Exchange Commission announced that on April 3, 2012, United States District Judge John J. McConnell, Jr., of the United States District Court for the District of Rhode Island entered an Order of Civil Contempt finding defendant David Stern in contempt based on Stern’s violation of the Court’s previous injunctive orders against him. Stern is a defendant in an enforcement action filed by the Commission in October 2010 alleging that he and his company, Online Registries, Inc., d/b/a Online Medical Registries (“OMR”), defrauded investors by making various misrepresentations and dissipating investor funds.  The court initially entered a temporary restraining order and asset freeze in the case and later entered a preliminary injunction and continuing asset freeze that, among other things, prohibited Stern from transferring, assigning, or diminishing in value any assets of OMR or soliciting new investors.

On August 3, 2011, the Commission had filed an application for civil contempt against Stern, alleging that Stern had formed a new company, Instant Medical Access LLC d/b/a Instant Medical Access (“IMA”), that was virtually identical to OMR, and Stern then used OMR’s technology and other intellectual property for the benefit of his new venture.  In addition, according to the application Stern had solicited at least one additional investor in IMA and was also spending his own money impermissibly in support of IMA, in violation of the injunctive orders entered against him in this case.

On April 3, 2012, the Court entered an Order of Civil Contempt finding that Stern’s solicitation of investors in IMA, diminishing of the corporate assets of OMR, and unauthorized payments violated the terms of the March 7, 2011 Stipulated Preliminary Injunction, Order Freezing Assets, and Order for Other Equitable Relief. The Court’s Order of Civil Contempt bars Stern from making further payments except as permitted in the Stipulated Preliminary Injunction. Further, the Court ordered Stern to provide documentation detailing every payment he made in excess of $50; provide a complete accounting of the sources of all income, funding, or money he has received; produce a list of all investors, shareholders, owners, and partners in IMA to the Commission; shutdown any and all websites attributable to IMA; and transfer to OMR any and all trade names, trademarks, and domain names attributable to IMA. Stern is further barred from usage of any trade name, trademark, or domain name attributable to IMA. In addition, the Court barred Stern from forming any other business utilizing technology that is similar to the technology that OMR utilizes or that otherwise competes with OMR or provides overlapping services to OMR. Stern is further ordered to provide to the Commission all documents, including computer code and software, relating to IMA. The Order also provides that the Court may impose additional penalties upon Stern in the event of further violations of any Order of the Court.

The Commission previously filed a civil injunctive action against Stern and his company OMR on October 19, 2010, alleging in its complaint that Stern had violated the federal securities laws through fraudulent misrepresentations regarding OMR’s subscriber base, technology testing, partnerships with third-parties, and anticipated share value. The complaint further alleged that Stern depleted virtually all of the investor funds he had received, largely by writing checks payable to himself and one of his affiliates. The Commission obtained a temporary restraining order against David Stern and OMR on October 19, 2010, and the Court subsequently entered a Stipulated Preliminary Injunction, Order Freezing Assets, and Order for Other Equitable Relief against Stern on March 7, 2011.  On June 21, 2011, the Commission obtained an Order of Default Judgment as to Liability, Disgorgement, Prejudgment Interest, and Penalties against OMR.

For further information, see Lit. Release No. 21702 (October 21, 2010).

 

 

http://www.sec.gov/litigation/litreleases/2012/lr22317.htm


Modified: 04/05/2012