UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16681/ September 6, 2000
SEC CHARGES CANADIAN STOCK PROMOTER AND COLORADO "SHELL" BROKER IN STOCK MANIPULATION SCHEME
Securities and Exchange Commission v. Donald Rutledge and Gregory Skufca (United States District Court (D. Colo.) 00-K-1751).
The Securities and Exchange Commission announced today that it filed civil securities fraud charges against Donald Rutledge, a Canadian stock promoter, and Gregory Skufca, a Colorado "shell" broker. The Commission charged that Rutledge and Skufca illegally manipulated the stock of Snelling Travel, Inc. on the OTC Bulletin Board in December 1999. According to the Commission's Complaint, the manipulation took Snelling from a market capitalization of $105,000 in mid-December to a theoretical market capitalization of over $93 million less than two weeks later. The Commission alleged that Skufca reaped at least $500,000 in illicit profits from the scheme. This action is part of the fourth nationwide Internet fraud sweep conducted by the Commission since October 1998.
The Complaint, filed in the U.S. District Court for the District of Colorado, alleges as follows:
During the relevant period, Plus Solutions, Inc., was a privately held client of Rutledge. Plus Solutions had no business operations, but purportedly aspired to enter the electronic commerce business. Under agreements with investors in Plus Solutions, Rutledge was obligated to engineer a merger with an unidentified public shell that would enable the Plus Solutions investors to receive stock that traded publicly at a price above $4.50 per share.
Skufca controlled the stock of Snelling, which was located in the home of its sole employee and had no revenues from operations. Skufca and Rutledge agreed to merge Snelling with Plus Solutions. The merger was designed to take Plus Solutions public without a registered offering. On December 15, 1999, Rutledge and Skufca caused a press release to be issued which announced the merger, whereby these two companies would combine their non-existent operations. The press release also announced an immediate 29:1 split of Snelling stock, which would increase the float to 15.3 million shares.
On the morning of December 16, the sole market-maker in Snelling (whom Skufca had recruited) quoted the stock at $0.20 bid and no offer. Rutledge and Skufca then entered matched buy and sell orders through different broker-dealers which rocketed the stock to a price of $5.00 and more, a 1000% increase over the price of the most recent prior trade in the stock, on December 10.
Rutledge and Skufca engaged in further manipulative trading to keep Snelling's stock price above $5.00 through December 28. The stock hit a high of $6.125 on December 28. With 15.3 million non-restricted shares outstanding, this implied a $93 million market capitalization for a company with no real business. Rutledge and Skufca abandoned the scheme a short time later when issues relating to the effective date of the Snelling stock split put the merger in jeopardy. When the merger was cancelled, Snelling's price plummeted to $0.28 per share by January 10, 2000.
In a related action, the Commission instituted a settled cease-and-desist proceeding today against John Black, a Canadian resident who was employed by Rutledge. The Commission's Order makes the following findings. Rutledge directed Black to tout Snelling stock on the Internet and promised him Snelling stock as compensation. Black then commenced a "thread" (or subject area) regarding Snelling on Raging Bull, a popular investment site. Using screen names that concealed his identity, and without disclosing his expected compensation, Black then posted two misleading messages about Snelling on the Raging Bull thread.
In the injunctive action against Rutledge and Skufca, the Commission alleges violations of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In the cease-and-desist proceeding, in which Black neither admitted nor denied the Commission's findings, the Commission orders Black to cease and desist from committing future violations of Section 17(b) of the Securities Act.
The Commission acknowledges the assistance of the National Association of Securities Dealers and the British Columbia Securities Commission in this investigation.
For tips on how to avoid Internet "pump-and-dump" stock manipulation schemes, visit http://www.sec.gov/investor/online/pump.htm . For more information about Internet fraud, visit http://www.sec.gov/divisions/enforce/internetenforce.htm . To report suspicious activity involving possible Internet fraud, visit http://www.sec.gov/complaint.shtml. For a description of other SEC enforcement actions involved in this Internet Market Manipulation Sweep, visit http://www.sec.gov/news/extra/intmm.htm.