SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17144 / September 20, 2001
SEC SUES FORMER TOP OFFICERS OF MOUNTAIN ENERGY FOR PUMP AND DUMP SCHEME. TWO OTHER DEFENDANTS AGREE TO PAY DISGORGEMENT TOTALLING $1.35 MILLION FOR SELLING UNREGISTERED STOCK.
SEC v. Donald John Christensen, II, Jack E. Uselton, Marc R. Tow, George W. Guttman, Joseph M. Blumenthal, and Mountain Energy, Inc., Civ. No. HO1-3203 (September 20, 2001)
The Securities and Exchange Commission today filed a civil injunctive action in U.S. District Court in Houston, Texas, charging Mountain Energy, a start-up energy company headquartered in Houston, and its two former chief executive officers and an associated individual with engaging in a "pump-and-dump" scheme in the company's securities. The individual defendants accused by the Commission of securities fraud are: Mountain Energy's former CEO and chairman Donald John Christensen, II; his successor Jack E. Uselton; and California attorney Marc R. Tow, one of the company's founders. In addition, two New York-based financial consultants, Joseph M. Blumenthal and George W. Guttman, were charged with illegally selling unregistered Mountain Energy securities. Both Blumenthal and Guttman have agreed to settle the action, without admitting or denying the Commission's allegations, and pay a total of $1.35 million disgorgement of illegal profits.
According to the Commission's complaint:
- Mountain Energy was formed in May 1998 through the reverse merger of the public shell corporation International Casino Cruises, Inc., controlled by Christensen, and the private shell company Mountain Resources, Inc., controlled by Uselton and Tow. Pursuant to the terms of the merger agreement, Christensen transferred a controlling stock interest in International Casino to entities managed by Tow in exchange for the mineral rights in 30 properties in West Virginia that Tow had acquired in tax sales. Uselton was named the CEO of the new company.
- In April and May 1998, International Casino issued three press releases describing its merger agreement with Mountain Energy. All three press releases, which were drafted by Christensen and Uselton, contained false and misleading statements about the terms of the merger agreement and about the ownership, nature and value of Mountain Energy's assets. The first two releases stated, among other things, that Mountain Energy owned property that contained $200 million of coal and gas resources; and the third release valued these resources at $110 to $180 million. In fact, the defendants had no reasonable basis for these statements. In addition, Uselton orally communicated many of the misrepresentations contained in these press releases to investors and potential investors.
- Between mid-May and early June 1998, the price of Mountain Energy stock rose from the range of 4¢ to 5¢ per share to a high of $1.75 per share on heavy volume trading. This rise occurred despite massive sales of stock by Guttman, Blumenthal and his partner described below.
- Contemporaneously with the negotiation of the merger and the publication of the press releases, Christensen authorized the issuance of over 10 million shares of International Casino stock to Guttman, Blumenthal and Blumenthal's partner, who is now deceased. Christensen, who in early 1998 caused approximately 3.9 million shares of International Casino stock to be issued to nominee accounts controlled by Guttman, directed over 7 million of these new shares to the same accounts. Guttman sold most of these shares in the open market. During 1998 Guttman returned at least $896,000 of his trading profits to Christensen. Christensen also issued or transferred 2.7 million shares of International Casino stock to a corporation controlled by Blumenthal, and 1.5 million shares to a corporation controlled by Blumenthal's partner. Like Guttman, Blumenthal and his partner immediately sold their shares in the open market.
- During June 1998, Mountain Energy issued three additional press releases, which, among other things, described an agreement made by the company to acquire an additional 8,000 acres of mineral rights in West Virginia, thereby potentially quadrupling the company's assets. In fact, Mountain Energy had only entered into a non-binding, contingent agreement to obtain those rights. Uselton drafted each of the three June press releases, and Tow reviewed, edited and approved at least the third.
The Commission alleges in its complaint that, through this conduct, Mountain Energy, Christensen, Uselton and Tow violated the anti-fraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rule 10b-5, and that Mountain Energy, Christensen, Blumenthal and Guttman violated the securities registration provisions of the federal securities laws, Section 5 of the Securities Act. The Commission seeks permanent injunctions against future violations from all defendants. In addition, the Commission seeks civil money penalties from Christensen, Uselton and Tow, and disgorgement from Christensen, Blumenthal and Guttman, and permanent bars against Christensen and Uselton from serving as officers or directors of any public company.
Simultaneously with the filing of the Commission's lawsuit, Blumenthal and Guttman agreed to settle the action by consenting to the entry of permanent injunctions against them for violations of the securities registration provisions of the securities laws. In addition, Blumenthal agreed to pay disgorgement of $350,000 and consented to the entry by the Commission of a permanent bar from participating in future offerings of penny stocks. Guttman agreed to pay disgorgement of $1 million and consented to the entry of a penny stock bar with the right to reapply to the Commission in 5 years.