Securities and Exchange Commission
Litigation Release No. 17721 / September 11, 2002
SEC Sues Tampa and Houston-Based Newsletter Writers to Halt Alleged Fraud
Securities and Exchange Commission v. Paul A. Spray, Thomas E. Loyd, Marc Barhonovich, et al., Case No. 8:02-CV-1613-T26EAJ (M.D. Fla., filed September 5, 2002)
The Securities and Exchange Commission (SEC) announced that on September 5, 2002, it filed a complaint against two newsletter writers, an intermediary that contracted for some of the newsletters, and certain associated companies for their roles in a newsletter touting scheme. The SEC's complaint alleges that defendants Paul A. Spray, Thomas E. Loyd, Marc Barhonovich, and others prepared and distributed several fraudulent newsletters touting thinly traded stocks of public companies whose shares are quoted on the Over-the-Counter Bulletin Board.
According to the SEC's complaint, from at least July 2001 to May 2002, Spray, based in Tampa, Florida, and Loyd, based in Houston, Texas, prepared and distributed their respective newsletters, "OTC Investor's Edge" and "Investors' Alert," to millions of potential investors through facsimile broadcasts and e-mail spams. The complaint further alleges that Barhonovich contracted for, and paid for the distribution of, some of the newsletters. The SEC's complaint alleges that Spray, Loyd, and Barhonovich knew, or were reckless in not knowing, that the newsletters contained material misrepresentations and omissions concerning the companies they touted. Among other things, the complaint alleges that the newsletters misrepresented the financial condition and projected earnings and revenues of the touted companies.
The SEC's complaint charges each of the defendants with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, which prohibit fraud in the offer and sale of securities. The SEC seeks preliminary and permanent injunctive relief, disgorgement and civil monetary penalties, and an order permanently barring Spray, Loyd, and Barhonovich from any future participation in the offering of penny stocks.
Upon the SEC's motion, the Honorable Judge Richard A. Lazzara of the United States District Court for the Middle District of Florida entered an order setting a preliminary injunction hearing in this matter on September 26, 2002.