U.S. Securities and Exchange Commission
Litigation Release No.18413 / October 16, 2003
S.E.C. v. David M. Wolfson et al., Docket No. 2:03CV00914DAK (USDC, D.Ut.)
On October 16, 2003, the Securities and Exchange Commission filed a Complaint in the United States District Court for the District of Utah, against twenty-one individuals and entities involved in a scheme to sell securities in five United States-based microcap issuers to hundreds of investors located primarily in the United Kingdom, Australia and New Zealand through a boiler room located in Vientiane, Laos. The Complaint alleges that since late 2002, hundreds of overseas investors have been defrauded by a scheme organized by David M. Wolfson and Gino Carlucci of Salt Lake City, Utah, and Sukumo, Ltd. of Vientiane, Laos. It is further alleged that Sukumo raised at least $16 million from more than 1,100 investors by selling restricted Regulation S shares in Stem Genetics, Inc., F10 Oil & Gas Properties, Diversified Financial Resources Corporation, Valesc Holdings, Inc., and NCI Holdings, Inc., with 70% of the offering proceeds wired to Sukumo and 15% to 20% of the proceeds wired to Wolfson or entities under his control. It is further alleged that Wolfson and persons affiliated with F10, Diversified and Valesc manipulated the prices of those securities in trading on the OTC Bulletin Board, thereby inflating the price Sukumo charged investors. Finally, it is alleged that Stem Genetics, F10, Diversified, Valesc and NCIH, aided and abetted by certain of their officers, made false filings with the Commission and that those officers falsely certified the filings of the issuers when those filings contained material misrepresentations and omitted to state material facts.
In making its sales of securities Sukumo allegedly misrepresented the amount of its commissions by telling investors, orally and in writing, it was receiving only 2% of the sales price of the stock rather than the 70% it was actually receiving. Sukumo also allegedly failed to inform investors the stock they were purchasing was restricted stock. The issuers allegedly stated in their filings that Sukumo was purchasing shares from the issuers when, in fact, it was simply acting as a sales agent for the issuers for a 70% commission. The issuers also allegedly failed, in some or all of their filings, to disclose that Wolfson and the entities controlled by him, NuWay Holding, Inc., Momentous Group, LLC, and Leeward Consulting Group, LLC, were receiving 15% to 20% of the offering proceeds. In addition to these misrepresentations, it is alleged that Stem Genetics and its chief executive officer, Howard Robertson, made material misrepresentations on the company's web site concerning Stem Genetics's business operations. Finally, F10, Diversified and Valesc allegedly failed to disclose that the price of their stock was being manipulated in trading on the OTC Bulletin Board. It is alleged that the price of F10 stock was manipulated by Wolfson, Momentous, Jon R. Marple, the son of F10's principal officers, and by his company Grateful Internet Associates, LLC. It is alleged the price of Diversified stock was manipulated by John Chapman, Diversified's chief executive officer. It is also alleged the price of Valesc stock was manipulated by Jeremy D. Kraus, Valesc's chief executive officer and by Samuel Cohen, the company's chief financial officer.
The Commission seeks the entry of temporary restraining orders against Sukumo, which is also known as The Sukumo Group, The Fujiwara Group, First Chartered Capital Corporation, First Colonial Trust, First China Capital, and International Investment Holding, and Michael Sydney Newman, its control person. The Commission also seeks the entry of preliminary and permanent injunctions against Wolfson, Carlucci, NuWay Holding, Inc.; Momentous Group, LLC; Leeward Consulting Group, LLC; Stem Genetics, Inc.; Howard H. Robertson, M.D.; G&G Capital, LLC; F10 Oil and Gas Properties, Inc.; Jon H. Marple; Mary E. Blake; Jon R. Marple; Grateful Internet Associates, LLC; Diversified Financial Resources Corporation; John Chapman; Valesc Holdings, Inc.; Jeremy D. Kraus; Samuel Cohen; NCI Holdings, Inc. Asset freezes are sought against all defendants except Diversified, Chapman, Valesc, Kraus and Cohen.
The Complaint alleges all the defendants in the action have been violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. In addition, the Complaint alleges F10, Diversified, Valesc and NCIH have been violating the issuer reporting provision of Section 13(a) of the Exchange Act and that: F10 and Valesc violated Rules 12b-20, 13a-1 and 13a-13 under the Exchange Act by filing false annual and quarterly reports; Diversified violated Rules 12b-20, 13a-1, 13a-11 and 13a-13 by filing false annual, current and quarterly reports; NCIH violated Rules 12b-20, 13a-11 and 13a-13 by filing false current and quarterly reports. The Complaint also alleges that Jon H. Marple and Blake aided and abetted F10's reporting violations and that they violated Rule 13a-14 under the Exchange Act by falsely certifying those reports. Kraus and Cohen were charged with aiding and abetting Valesc's reporting violations and with falsely certifying its filings. The Complaint also alleges that Carlucci aided and abetted NCIH's reporting violation and that he falsely certified its filings.
On October 16, 2003, the Honorable Dale A. Kimball, United States District Judge, granted the Commission's application and issued a temporary restraining order, asset freeze and the other requested relief. Judge Kimball also scheduled a December, 2003, hearing on the Commission's application for a preliminary injunction.