U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 19213/ May 3, 2005

SEC v. Michael O'Grady, et al., 05CV00868 (D.D.C., filed May 3, 2005)

United States v. Michael O'Grady, CR05119ESH (D.D.C., May 3, 2005)

SEC v. David E. Whittemore, et al., 05CV00869 (D.D.C., filed May 3, 2005)

SEC SUES TELEMARKETERS FOR FRAUDULENT "WRONG NUMBER" STOCK TIPS

The United States Securities and Exchange Commission today filed two complaints in the United States District Court of the District of Columbia charging two voicemail broadcasters and associated individuals with the nationwide broadcasting of hundreds of thousands of fraudulent "wrong number" stock tip messages designed to deceive each recipient into believing the caller had dialed his number by mistake and that he was the unintended recipient of a "hot" stock tip meant for a friend of the caller. The Commission filed the complaints in two separate actions, the first concerning the original "wrong number" scheme and the second concerning a similar, copycat scheme. In one action, the Commission charges Michael O'Grady and two affiliated Augusta, Georgia-based telemarketing companies, Telephone Broadcasting Company, LLC ("TBC") and Telephony Leasing Corporation, LLC ("TLC"), with broadcasting "wrong number" stock tips touting the stocks of six small, thinly-traded companies. Without admitting or denying the allegations made in the Commission's complaint, O'Grady consented to a final judgment ordering him to pay $50,786 in disgorgement and prejudgment interest and a $25,000 penalty, and all three defendants consented to being permanently enjoined from violating Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. In a second action, the Commission charges Peter S. Cahill, the entity he controls, Clearlake Venture Group, and voicemail broadcaster David E. Whittemore and his company, Whittemore Management, Inc. ("WMI"), with a copycat "wrong number" message fraud promoting the shares of two small, thinly traded companies. The Commission's complaint against Whittemore, WMI, Cahill and Clearlake seeks civil penalties, disgorgement of all ill-gotten gains plus prejudgment interest, and permanent injunctions barring future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder against all four defendants. That complaint is pending in federal court.

The Commission's complaint against O'Grady, TBC and TLC charges all three defendants with violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.

In particular, the Commission's complaint alleges that:

  • The "wrong number" scheme was designed so that several individuals, including a Longwood, Florida-based promoter and several Houston, Texas-based promoters could profit by selling shares through a Tampa, Florida-based broker-dealer during the buying frenzy created by the messages.
     
  • O'Grady used his knowledge of the "wrong number" tips to trade in three of the touted companies, realizing a profit of $9,415.
     
  • The "wrong number" messages were recorded using the "voice talent" of the wife of an Altamonte Springs, Florida-based promoter who had hired the defendants to broadcast the messages.
     

Also today, in a related criminal proceeding, the United States Attorney's office for the District of Columbia announced that O'Grady has pled guilty to obstruction of justice charges stemming from the message scheme.

The Commission's complaint against Whittemore, WMI, Cahill and Clearlake charges all four defendants with violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and charges Whittemore and WMI with aiding and abetting Cahill and Clearlake's violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. That complaint alleges that WMI received cash and stock payments for broadcasting the messages while Cahill sold approximately 680,000 shares of one of the touted stocks while the messages were being broadcast, generating proceeds of $508,000.

The Commission would like to acknowledge the assistance of the United States Attorney for the District of Columbia, the Washington Division of the United States Postal Inspection Service, NASD, and the Division of Securities of the Wisconsin Department of Financial Institutions.

SEC Complaint in this matter (Michael O'Grady, et al.)

SEC Complaint in this matter (David E. Whittemore, et al.)


http://www.sec.gov/litigation/litreleases/lr19213.htm


Modified: 05/03/2005