U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19263 / June 9, 2005
SECURITIES AND EXCHANGE COMMISSION v. RICHARD GLEN SPRADLING, Civil Action No. 05-01150 (D.D.C.) (filed June 9, 2005)
SEC SUES STOCK PROMOTER RICHARD SPRADLING FOR FRAUD, ILLEGAL TOUTING AND SCALPING
On June 09, 2005, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the District of Columbia against Richard G. Spradling, a penny stock promoter who distributed newsletters under various titles including "Market News Alert." The Complaint alleges that, through his newsletters and websites, Spradling illegally touted stocks without adequately disclosing the amount and nature of his compensation. In fact, Spradling's compensation most often came from the very companies he promoted or persons associated with the companies that he promoted. The Complaint also alleges that Spradling "scalped" stocks he promoted by selling into the demand that his newsletters and website promotions created. Specifically, the Complaint alleges that between April 2001 and September 2003, Spradling promoted more than 44 penny stock issues by faxing newsletters to hundreds of thousands of individuals. The Complaint further alleges that Spradling received compensation in the form of stock for at least 36 of the penny stocks he promoted and that he sold at least 32 of the stocks during the promotion of the stock. By his conduct, Spradling yielded net proceeds of over $1.6 million.
The Complaint also alleges that Spradling falsely stated that "Market News Alert is an independent research firm with paid subscribers." In fact, the production and dissemination of each newsletter was paid for by the subject company or a related promoter and Spradling's newsletter had no paid subscribers. The Complaint also alleges that Spradling disseminated fraudulent annual revenues and revenue forecasts on behalf of at least one company. Specifically, the Complaint alleges that, in May 2002, Spradling wrote and disseminated a promotion of THC Communications ("THCR") in his Market News Alert newsletter. Prior to disseminating the newsletter, Spradling met with the officers of THCR, obtained a copy of THCR's business plan, and its 2001 financial statements filed with the Commission. THCR's 2001 financial statements reflected $739,065 of audited revenues and its business plan projected 2002 revenues of $12 million. The Complaint further alleges that Spradling's May 2002 newsletter listed THCR's audited 2001 revenues as $11.1 million, which was fifteen times greater than THCR's actual 2001 audited revenues filed with the Commission. The newsletter also listed THCR's projected 2002 revenue as $25 million, which was twice the amount projected in the company's business plan given to Spradling. The Complaint alleges that in exchange for the promotion, Spradling received compensation of approximately $400,000 from the company and individuals whom Spradling knew were the CEO and CFO of the company.
The Complaint seeks to permanently enjoin Spradling from violating the antifraud provisions of the Securities Exchange Act of 1934, specifically Section 10(b) and Rule 10b-5 thereunder and the anti-touting provision of the Securities Act of 1933, specifically Section 17(b). The Complaint further seeks to permanently bar Spradling from any future participation in the offering of penny stocks; disgorgement of ill-gotten gains Spradling received as a result of his wrongful conduct, plus prejudgment interest thereon; and civil monetary penalties.