SECURITIES AND EXCHANGE COMMISSION Washington, D.C. LITIGATION RELEASE NO. 15956 / October 27, 1998 SECURITIES AND EXCHANGE COMMISSION v. STOCKSTOWATCH.COM INC., ET AL., Civil Action No. 98-2198-CIV T-26B (M.D. Fl. Tampa Division) SEC CHARGES INTERNET STOCK TOUTER WITH SECURITIES FRAUD The Securities and Exchange Commission ("Commission") announced today that it filed a Complaint in the United States District Court in Tampa, Florida, against Stockstowatch.com Inc. ("STW"), and its president, Steven A. King ("King"). STW is an Internet stock touting service operated from King's home in Sarasota Florida, which claimed at one time to have over 200,000 subscribers. The Commission's Complaint charges STW and King with violating the antitouting and antifraud provisions of the federal securities laws by touting and "scalping" the securities of five microcap companies. Scalping is the practice of recommending the purchase of a security to the general public while selling the stock at the same time. In particular, the Complaint alleges the following: - From October 1997 until at least July 1998, the defendants fraudulently touted the stocks of at least five publicly-traded microcap companies in e-mails sent to STW subscribers and in profiles posted on STW's Internet website. - In exchange for recommending that their subscribers and readers buy the stock of the profiled companies, the defendants received shares of stock in each company. - The defendants never informed their subscribers or website readers that they received shares as compensation for touting the stocks in each company. - With respect to almost every stock touted by STW, the price and/or volume of the profiled company's stock sharply increased shortly following the STW buy recommendation. - STW and King took advantage of the market interest they created by selling into the inflated market large amounts of stock they had received as compensation for their promotional services. The total profit the defendants received from their stock sales in the five companies exceeds $1 million. - STW and King failed to disclose to their readers their intention to sell the stock contrary to their recommendations to buy the same stock made on the STW website and in e-mails. This fraudulent practice is known as "scalping." As part of the alleged fraudulent conduct, the Complaint further alleges that STW and King "scalped" the securities of the following microcap companies: Surgical Safety Products - On April 21, 1998, the defendants sent their subscribers a very positive profile of Surgical Safety Products ("SURG"), a Florida based medical firm. The profile stated, among other things, that the defendants believed that "SURG will be a $20 stock within 18 months." - Just prior to the dissemination of the STW SURG recommendation, SURG stock closed at $0.96. Two days later, the price of SURG stock surged to its yearly high of $3.13, an increase of 200%, and the defendants immediately began selling SURG shares they had received from the company for a profit. By July 6, 1998, the defendants had sold 123,360 shares of SURG stock for a total profit of $573,753. - The defendants did not disclose that they were selling SURG stock at the same time they were recommending that their subscribers and readers buy the stock. Midland, Inc. - On May 23, 1998, the defendants profiled Midland, Inc., a Texas based company, which claimed to own the patent rights to a machine that purportedly produced a fuel- blending additive that dramatically increased the octane rating for gasoline. The profile sent to STW subscribers stated, among other things, that Midland "can become a $75 stock," based on "its ability to generate long term growth and exit for the investor." - During the first trading day after the profile was disseminated, the price of Midland stock increased from $1.03 to as high as $2.63, before closing at $1.44. The trading volume during that day was 1.5 million shares, an increase of over 100% from the previous day. - Immediately after the release of the profile, the defendants began selling undisclosed Midland shares they received from the company for the profile. By June 11, 1998, the defendants sold 152,000 Midland shares for a profit of $172,000. - The defendants did not diclose that they were selling Midland stock at the same time they were recommending that their subscribers and readers buy the stock - On June 16, 1998, Midland announced that its president had resigned amid fraud charges and that it was canceling its acquisition of the company which purportedly owned the patents to the fuel-blending additive machine. The defendants' practice of scalping is alleged to have violated the antifraud provisions found in Section 17 (a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities and Exchange Act of 1934, and Rule 10b-5 thereunder. Additionally, STW and King's failure to disclose the receipt of shares in the companies they promoted as compensation, is alleged to have violated the antitouting provisions contained in Section 17(b) of the Securities Act. The Complaint seeks a permanent injunction against STW and King, as well as an accounting, disgorgement of their unjust profits, and civil penalties. [SEC v Stockstowatch.com, Inc., et. al. USDC CD/FLA, 98- (LR- )].