SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
Litigation Release No. 16018 / January 7, 1999
SECURITIES AND EXCHANGE COMMISSION v. WAYNE F. GORSEK,
LYNDELL PARKS, P. BRENDEN GEBBEN, AND TROY JUSTUS, United
States District Court for the District of Columbia, Civil
Action No.: 99CV00033 (EGS) (D.D.C. January 7, 1999).
SEC CHARGES STOCK PROMOTERS WITH FRAUD, CONTINUING ITS FIGHT
AGAINST INTERNET AND MICROCAP ABUSES
The Securities and Exchange Commission today filed
fraud charges against former owners and associates of stock
promoter Strategic Investment Advisory, Inc. ("SIA") for
providing ostensibly independent recommendations about
microcap companies that were actually bought and paid for.
The SEC alleges that the defendants distributed their
recommendations through tout sheets, scripted conference
calls, Internet promotion, and extensive fax and telephone
campaigns.
In its complaint, the Commission alleges that between
1993 and 1997, in exchange for cash and securities in excess
of $700,000, the defendants fraudulently promoted
approximately 20 microcap companies through SIA, a
Springfield, Illinois-based company. The SEC alleges that
SIA deceived investors into believing that it was an
independent securities research firm providing objective
investment advice about "undiscovered" companies. In fact,
the SEC alleges, SIA was merely a paid promotional firm that
uncritically published glowingly optimistic recommendations
of the securities of its clients in exchange for cash and
securities. The SEC alleges that in some instances SIA
secretly sold the securities it received from its microcap
clients at the same time it was recommending that the public
buy the securities, an illegal practice known as "scalping."
The defendants, charged in the United States District
Court for the District of Columbia, are Wayne F. Gorsek, the
former owner, CEO, and President of SIA, Lyndell Parks, the
former Chief Operating Officer and part-owner of SIA, P.
Brenden Gebben, a former Lead Analyst and Assistant Director
of Research for SIA, and Troy Justus, a former member of
SIA’s Financial Communications Department and a registered
broker at Strategic Investments, Inc. ("Strategic
Investments"), a broker-dealer owned by Gorsek and Parks.
According to the SEC, in consideration for its
services, SIA typically received a block of company stock
from its issuer-clients and often negotiated extra stock
payouts if SIA was successful in pushing the price of the
stock to certain pre-set target prices. To inflate the
price of its client’s stock, and in turn maximize its own
compensation, the defendants distributed tout sheets
disguised as independent research reports, ran their
"recommendations" to buy the stock in the financial press,
promoted the securities through postings on Internet
bulletin boards and financial news pages, hosted scripted
"analyst" conference calls, and conducted extensive fax and
telephone campaigns. In each instance, the SEC alleges, the
defendants failed to disclose adequately that they had
received compensation paid from their issuer-clients or the
fact that they were selling the securities they were
recommending to the investing public. The SEC also alleges
that Gorsek published information that he knew, or was
reckless in not knowing, was false and misleading.
The SEC alleges that at the same time they were engaged
in SIA’s promotional scheme, Gorsek, Parks and Justus worked
as registered representatives at Strategic Investments. As
brokers at Strategic Investments, Gorsek, Parks and Justus
defrauded their customers by pushing the highly-speculative
microcap stocks of SIA clients on their brokerage customers
without disclosing that they received cash and securities
from the issuers of the securities that they were
recommending; to further the scheme, Gorsek, Parks and
Justus provided their customers with SIA’s mock research
reports and other false and misleading information.
The SEC alleges that the defendants’ conduct violated
the antifraud provisions of the federal securities laws,
Section 17(a) of the Securities Act of 1933 and Section
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
thereunder. The Commission further alleges that the
defendants violated the prohibition against touting
securities while failing to adequately disclose that such
activity was paid for by the issuers of the securities,
Section 17(b) of the Securities Act of 1933.
The Commission’s action asks the court to permanently
restrain and enjoin the defendants from future violations of
Sections 17(a) and 17(b) of the Securities Act, and Section
10(b) and Rule 10b-5 of the Exchange Act, and further seeks
an order requiring the defendants to pay disgorgement, with
prejudgment interest, and civil penalties.
As the SEC also alleges that SIA spread some of its
bogus promotions over the Internet, investors are advised to
read the SEC’s "Cyberspace" Alert before purchasing any
investment promoted on the Internet. The free publication,
which alerts investors to the telltale signs of online
investment fraud, is available on the Investor Assistance
link on the SEC’s Home page on the World Wide Wed
<www.sec.gov>. To receive a copy of this useful publication
call 800-SEC-0330.
Investors are encouraged to report suspicious Internet
offerings (or other suspicious offerings) via e-mail to
<enforcement@sec.gov>. A user-friendly form to assist in
making a report is available at the Enforcement Complaint
Center on the Enforcement Division link on the SEC Home Page
<www.sec.gov>. Investors can also mail a report to the
SEC’s Enforcement Complaint Center, Mail Stop 8-4, 450 Fifth
Street, Washington, D.C. 20549.
This Enforcement action is also part of the
Commission’s four-pronged approach to minimizing Microcap
fraud: enforcement, inspections, investor education and
regulation. For more information about the SEC’s response
to Microcap fraud, visit the SEC’s Microcap Fraud
Information Center at http://www.sec.gov/news/extra/microcap.htm.