UNITED STATES OF AMERICA
In the Matter of
MILLENNIUM GROUP OF
|ORDER INSTITUTING PROCEEDINGS PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933 AND SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS AND IMPOSING CEASE-AND-DESIST ORDER|
The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and they hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Millennium Group of New York, LLC ("Millennium"), Roman Suleymanov ("Suleymanov"), Alex Rovner ("Rovner"), and Gennady Favelyukis ("Favelyukis") (collectively "Respondents") to determine whether the Respondents violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
In anticipation of the institution of these administrative proceedings, the Respondents have submitted Offers of Settlement for the purpose of disposing of the issues raised in these proceedings. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, the Respondents, without admitting or denying the findings set forth herein, except that they admit to the jurisdiction of the Commission over them and over the subject matter of these proceedings, consent to the entry of the findings and to the issuance of this Order Instituting Proceedings ("Order").
On the basis of this Order and each Respondent's Offer of Settlement, the Commission finds the following1:
Millennium Group of New York, LLC ("Millennium"), a New York limited liability company, has been in the business of operating Internet websites since 1999. Millennium's Internet website, www.Realstocks.com, promoted publicly traded securities, including U.N. Dollars Corp. Suleymanov and Rovner are owners of Millennium, and jointly operate the Realstocks.com website.
Roman Suleymanov ("Suleymanov"), 19, is a resident of Staten Island, NY, and is president and chief editor of Realstocks.com.
Alex Rovner ("Rovner"), 19, is a resident of Brooklyn, NY, and is chiefly responsible for the operation of Realstocks.com.
Gennady Favelyukis ("Favelyukis"), 20, is a resident of Brooklyn, NY, and operates several Internet websites, including Winningstocks.com and Stocksnetwork.com.
B. Other Relevant Persons and Entities:
Carib Securities, Ltd. ("Carib") is a Turks & Caicos Islands-based entity, which is in the business of stock promotion. Carib contracted to raise U.N. Dollars Corporation's stock price and daily trading volume.
U.N. Dollars Corp. ("UNDR"), which is located in Jacksonville, Florida, was a non-reporting publicly-traded company quoted on the OTC Bulletin Board. UNDR was removed from the OTC Bulletin Board in March 2000 following a trading suspension.
Roman Suleymanov and Alex Rovner are New York area college students. In 1999, they founded Millennium Group of New York, LLC. Through Millennium, they established an Internet website, Realstocks.com, which they used to publish recommendations for various stocks. Suleymanov is the chief editor of the website, and Rovner is responsible for its operations. On the website, Millennium publishes profiles designed to recommend investments in particular stocks, and features certain issuers as a "stock of the month." It also sends bulk e-mail to the website's subscribers, which include the stock profiles. Millennium barters with other stock-touting websites to feature additional profiles for issuers that were not Millennium clients, in return for other websites' inclusion of Millennium profiles.
On September 14, 1999, Carib, an unregistered offshore broker-dealer, entered into an agreement with UNDR pursuant to which Carib agreed to move UNDR's stock price from under $0.10 to $5.00, and to increase UNDR's daily trading volume. In exchange, UNDR provided 10 million free-trading shares to Carib. As part of its performance of that contract, Carib hired Millennium to tout UNDR's stock on the Internet.
2. Millennium Touts U.N. Dollars With Reckless Disregard
For the Truth Or Falsity of the Statements Made.
On February 16, 2000, Rovner executed a contract with Carib to recommend UNDR on Millennium's Realstocks.com website and to tout UNDR and three other Carib clients via bulk e-mail messages.2 Millennium was to be compensated with 100,000 UNDR shares for the promotion.3 At a meeting with Carib's principal in February 2000, Suleymanov offered to write a profile of UNDR that would encourage investment in the company, and distribute that profile via Internet websites controlled by Millennium and others affiliated with Millennium. In addition, pursuant to the contract with Carib, Millennium agreed to distribute the UNDR profile to 100,000 e-mail subscribers over a three-month period.4 Suleymanov understood that the e-mail dissemination was to be staged over a three-month period as part of a strategy to create some investor momentum for the purchase of UNDR stock. His goal was to "build up the momentum for the company" to create volume and entice buyers to continue trading in the stock.
On February 24, 2000, Suleymanov wrote the UNDR investment profile that would be published by Realstocks.com. The profile stated that Realstocks.com was "upgrading" UNDR to a "strong buy" and predicted a six-month price target price of $4.00. At that time, UNDR traded between $0.80 and $1.00 (which were all-time highs for the stock). The profile justified the $4.00 prediction by explaining that UNDR was a multinational development company, a conglomerate and diversified holding company that was well on its way to establishing a presence as a world-leading company. Suleymanov also included excerpts from UNDR's website located at undollars.com and a disclaimer that disclosed the compensation of 100,000 shares from Carib.
The excerpts from UNDR's website that Suleymanov used claimed that UNDR was pursuing an "Alpha to Omega" strategy to invest in a wide range of businesses, but contained virtually no substance. In essence, Suleymanov's profile indicated that UNDR hoped to "find and acquire good businesses," that management was "constantly researching ideas for new products and markets" and that UNDR would focus upon "whatever makes economic sense." Although UNDR's website contained more explanation of its corporate strategy, it revealed little success by UNDR. The website primarily is a list of potential (but not actual) multi-million dollar acquisitions that UNDR wished to make.
In reaching the recommendation and target price, Suleymanov never sought any financial information about UNDR, or otherwise attempted to learn whether UNDR had the ability or wherewithal to make any acquisitions. Suleymanov admitted that he assumed UNDR would achieve all the business objectives listed on its website and would complete the potential acquisitions heralded there and in press releases within six months' time. Suleymanov also admitted that he picked the $4.00 price target to boost interest in the stock among investors and without any supportable methodology. On February 27, 2000, Millennium published its UNDR profile on Realstocks.com.
Millennium received 33,000 UNDR shares, pursuant to its contract with Carib, on March 1, 2000. After transferring 26,500 of those shares as a "finders fee" to the parties that introduced Carib and Millennium, Millennium sold its 6,500 UNDR shares on March 3, 2000, at $1.10, for a total return of $6,954.75.5
3. Favelyukis Adopts and Restates Millennium's Reckless
Recommendation and Price Projection As His Own.
As a part of Millennium's touting campaign, Rovner and Suleymanov contracted with Gennady Favelyukis, owner of Winning Stocks, LLC, and operator of Internet websites StocksNetwork.com and Winningstocks.com. They agreed to pay Favelyukis $2,000 to e-mail Millennium's UNDR profile to Favelyukis's 30,000 subscribers, and to post the UNDR profile on Favelyukis's stock-picking websites.6 On February 27, 2000, Favelyukis sent the substance of the Millennium profile to his e-mail subscribers, and shortly thereafter posted the profile on his websites. However, Favelyukis edited it to say "StocksNetwork is upgrading shares of U.N. Dollars OTC BB: UNDR to a Strong Buy and raising its 6 month target to $4," and "Winningstocks is upgrading shares of U.N. Dollars OTC BB: UNDR to a Strong Buy and raising its 6 month target to $4" per share, respectively. Although Favelyukis stated in a disclaimer appended to the UNDR profile that Millennium performed all the research for the profile, Favelyukis specifically adopted the recommendations written by Suleymanov and disseminated them to his subscribers as Winningstocks' and StocksNetwork's own recommendations. As a result, Favelyukis used StocksNetwork.com and Winningstocks.com to disseminate a $4.00 price prediction for UNDR without performing any independent analysis. Favelyukis also edited the disclaimer written by Suleymanov to exclude the fact that Millennium had received 100,000 shares from Carib to tout U.N. Dollars stock. On March 2, 2000, Favelyukis published his modified UNDR profile on Winningstocks.com and Stocksnetwork.com. Favelyukis prominently featured UNDR on these websites as the "stock pick of the week."
In addition to his cash payment, Favelyukis bought and sold UNDR shares on the open market to profit from his tout. Favelyukis purchased 20,000 UNDR shares prior to publication. He sold most of those shares at the same time that he published the UNDR tout, and realized a trading profit of $1,404.05.
D. LEGAL ANALYSIS
1. Applicable Law
Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, prohibit fraud in the offer, purchase, or sale of any securities. Violations of Section 17(a)(1), Section 10(b) and Rule 10b-5 require a showing of scienter, which is defined as a "mental state embracing intent to deceive, manipulate or defraud." Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 n.12 (1976). Scienter may be established by a showing of recklessness. Lanza v. Drexel & Co., 419 F.2d 1277 (2d Cir. 1973); Hollinger v. Titan Capital, Inc., 914 F.2d 1564, 1569 (9th Cir. 1990).
To establish a violation of Sections 17(a) and 10(b) and Rule 10b-5 for misrepresentations and omissions, the misrepresentations and omissions must be material. TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976). A fact is material if there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision. Id.
2. Respondents' Reckless Predictions Violate Anti-Fraud Provisions
The Respondents' statements - rating UNDR a "strong buy" and predicting a $4.00 six-month price target - were material because such statements would be important to a reasonable investor's consideration of whether or not to invest in UNDR securities. That the Respondents recklessly made those statements is evident from the absence of research, financial analysis, investigation, or understanding of the state of UNDR's business operations. To the contrary, the Respondents were paid to tout the company's stock, and understood that their goal in touting was to encourage investors to purchase UNDR securities. For pay, the Respondents published a "strong buy" recommendation, and a $4.00 price target, with no factual or financial basis to back up such predictions. Tellingly, none of the Respondents acted as if they believed the recommendation; Millennium sold its 6,500 shares a day after receiving them, at $1.10, and Favelyukis purchased 20,000 UNDR shares before publishing the profile, which he sold into the market he was helping to create, at $1 1/32.
Neither Millennium nor Favelyukis disclosed to investors that they had done no financial research before they published the "strong buy" rating, and lacked a reasonable basis for the $4.00 price target. Additionally, the rating was described as an "upgrade" of the UNDR shares, falsely implying that some previous rating or coverage was being improved. None of the Respondents disclosed their intention to ignore their own rating and sell their UNDR shares as quickly as possible, into the rising market they hoped to create through publication of the UNDR profile. By failing to disclose that they were selling the stock, contrary to the buy recommendation, they misled investors and violated of Section 10(b). Zweig v. Hearst Corp., 594 F.2d 1261, 1265 (9th Cir. 1979). Additionally, though he was aware from the first draft of the profile that Millennium was to receive 100,000 UNDR shares in return for touting the stock, Favelyukis deleted this material information from the Millennium disclaimer and added only that his company was paid $2,000 to profile UNDR. Disclosure of Millennium's compensation, known to Favelyukis, would have been an important factor that a reasonable investor would consider when contemplating an investment in UNDR securities, particularly since Favelyukis explicitly stated he was relying in part on Millennium's efforts.
Moreover, baseless predictions of the future value of a security are inherently fraudulent:
Predictions of substantial price rises with respect to securities are actionable absent a reasonable basis for the prediction. [Citations omitted] The fraud is not ameliorated where the positive prediction about the future performance of securities is cast as opinion or possibility rather than guarantee. Such material statements violate the anti-fraud provisions if no adequate basis existed for making such a statement.
SEC v. Hasho, 784 F. Supp. 1059, 1109 (S.D.N.Y. 1992). Given the uncertainties inherent in valuing speculative or unseasoned securities such as UNDR's penny stock, a specific prediction of the future value of such a security is inherently fraudulent. In re Charles P. Lawrence, 43 S.E.C. 607, 610 (1967), aff'd 398 F.2d 276 (1st Cir. 1968); In re Merrill Lynch, Pierce, Fenner & Smith, Inc., Exchange Act Rel. No. 14149, 1977 WL 44002 (S.E.C.) (Nov. 9, 1977). Consequently, the $4.00 price prediction disseminated by Millennium and Favelyukis, which lacked a reasonable basis, violated Section 17(a)(1), Section 10(b) and Rule 10b-5.
On the basis of this Order and the Offer of Settlement submitted by the Respondents, the Commission finds that Millennium, Suleymanov, Rovner, and Favelyukis each violated Section 17(a) of the Securities Act, Section 10(b) Exchange Act and Rule 10b-5 thereunder.
In view of the foregoing, the Commission has determined to accept the Respondents' Offers of Settlement. Accordingly,
IT IS ORDERED, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act:
(1) that Millennium Group of New York, LLC cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder;
(2) that Roman Suleymanov cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder;
(3) that Alex Rovner cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder;
(4) that Gennady Favelyukis cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder;
(5) that Millennium Group of New York, LLC, disgorge its proceeds from the violative touting of U.N. Dollars securities, in the amount of $6,954.75, plus pre-judgment interest of $647.37, and that Respondents Suleymanov and Rovner shall be jointly and severally liable with Millennium for the full payment of the disgorgement; and that Millennium shall pay the full amount of $7,602.12 to the United States Treasury, which shall be paid in full within ten (10) days of the date of this Order. Such payments shall be: (1) made by United States postal money order, certified check, bank cashier's check, or bank money order; (2) made payable to the Securities and Exchange Commission; (3) delivered to the Comptroller, Securities and Exchange Commission, 450 Fifth Street, N.W., Mail Stop 0-3, Washington, D.C. 20549; and (4) submitted under cover letter which identifies Millennium, Suleymanov, and Rovner as Respondents in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Scott W. Friestad, Assistant Director, Securities and Exchange Commission, 450 Fifth Street, N.W., Mail Stop 7-8, Washington, D.C. 20549-0708.
(6) that Favelyukis disgorge his proceeds from the violative touting of U.N. Dollars securities, in the amount of $3,404.05, plus prejudgment interest of $316.86; and that Favelyukis shall pay the full amount of $3,720.91 to the United States Treasury, which shall be paid in full within ten (10) days of the date of this Order. Such payments shall be: (1) made by United States postal money order, certified check, bank cashier's check, or bank money order; (2) made payable to the Securities and Exchange Commission; (3) delivered to the Comptroller, Securities and Exchange Commission, 450 Fifth Street, N.W., Mail Stop 0-3, Washington, D.C. 20549; and (4) submitted under cover letter which identifies Favelyukis as a Respondent in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Scott W. Friestad, Assistant Director, Securities and Exchange Commission, 450 Fifth Street, N.W., Mail Stop 7-8, Washington, D.C. 20549-0708.
By the Commission.
Jonathan G. Katz
|1||The findings herein are made pursuant to the Respondents' Offers of Settlement and are not binding on any other person or entity in this or any other proceeding.|
|2||The other issuers described in the touting agreement are Wamex Holdings, Inc., Travelnstore/World Key Corporation, and Ramoil Management Company.|
|3||Millennium was also to receive shares in the other issuers described in the contract in return for touting those entities.|
|4||Millennium itself did not have 100,000 e-mail subscribers, but did have access to subscribers of other Internet stock-touting websites through a barter system where individual websites would trade profiles (or pay cash) to mail a profile to a larger audience. Gennady Favelyukis, who owned Internet websites Stocksnetwork.com and Winningstocks.com, agreed to send the Millennium profile to his approximately 30,000 subscribers, for $2,000.|
|5||Millennium had earlier agreed in a contract to provide two-thirds of the Carib proceeds to two individuals who introduced Carib to Millennium as a "finder's fee." Carib never provided the second two installments of UNDR shares.|
|6||Favelyukis's subscribers are people who, having visited one of his websites, opted to receive stock-picking information from Favelyukis by entering their e-mail address on a web subscription form. The subscriptions were free of charge.|
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