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U.S. Securities and Exchange Commission

United States of America
before the
Securities and Exchange Commission

Securities Exchange Act of 1934
Release No. 48544 / September 25, 2003

Administrative Proceeding
File No. 3-11271

In the Matter of





The Securities and Exchange Commission ("Commission") deems it appropriate that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Scott Simon Fraser ("Fraser").


In anticipation of the institution of these proceedings, Fraser has submitted an Offer of Settlement (the "Offer"), which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, Fraser consents to the entry of this Order Instituting Cease-and-Desist Proceedings, Making Findings and Imposing A Cease-And-Desist Order ("Order"), as set forth below.


On the basis of this Order and Fraser's Offer of Settlement, the Commission finds that:


1. Fraser, age 38, resides in Del Mar, California. Fraser worked as a registered representative associated with various broker-dealers registered with the Commission from 1991 through 1994. On May 8, 1995, without admitting or denying liability, Fraser consented to a NYSE censure that barred him from associating with member firms for eight months based upon allegations of unauthorized trading of securities in the accounts of six customers. Fraser is not currently registered with the Commission in any capacity.


2. Since January 1992, Fraser has operated an investment newsletter called The Natural Contrarian Financial Newsletter (the "Newsletter"). During all relevant times, Fraser operated the Newsletter as its sole writer, analyst, editor and publisher. The Newsletter was published on a monthly basis from 1992 through 2001; beginning in January 2002, the Newsletter was published weekly. Fraser disseminates the Newsletter through the mails and the Internet website www.scottfraser.com. Fraser provides impersonal investment advice, directed to all of the subscribers to the Newsletter, and commentary regarding publicly traded companies in each newsletter. Fraser offers stock and option recommendations to subscribers in return for fees ranging from $390 to $1,000 annually for the Newsletter and access to additional research located on his website. As of late 2002, the Newsletter had between 930 and 1,150 subscribers.

3. Between August 2001 and November 2001, Fraser wrote and disseminated five materially false and misleading statements, listed below, in promotional materials he sent to prospective subscribers. Fraser made the statements in mass e-mails to attract subscribers to the Newsletter.

4. The trading volume and price of certain securities that Fraser recommended increased immediately after the recommendations were made. For example, on August 27, 2001, Fraser sent an e-mail to prospective subscribers recommending the purchase of a thinly traded OTC Bulletin Board security. Within 48 hours of his recommendation, the stock's price rose from a closing price of $2.77 and volume of 16,700 shares traded the day before his recommendation, to a closing price of $3.94 per share and volume of 1,317,100 shares the day after his recommendation, representing a 42% increase in price per share and a 7,787% increase in volume.

False and Misleading Statements Relating to the Past Investment Performance of Fraser's Stock Recommendations

5. Fraser made false and misleading statements concerning the purported returns of his past stock recommendations in solicitation materials sent in e-mails to between 25,000 and 38,000 prospective subscribers. He made these statements to induce people to subscribe to the Newsletter. These statements were:

  • "over 87% of my stock recommendations to my elite audience have increased on average 135% in the past 28 months"
  • ". . . if you would have been one of my elite subscribers you would (have) . . . racked up to 14 triple-digit stock gains back-to-back!"
  • ". . . my Elite Subscribers were given the keys to stock-profit margins of 42% in 3 weeks, 79% in 5 weeks, and 18% in 2 weeks -- this is a combined return of 139% in a 13-week period!" (Emphasis in original.)
  • "My last 3 oil and gas stock picks made 660%, 230%, and 915%."

6. Fraser's claimed performance returns contained in the solicitation materials were false. Fraser did not recommend "14 triple digit stock gains back-to-back," nor have over "87% of [his] stock picks increased on average 135%" over the prior 28 months. In addition, he overstated his performance returns.

False and Misleading Statement Relating to the Financial Success of Subscribers to the Newsletter

7. Fraser also made a false and misleading statement regarding the investment success of the subscribers to the Newsletter who followed his investment advice. Between 25,000 and 38,000 prospective subscribers received the claim through promotional materials in e-mails. The statement represented that:

  • "over 1,170 of my subscribers have become multi-millionaires buying and selling my oil and gas stock picks over the last 24 months"

8. Fraser's claim regarding the success of his subscribers was false. Fraser's subscribers did not become multimillionaires by following his advice.

Legal Analysis

9. Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit material misrepresentations or omissions in connection with the purchase or sale of securities. Fraudulent conduct prohibited by these provisions includes employing any device, scheme or artifice to defraud, making any untrue statement of material fact, or omitting to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading.

10. Information is material if there is a substantial likelihood that a reasonable investor would consider it important to an investment decision. Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988); TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976). Fraser's misrepresentations concerning the past investment performance of the stocks he recommended and the investment success of his subscribers were material. See, e.g., Hoxworth v. Blinder, Robinson & Co., Inc., 903 F.2d 186, 200-01 (3d Cir. 1990); Grossman v. Novell, Inc., 120 F.3d 1112, 1119 (10th Cir. 1997).

11. The Supreme Court has held that the "in connection with" element is satisfied when the deception "touches" the purchase or sale of securities. SEC v. Zandford, 535 U.S. 813 (2002). The misstatements concerning the past investment performance of the stocks recommended by Fraser and the investment success of his subscribers reasonably influenced his subscribers' trading decisions and therefore "touched" subsequent purchases and sales.

12. Scienter is also a required element of a violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Aaron v. SEC, 446 U.S. 680, 695 (1980). Recklessness is sufficient to satisfy the scienter requirement. See, e.g., Hollinger v. Titan Capital Corp., 914 F.2d 1564, 1568-69 (9th Cir. 1990) (en banc). Fraser acted with scienter when he disseminated e-mails that contained the misrepresentations regarding performance returns and the success of his subscribers. Fraser wrote all of the solicitation materials sent to prospective subscribers. Fraser knew, or was reckless in not knowing, that these statements were false.

13. As a result of the conduct described above, Fraser committed violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.


In view of the foregoing, the Commission deems it appropriate to impose the relief specified in Respondent Fraser's Offer of Settlement.

According, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act that Respondent Fraser cease and desist from committing or causing any violations and any future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.

By the Commission.

Jonathan G. Katz



Modified: 09/25/2003