U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20097 / April 30, 2007
SEC v. Stephen Luskco, Gregory Neu, Justin Medlin, Emerging Holdings, Inc., Massclick, Inc., and China Score, Inc., Case No. SACV 07-2783 DDP (AGRx) (C.D. Cal.)
SEC Charges Three in Pump and Dump Price Manipulation Scheme Involving Spam E-Mails Touting Penny Stocks
The Securities and Exchange Commission ("Commission") on Friday, April 27, 2007, filed civil securities fraud charges against three individuals and three penny stock issuers for engaging in a "pump and dump" market manipulation scheme involving spam emails that netted the defendants $6.5 million.
Named as defendants were Stephen Luscko, age 39, of Sarasota, Florida; Gregory Neu, age 30 of Miami, Florida; and Justin Medlin, age 24, last known to be of San Diego, California. The three penny stock issuers named in the complaint were Emerging Holdings, Inc., Massclick, Inc., and China Score, Inc. The complaint also named Lyons Checkshop, Inc., Tyson Su, and Marc Primo Pulisci as relief defendants based on their receipt of proceeds from the fraudulent scheme.
The Commission's complaint, filed in U.S. District Court in Los Angeles, alleges that, between March and August 2004, the defendants artificially inflated the stock price and trading volume of certain companies whose stock traded on the over-the-counter market. The complaint alleges that defendants Luscko and Neu formed four companies, including defendants Emerging Holdings, Massclick and China Score, as well as another entity that is now defunct, and then recruited friends and business associates to act as company officers. According to the complaint, Luscko and Neu arranged for these companies to transfer millions of shares of stock to their own or their friends' brokerage accounts in a series of sham transactions designed to bypass Commission regulations that required the shares to be restricted from being resold into the open market. The complaint also alleges that Luscko and Neu drafted false and misleading spam e-mails that were edited by defendant Medlin. Further, the complaint alleges that Medlin embarked on a weekend spam e-mail campaign, bombarding the investing public with millions of spam e-mails that generated significant investor interest and resulted in rapid increases in the companies' stock price and volume. The Commission further alleges that, having "pumped" up the companies' stock prices, Luscko and Neu then, directly or through their friends, "dumped" their shares into the open market, and the companies' stock prices declined rapidly thereafter. As a result of trades made in these four stocks, Luscko, Neu, and Medlin netted $6.5 million.
In a related criminal action, the U.S. Department of Justice and the U.S. Attorney for the Eastern District of Virginia filed charges against Luscko and Neu, who both pled guilty to conspiring to commit securities fraud and e-mail fraud. Neu was sentenced to five years imprisonment and three years supervised release. Luscko was sentenced to five years imprisonment and two years supervised release. The criminal authorities have seized more than $3,000,000 from bank accounts associated with Luscko and Neu.
The Commission's complaint alleges that Luscko, Neu, Emerging Holdings, Massclick, and China Score violated the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933. The complaint also alleges that Luscko, Neu, and Medlin violated the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint further alleges that Medlin violated the anti-touting provisions of Section 17(b) of the Securities Act. The Commission seeks permanent injunctions, disgorgement with prejudgment interest, and civil penalties against each of the individual defendants, as well as a penny stock bar against Luscko, Neu, and Medlin, and injunctions prohibiting Luscko and Neu from conducting unregistered securities offerings. The Commission also seeks disgorgement of the proceeds from the improper stock sales currently held by relief defendants Lyons Checkshop, Su, and Pulisci.