U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20407 / December 19, 2007
SEC v. Brian N. Lines, Scott G.S. Lines, LOM (Holdings) Ltd., Lines Overseas Management Ltd., LOM Capital Ltd., LOM Securities (Bermuda) Ltd., LOM Securities (Cayman) Ltd., LOM Securities (Bahamas) Ltd., Anthony W. Wile, Wayne E. Wile, Robert J. Chapman, William Todd Peever, Phillip James Curtis, and Ryan G. Leeds, 07 Civ. 11387 (S.D.N.Y. filed Dec. 19, 2007)
SEC v. Ian G. Park, 07 Civ. 11389 (S.D.N.Y. filed Dec. 19, 2007)
SEC v. Lawrence D. Isen, 07 Civ. 11386 (S.D.N.Y. filed Dec. 19, 2007)
SEC v. Sedona Software Solutions, Inc. and John E. Cooper, 1:07-CV-02269 (D.D.C. filed Dec. 19, 2007)
SEC Charges Bermuda Financiers Scott Lines and Brian Lines, LOM (Holdings) Ltd. and Five LOM Subsidiaries in Two Fraudulent Stock Manipulations; SEC also Charges Anthony Wile, Wayne Wile, Robert Chapman, W. Todd Peever and P. James Curtis with Market Manipulation
The Securities and Exchange Commission today filed a civil injunctive action in the United States District Court for the Southern District of New York against brothers Scott Lines and Brian Lines, along with Lines Overseas Management Ltd., LOM (Holdings) Ltd., LOM Capital Ltd., LOM Securities (Bermuda) Ltd., LOM Securities (Cayman) Ltd., and LOM Securities (Bahamas) Ltd. (the entities collectively, "LOM"), a Bermuda-based group of financial services firms that includes several broker-dealers, for participating in two fraudulent schemes to manipulate the stock prices of microcap companies Sedona Software Solutions, Inc. and SHEP Technologies, Inc. The Complaint also alleges that defendants Anthony Wile, Wayne Wile, Todd Peever, James Curtis, and Robert Chapman engaged in market manipulation. The Commission also filed settled civil injunctive actions against John Cooper, Ian Park, Lawrence Isen, and Sedona.
In the actions filed today, the Commission makes the following allegations in the complaints:
The Sedona Manipulation Scheme
Defendant Anthony Wile, a stock promoter, issued deceptive press releases and other promotional materials and created a website, in early 2003, to create the misleading impression that Renaissance Mining Corporation ("Renaissance") had acquired certain gold mines and was a leading gold producer. Defendant Park, former CEO of Renaissance, participated in the preparation of Renaissance's false and misleading press releases and website. In early January 2003, using LOM-controlled nominees, the Lines brothers secretly acquired over ninety-nine percent of Sedona's outstanding shares from defendant Cooper, the then-CEO of Sedona, and a group of Sedona shareholders. The Lines brothers failed to file with the Commission reports of their beneficial ownership of Sedona stock. Wile and the Lines brothers then arranged to take Renaissance public by merging it with Sedona, a publicly-traded shell company. The Lines brothers and LOM Capital agreed to raise $6 million on behalf of Renaissance in a purportedly private placement, in order to enable Renaissance to acquire and reactivate the mines that Wile falsely claimed Renaissance owned. In soliciting investments for that placement, defendant Scott Lines made numerous false and misleading statements to LOM brokerage customers, including a U.S. customer.
In mid-January 2003, defendant Anthony Wile primed the market for Sedona and Renaissance shares by orchestrating touting by defendant Robert J. Chapman, a purportedly "independent" newsletter writer who secretly owned Renaissance shares, and other investment newsletter writers. Chapman issued at least one report touting the merger and telling the public that shares of Sedona, which had last traded at three cents per share, would open on January 21 at around $10 per share.
On the morning of January 21, defendants Brian Lines, Scott Lines, Anthony Wile, and Wayne Wile orchestrated a manipulative stock trade on the open market to create an artificially inflated market for Sedona shares. Between January 21 and January 27, Brian and Scott Lines sold or caused the sale of 159,000 Sedona shares on the open market at between $8.95 and $9.40 per share, reaping illegal proceeds of approximately $1.5 million. These sales, which were made without a registration statement in effect, were largely executed through Lines Overseas Management's account at a U.S. broker-dealer with the assistance of defendant Ryan Leeds, then a registered representative at that firm. Leeds, by selling the Lines brothers' stock without making a reasonable inquiry regarding the source of the shares, and Cooper, through his unregistered sale of the Sedona stock to the Lines brothers, both violated the securities registration provisions.
The Sedona scheme collapsed on January 29, 2003, when the Commission suspended trading in Sedona's stock because of questions concerning the accuracy and completeness of public information about Sedona and Renaissance. After the Commission's trading suspension, defendants Brian and Scott Lines ordered LOM staff to backdate and falsify internal records to create the false impression that the Sedona stock was owned by the nominees.
The SHEP Manipulation Scheme
In 2002 and 2003, defendants Brian Lines, Scott Lines, Peever, Curtis, and certain LOM entities engaged in a similar scheme to secretly obtain control of a publicly traded shell company, Inside Holdings, Inc. (IHI), again through the use of LOM nominees. This scheme involved merging IHI with a private company, paying touters to promote the stock, and later selling stock into the ensuing demand. During the first half of 2003, the Lines brothers, Peever, and Curtis sold over three million SHEP shares into this demand, generating about $4.3 million in illegal proceeds. Isen, one of the paid SHEP touters, published bullish reports on SHEP in his OTC Journal newsletter, without disclosing that he was selling almost all of the 100,000 SHEP shares he received as compensation for his touting. As part of the scheme, the Lines brothers, Peever, and Curtis failed to file required reports of their beneficial ownership of IHI and SHEP stock, and defendant Brian Lines caused several false reports to be filed with the Commission to conceal that he, Scott Lines, Peever, and Curtis owned substantial positions in, and had been selling, SHEP stock. Defendant Leeds also sold SHEP stock for defendants Brian and Scott Lines in violation of the securities registration provisions.
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In the litigated matter, the Complaint charges Scott Lines, Brian Lines, the LOM entities, Anthony Wile, Wayne Wile, Peever, Curtis, and Chapman with fraud for their roles in the Sedona and/or SHEP manipulations. Specifically, each, except LOM Holdings, Ltd. and Chapman, is charged with having violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. Defendants LOM Holdings, Ltd. and Chapman are charged with fraud for violating Exchange Act Section 10(b) and Rule 10b-5 thereunder. Defendants Scott Lines, Brian Lines, Anthony Wile, Peever, Curtis, Leeds, and the LOM entities, except LOM Holdings, are also charged with violating Section 5 of the Securities Act, the securities registration provisions of the federal securities laws. Scott Lines and LOM Securities (Bermuda) Ltd. are also charged with illegally operating as unregistered broker-dealers in the U.S., in violation of Section 15(a) of the Exchange Act. Defendants Scott Lines, Brian Lines, Lines Overseas Management Ltd., Peever, and Curtis are charged with violating and/or aiding and abetting violations of Sections 13(d) and/or 16(a) of the Exchange Act and/or Rules 13d-1, 13d-2, and 16a-3 thereunder, the beneficial ownership reporting provisions. In addition, Brian and Scott Lines are charged with aiding and abetting Sedona's violation of Section 13(a) of the Exchange Act and Rule 13a-11 thereunder for failing to disclose their acquisition of control over the Sedona shell. The Complaint seeks permanent injunctions against future violations of the federal securities laws by the defendants, as well as disgorgement and civil penalties. The Complaint also seeks permanent penny stock bars against Scott Lines, Brian Lines, the LOM entities, Anthony Wile, Wayne Wile, Chapman, Peever, and Curtis, and seeks a permanent officer-and-director bar against Anthony Wile.
Separately, Sedona, Ian Park, John Cooper, and Lawrence Isen have consented to the entry of final judgments against them, without admitting or denying the allegations in the SEC's complaints in those actions. Sedona has consented to the entry of a permanent injunction against future violations of Section 13(a) of the Exchange Act and Rule 13a-11 thereunder, which are issuer reporting provisions of the federal securities laws. Cooper has consented to the entry of a permanent injunction against future violations of Section 5 of the Securities Act, the securities registration provisions, and Sections 13(d) and 16(a) of the Exchange Act and Rules 13d-2 and 16a-3 thereunder, the beneficial ownership reporting provisions of the federal securities laws, and aiding and abetting violations of the issuer reporting provisions, and to pay a $30,000 civil penalty. Park has consented to the entry of a permanent injunction against future violations of Sections 5 and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, to pay a $30,000 civil penalty, and to be barred for five years from serving as an officer or director of a public company. Isen has consented to the entry of a permanent injunction against future violations of Securities Act Sections 17(a)(2) and 17(a)(3), which are antifraud provisions, and Securities Act Section 5, to pay disgorgement of $133,595 and a $40,000 civil penalty, and to certain undertakings.
The proposed relief in the settled actions is subject to court approval.