U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20409 / December 20, 2007
Securities and Exchange Commission v. Nicholas A. Czuczko, Case No. CV 06-4792 ODW (C.D. Cal.)
SEC Obtains $1.77 Million Judgment Against Website Operator In Internet Stock Manipulation Scheme
The Securities and Exchange Commission today announced that the United States District Court, Central District of California, has entered final judgment in the Commission's civil securities fraud case against Nicholas A. Czuczko. Czuczko was the operator of an Internet website who defrauded investors by secretly selling the stocks he recommended as "mega bonus buys" on his site, www.thestockster.com. Czuczko previously consented, without admitting or denying the allegations of the Commission's complaint, to entry of an order enjoining him from further violations of the securities laws.
The Commission's complaint alleges that between December 2005 and the end of March 2006, Czuczko, age 35, of Beverly Hills, California, routinely promoted thinly-traded penny stocks on his Stockster website while he personally planned to sell his shares of the stocks into the rising price spurred by the recommendation. Czuczko's practice was to buy shares of the recommended stocks shortly before posting the buy selection on the Stockster website. When unsuspecting Internet visitors bought the recommended stocks and, as Czuczko intended, drove up the price of the shares, Czuczko sold or "scalped" his holdings for substantial profits without disclosing his own sales on the Stockster site. To drive visitors to the Stockster website and thus increase the number of potential investors, Czuczko spent considerable sums on a sustained Internet advertising campaign. According to the Commission's complaint, in a related scheme, Czuczko touted shares of his own company, Epic Media, Inc., on a predecessor to the Stockster website. After the price of Epic Media stock spiked, Czuczko sold his shares at a profit. Czuczko did not publicly disclose those trades, among others, in stock ownership forms required to be filed with the Commission under federal securities laws.
The Commission filed its complaint on August 1, 2006. On December 5, 2007, the court entered judgment enjoining Czuczko from future violations of the antifraud provisions of the federal securities laws (Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder), as well as from future violations of the ownership disclosure provisions of the federal securities laws (Section 16(a) of the Securities Exchange Act and Rule 16a-3 thereunder). In addition, the court ordered Czuczko to disgorge $1,552,463 in ill-gotten gains plus $121,105.64 in prejudgment interest, imposed a $100,000 civil monetary penalty, and barred him from participating in penny stock offerings and from serving as an officer or director of a publicly traded company.