U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20499 / March 17, 2008
SEC v. Robert M. Esposito, Gregory A. King, Jack R. Belluscio and Anscott Industries, Inc., C.A. No. 08:00494 T26 (M.D. Fla.) (EAJ)
SEC Charges Anscott Industries, Inc., Its CEO, and Two Penny Stock Promoters in Fraudulent Touting Scheme
The Securities and Exchange Commission today filed a civil injunctive action in the United States District Court for the Middle District of Florida against two penny stock promoters, Robert M. Esposito and Gregory A. King; Anscott Industries, Inc., a microcap company headquartered in Wayne, New Jersey; and Jack R. Belluscio, Anscott's chairman and chief executive officer. The Commission charges that Esposito, King, Belluscio and Anscott participated in a fraudulent touting scheme of Anscott stock.
The complaint alleges that in April 2003, Esposito orchestrated a reverse merger between Anscott (then a private company) and Liquidix, Inc., a public shell company which, after the merger, changed its name to Anscott. According to the complaint, Belluscio, on behalf of Anscott, issued 4 million shares of Anscott stock to Esposito as compensation for arranging the reverse merger and for future stock promotion work. The complaint further alleges that Belluscio, on behalf of Anscott, filed a fraudulent Form S-8 registration statement with the Commission for the 4 million shares of Anscott issued to Esposito, which improperly enabled Esposito to sell these shares to the public during the fraudulent touting scheme.
As alleged in the complaint, after the reverse merger and the issuance of shares to Esposito, Esposito paid King, another penny stock promoter with whom Esposito had worked previously, to prepare and disseminate materially false and misleading tout sheets promoting Anscott stock. The Commission alleges that these tout sheets â" crafted to appear like independent investment newsletters and entitled the Wall Street Bulletin â" recommended Anscott as a "strong buy," and were disseminated to the public through fax spamming from late May 2003 through July 2003.
According to the complaint, these tout sheets, which King prepared and Belluscio reviewed, contained materially false and misleading representations about Anscott's products, business affiliations, and projected revenues. The complaint further alleges that these tout sheets failed to disclose, among other information, that Esposito, who was paid by the company to promote Anscott stock, was paying King to prepare and disseminate these "newsletters," and that Esposito was selling his Anscott stock during the touting scheme contrary to the Wall Street Bulletin's "strong buy" recommendation and price targets.
During the touting campaign, the price of Anscott's stock rose from around $1.40 a share in mid-May 2003, to a high of $4.59 a share on July 11, 2003. The complaint alleges that during this time, Esposito sold over 1.6 million shares of Anscott stock into the market, realizing over $5 million in illicit profits.
By engaging in the conduct set forth in the complaint, the Commission alleges that:
- Esposito violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5 thereunder; Exchange Act Section 13(d) and Exchange Act Rules 13d-1 and 13d-2; and Securities Act Sections 5(a) and 5(c);
- King violated Exchange Act Section 10(b) and Exchange Act Rule 10b-5; and Securities Act Section 17(b);
- Belluscio violated Exchange Act Section 10(b) and Exchange Act Rule 10b-5; and Securities Act Sections 5(a) and 5(c); and
- Anscott violated Exchange Act Section 10(b) and Exchange Act Rule 10b-5; and Securities Act Sections 5(a) and 5(c).
The Commission's complaint seeks: (1) permanent injunctions and civil penalties against each of the defendants; (2) disgorgement of ill-gotten gains, with pre-judgment interest, from Esposito, King and Belluscio; (3) penny stock bars against Esposito and King; and (4) an officer and director bar against Belluscio.
In addition, the Commission also today instituted an administrative proceeding against Anscott pursuant to Section 12(j) of the Exchange Act, to determine whether to suspend or revoke the registration of each class of Anscott's securities.
