U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20828 / December 15, 2008
SEC v. National Lampoon, Inc., et al., Civil Action No. 08-5790 (PBT) (E.D. Pa.)
SEC v. Advatech Corporation, et al., Civil Action No. 08-5788 (SD) (E.D. Pa.)
SEC v. Alex Kanakaris, et al., Civil Action No. 08-5789 (JP) (E.D. Pa.)
SEC Sues National Lampoon, Inc. and Others for Wide-Ranging Market Manipulation Schemes
Daniel S. Laikin, National Lampoon's CEO, Charged with Paying Kickbacks in Exchange for Manipulating the Market for National Lampoon's Stock
The Securities and Exchange Commission announced that today it charged seven individuals and two corporations with engaging in three separate fraudulent schemes to manipulate the market for publicly traded securities through the payment of prearranged kickbacks. The defendants include National Lampoon, Inc. and its CEO, Daniel S. Laikin, as well as stock promoters, a consultant, and an officer of another company. The United States Attorney for the Eastern District of Pennsylvania today separately announced criminal charges involving the same conduct.
The Commission's actions, filed in federal district court in Philadelphia, allege that, in each case, individuals who controlled the stock of a public company arranged with corrupt promoters and others to generate purchases of the company's stock in exchange for cash kickbacks. In each case, a witness secretly cooperating with the government (the "CW") was paid a kickback to make purchases in the stock. The goal of the manipulators was to create the appearance of market interest, induce public purchases of the stock, and ultimately increase the stock's trading price. For example, the Commission alleges that Daniel Laikin and another defendant paid at least $68,000 in cash kickbacks for the purchase of National Lampoon stock in order to artificially inflate the stock price.
The Commission's complaints allege as follows:
SEC v. National Lampoon, Inc. et al.
Defendants: National Lampoon, Inc., headquartered in Los Angeles, California, is a media and entertainment company that develops, produces and distributes media projects including feature films, television programming, online and interactive entertainment, home video, and book publishing. The company produced such widely known films as National Lampoon's Animal House, and the National Lampoon Vacation series. National Lampoon's common stock is registered with the Commission and is listed on the NYSE Alternext, formerly the American Stock Exchange ("AMEX"). Daniel S. Laikin, of Los Angeles, California, has been the Chief Executive Officer of National Lampoon since 2005. Laikin controls approximately 40 percent of the voting stock of National Lampoon. Dennis S. Barsky, of Las Vegas, Nevada, is a consultant to National Lampoon, and a significant stockholder. Eduardo Rodriguez, of Livingston, New Jersey, is a stock promoter. Tim Dougherty, of Webster, New York, is a stock promoter and principal of OTC Advisors, Inc., a stock promotion company.
The Commission's complaint alleges that, from at least March 2008 through June 2008, Laikin, Barsky, Rodriguez and Dougherty engaged in a fraudulent scheme to manipulate the market for the common stock of National Lampoon. Specifically, Laikin, along with Barsky, paid kickbacks in exchange for generating or causing purchases of National Lampoon stock to Rodriguez, a corrupt stock promoter, and the CW, whom Laikin, Barsky and Rodriguez believed had connections to corrupt registered representatives. As part of this scheme, Dougherty generated purchases of National Lampoon stock in exchange for a portion of the kickbacks. Dougherty made his purchases over the course of a number of days and used various accounts to give the false impression of a steady demand for the stock.
The complaint alleges that Laikin and Barsky paid at least $68,000 that went to Rodriguez, Dougherty, and the CW to cause the purchase of at least 87,500 shares of National Lampoon stock. Through these efforts, Laikin and Barsky sought to artificially push National Lampoon's stock price from under $2 per share to at least $5 per share, in part, to keep the company's stock price above the minimum listing requirements of the AMEX, and to increase National Lampoon's ability to enter into possible "strategic partnerships" and acquisitions. In addition to paying others to purchase the stock, Laikin shared confidential financial information regarding National Lampoon, non-public news releases, and confidential shareholder lists, and coordinated the release of news with the illegal purchases in the stock. Barsky helped direct the purchases and facilitated the kickback payments. National Lampoon and Laikin also made materially misleading statements in a tender offer.
The complaint alleges violations of Section 17(a) of the Securities Act of 1933, Sections 9(a)(2), 10(b) and 13(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13e-4 thereunder. The complaint seeks permanent injunctions against all defendants, disgorgement of ill-gotten gains, together with prejudgment interest, and civil penalties, from the individual defendants, and an officer and director bar against Laikin.
SEC v. Advatech Corporation, et al.
Defendant Advatech Corporation is headquartered in West Palm Beach, Florida. It describes itself as an early stage biotechnology company engaged in research and development for the commercialization of products for non-invasive therapeutic medicine. Advatech's securities trade on the grey market. Grey market stocks have no market makers, and are not listed, traded or quoted on any stock exchange, or the over-the-counter bulletin board. However, customers may trade through brokers on an unsolicited basis, and trading data is publicly available throughout the trading day. Defendant Richard J. Margulies, of Edison, New Jersey, is Advatech's Chief Financial Officer and a member of its board of directors. Margulies owns and/or controls a significant portion of Advatech stock either directly or through nominees.
The Commission's complaint alleges that, from at least May 2008 through June 2008, Margulies engaged in a fraudulent scheme to manipulate the market for Advatech's common stock. In furtherance of the scheme, Margulies arranged to pay a 20 percent kickback to Rodriguez and the CW for purchases of Advatech stock. Before Rodriguez and the CW made the illegal purchases, Margulies provided them with shareholder lists, confidential information about the company, and non-public press releases. Margulies coordinated the release of news with the purchases, said that he wanted to increase Advatech's stock price from approximately $0.30 to $2.00 per share, and instructed Rodriguez and the CW that they should "move [the stock] up nice and slow, so it doesn't look like we're a bunch of idiots."
The complaint alleges that, to effectuate his scheme, Margulies paid at least $1,040 in kickbacks as partial payments to the CW in exchange for purchases of at least 5,000 shares of Advatech stock on June 17 and 18, 2008.
The complaint alleges violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The complaint seeks permanent injunctions against Advatech and Margulies, and disgorgement of ill-gotten gains, together with prejudgment interest, civil penalties, and a penny stock bar against Margulies.
SEC v. Alex Kanakaris, et al.
Defendants Alex Kanakaris, of Newport Beach, California, and Richard Epstein, of Parkland, Florida, are stock promoters who are significant investors in the stock of SwedishVegas, Inc., headquartered in Arcadia, California, whose stated business plan is to "launch a series of themed eateries with an extensive beer and wine menu and reasonably priced lunches, dinners and appetizers." Until July 23, 2008, when the Commission suspended trading in its stock, SwedishVegas common stock was quoted on an inter-dealer electronic quotation and trading system in the over-the-counter securities market which is operated by Pink OTC Markets, Inc., commonly known as the "Pink Sheets."
The Commission's complaint alleges that, from at least June through July 2008, Kanakaris and Epstein engaged in a fraudulent scheme to manipulate the market for the common stock of SwedishVegas. Specifically, the defendants paid a kickback to Rodriguez, a corrupt stock promoter, and the CW, whom they believed had connections to corrupt stockbrokers, to buy Swedish Vegas stock in an effort to create the appearance of market interest, induce public purchases of stock, and ultimately increase the stock's trading price. At one point, Kanakaris told Rodriguez and the CW that he wanted them to buy as much stock as possible in order to make the stock price "fly."
The complaint further alleges that, in accordance with their scheme, Kanakaris and Epstein paid at least $15,000 to Rodriguez and the CW in exchange for completed purchases of at least 125,000 shares of SwedishVegas stock on July 22, 2008. After this initial stock purchase, actually made with FBI funds, the Commission suspended trading in the stock.
The complaint alleges violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The complaint seeks permanent injunctions, disgorgement of ill-gotten gains, together with prejudgment interest, civil penalties, and penny stock bars from the defendants.
In addition to the enforcement actions, the Commission today entered an order suspending trading in the securities of National Lampoon, Inc. and Advatech Corporation for a ten day period commencing 9:30 a.m. December 15, 2008.
The Commission acknowledges the assistance and cooperation of the U.S. Attorney's Office for the Eastern District of Pennsylvania and the Federal Bureau of Investigation (FBI).