U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20937 / March 9, 2009
SEC v. The Regency Group, LLC; Scott F. Gelbard; Jeffrey S. Koslosky; Aaron S. Lamkin; John J. Coutris; Michael J. Coutris; J. Coutris Partners, LP; Joseph S. Fernando; Wellington Capital Enterprises, Inc.; James J. Coutris; and Dimitrios I. Gountis, Civil Action No. 09-CV-00497 RPM-BNB (D. Colo.)
SEC Charges Denver Stock Promotion Firm with Fraud in Back-to-Back Pump-and-Dump Schemes
The Securities and Exchange Commission today charged The Regency Group, LLC, a Denver-based stock promotion firm, and two of its principals, Colorado residents Scott F. Gelbard and Aaron S. Lamkin, with pumping up the stock price of two Colorado companies through fraudulent promotions and dumping shares into the resulting, artificially-inflated market, first in 2005, then in early 2006. In all, the complaint charges eight individuals and three entities with violating the federal securities laws through their participation in the schemes and through related conduct in the stocks of biotech startup Xpention Genetics, Inc. (Xpention) (now known as Cancer Detection Corp.) and surveillance startup HS3 Technologies, Inc. (HS3). The complaint alleges that the defendants collectively reaped at least $5.9 million in illegal profits.
In addition to Regency, Gelbard, and Lamkin, the named defendants are Canadian resident Joseph S. Fernando and his Nevada corporation, Wellington Capital Enterprises, Inc.; Regency's third principal owner, Jeffrey S. Koslosky, of Colorado; Texas resident John J. Coutris; Colorado resident Michael J. Coutris; Texas limited partnership J. Coutris Partners, LP; and Ohio residents James J. Coutris and Dimitrios I. Gountis.
The SEC's complaint makes the following allegations:
After agreeing to take their clients Xpention and HS3 public, Regency, Gelbard, Lamkin, and Koslosky acquired control of two shell companies and, in "reverse mergers," combined one with Xpention and the other with HS3. At the same time, Regency, Gelbard, Lamkin, Koslosky, John Coutris, Michael Coutris, and J. Coutris Partners sold Xpention and HS3 stock in unregistered distributions to a network of investors they had recruited. Regency, Gelbard, Lamkin, and Koslosky acted as dealers in these transactions but failed to register as dealers with the Commission, while John Coutris, Michael Coutris, and J. Coutris Partners acted as brokers but failed to register as brokers with the Commission.
Regency, Gelbard, and Lamkin orchestrated the drafting, publication, and dissemination of numerous fraudulent promotions to inflate the share price of each stock and enable themselves and others to sell shares later at a profit. Fernando and Wellington, working with Regency, Gelbard, and Lamkin, arranged for the publication and funding of the fraudulent promotions and also sold shares.
The promotional materials: a) made false claims about Xpention and HS3's businesses, technologies, and prospects; b) contained extravagant price predictions for Xpention and HS3 stock that had no basis in fact; c) misrepresented who had paid for their preparation and distribution; and d) omitted information that the defendants intended to sell shares into the promotions.
Regency, Gelbard, Lamkin, and Koslosky sought to hide their ownership interest in Xpention and HS3 by transferring paper ownership of certain restricted shares to James Coutris and Gountis but retaining a hidden interest. James Coutris participating in this scheme by filing a fraudulent Schedule 13D disclosure form with the Commission falsely stating that he was the sole owner of the restricted Xpention shares and had acquired them in order to control the company. Gountis, who — on paper — once owned fully two-thirds of HS3's outstanding shares, failed to file any required disclosure forms regarding his HS3 stock, as did Regency, Gelbard, Lamkin, and Koslosky.
Through their conduct, Regency, Gelbard, Lamkin, Fernando, and Wellington violated the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, while James Coutris violated Section 10(b) of the Exchange Act and Rule 10b-5.
Regency, Gelbard, Lamkin, Koslosky, John Coutris, Michael Coutris, and J. Coutris Partners violated Sections 5(a) and 5(c) of the Securities Act, which prohibit interstate offers and sales of securities unless a registration statement is filed or in effect with the Commission. They also violated Section 15(a)(1) of the Exchange Act, which prohibits persons from acting as brokers or dealers without registering with the Commission.
Regency, Gelbard, Lamkin, Koslosky, and Gountis violated Section 13(d) of the Exchange Act and Rules 13d-1 and 13d-2, which require certain disclosures by beneficial owners of more than 5% of a class of securities, and Section 16(a) of the Exchange Act and Rule 16a-3, which require disclosures by beneficial owners of more than 10% of a class of such securities.
In its complaint, the Commission seeks permanent injunctive relief and civil penalties against all of the defendants. Additionally, the Commission seeks disgorgement of all illegal profits, plus prejudgment interest, and penny stock bars against Regency, Gelbard, Lamkin, Koslosky, John Coutris, Michael Coutris, J. Coutris Partners, Fernando, and Wellington. Without admitting or denying the allegations, Gountis has agreed to settle the charges and pay a $20,000 civil penalty. The settlement with Gountis is subject to approval by the court.
In two related administrative proceedings, the Commission issued orders against Cancer Detection Corp. and HS3 requiring them to cease and desist from violating the registration provisions of the federal securities laws. Cancer Detection Corp. and HS3 agreed to settle the proceedings, without admitting or denying the findings in the Commission's orders.
The Commission acknowledges the assistance of the Financial Industry Regulatory Authority, Inc.