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U.S. Securities and Exchange Commission


Litigation Release No. 20961 / March 18, 2009

Securities and Exchange Commission v. Darrel T. Uselton and Jack E. Uselton, Case No. 07-2211 (S.D. Tex. filed July 9, 2007)

SEC Settles E-Mail Spam Campaign Case Against Two Texas Individuals

Two Texas men, who perpetrated a massive e-mail spam campaign to drive up the demand for low value stocks they owned, will pay nearly $4 million in penalties and fines and will no longer be able to trade penny stocks under an agreement reached with the Securities and Exchange Commission.

The agreement, which was entered today in the form of two final judgments by Judge Kenneth Hoyt of the U.S District Court in Houston, prohibits Darrel T. Uselton and his uncle, Jack E. Uselton, from violating antifraud provisions of the federal securities laws and trading in penny stock. Darrel Uselton also agreed to pay $2,838,866.72 in disgorgement and prejudgment interest and another $1 million in civil penalties.

According to the SEC initial complaint, the Useltons generated proceeds of more than $4 million by obtaining stock from at least 13 penny stock companies from May, 2005 through December, 2006. The duo would then, according to the SEC, sell those shares into an artificially active, and often-times rising, market that they created through manipulative trading, spam e-mails, direct mailers, and internet-based promotional activities.

The SEC determined that each of the market manipulations followed a similar pattern. Specifically, the Useltons and the companies they controlled received unrestricted shares from the penny stock companies for little or no money in return for purported financing or promotional activities. The Useltons then transferred those unrestricted shares into brokerage accounts they controlled. They then encouraged many of the penny stock companies to issue positive press releases. At the same time, the Useltons orchestrated spam e-mail campaigns using technology that would enable them to essentially instruct millions of computers to distribute their email so that it would appear as though the email was coming from a person whom the recipient might have known.

Darrel Uselton and Jack Uselton, without admitting or denying the allegations, settled the action by consenting to entry of a court order that: (i) permanently bars them from Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder; and (ii) prohibits them from participating in an offering of penny stock pursuant to Section 21(d)(6) of the Exchange Act.

In addition, Darrel Uselton consented to entry of a court order that orders him to pay disgorgement and prejudgment interest in the amount of $2,838,866.72, which will be deemed satisfied upon entry of an order requiring him to pay that amount in restitution to the State of Texas. It also requires him to pay a civil monetary penalty of $1 million.

In a related enforcement action, the Useltons are in the process of settling criminal charges originally filed by the Attorney General's Office for Texas and the Harris County District Attorney's Office (Houston, Texas) in July 2007 and have agreed to forego any right to $2,838,866.72 that previously was seized by the Texas criminal authorities from bank and brokerage accounts controlled by Darrel Uselton.

The Commission acknowledges the assistance of the Attorney General's Office for Texas and New York, The Harris County (Houston, Texas) District Attorney's Office, the Federal Bureau of Investigation, the Texas State Securities Board, the United States Attorney's Office District of Colorado, the Financial Industry Regulatory Authority, the State of Oklahoma Department of Securities, and the National Cyber-Forensics & Training Alliance.

For additional information regarding prior Commission action in this investigation, see Litigation Release No. 20187 (July 9, 2007)



Modified: 03/18/2009