U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23973 / October 30, 2017
Securities and Exchange Commission v. Andalusian Resorts and Spas, Inc., John Madsen, and Bernard Fried, Civil Action No. 1:17-cv-08300 (October 27, 2017) (S.D.N.Y.)
SEC FILES CHARGES IN ALLEGED MICROCAP FRAUD SCHEME
The Securities and Exchange Commission today charged Andalusian Resorts and Spas, Inc., its former president and CEO Bernard Fried, and the company's actual control person John Madsen with defrauding investors by issuing false press releases about business prospects and hiding Madsen's secret control of the company.
The SEC alleges that Madsen concealed a past guilty plea to mail fraud by recruiting Fried to serve as a strawman executive of Andalusian while Madsen called the shots from behind the scenes. According to the SEC's complaint, Fried drafted press releases at Madsen's direction announcing the company's intent to acquire a Costa Rican hotel and touting anticipated revenue from the hotel acquisition. Andalusian's press releases were allegedly misleading as the company had no assets, operations, or ability to finance the purchase of the hotel or otherwise satisfy the requirements of the potential transaction. The SEC alleges that the party with whom Andalusian had entered into a letter of intent to purchase did not even have legal title to the hotel, which was in bankruptcy.
According to the SEC's complaint, Andalusian's misrepresentations were intended to fraudulently generate public demand for the company's stock to enable Madsen or his associates to profit from selling their shares into the artificially-inflated market. However, the SEC effectively halted the pump-and-dump scheme before it had the intended effect by suspending trading in Andalusian's securities soon after dissemination of the press releases.
The SEC's complaint charges Andalusian and Fried with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and charges Madsen with violating Section 10(b) of the Exchange Act and Rules 10b-5(a) and 10b-5(c). Madsen also is charged with aiding and abetting Andalusian's and Fried's violations of Section 10(b) of the Exchange Act and Rule 10b-5(b). The SEC seeks penny stock bars, permanent injunctions, and disgorgement of any ill-gotten gains plus interest and penalties against Madsen and Fried. The SEC also seeks an officer-and-director bar against Fried. The SEC also seeks a permanent injunction against Andalusian..
The SEC's investigation was conducted by Brenda Wai Ming Chang, John Lehmann, Peter Lamore and Adam Grace of the New York Regional Office, and the litigation will be led by Paul Gizzi. The case is being supervised by Sanjay Wadhwa. The SEC appreciates the assistance of the U.S. Attorney's Office for the Eastern District of New York and the Federal Bureau of Investigation.