SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 16294 / September 27, 1999
SECURITIES AND EXCHANGE COMMISSION v. CORPORATE RELATIONS GROUP, INC., STRATCOMM MEDIA LTD., GULF ATLANTIC PUBLISHING, INC., NEW CONCEPTS L.L.C., CJL CORPORATION, POW WOW, INC., FONDO DE ADQUISICIONES E INVERSIONES INTERNACIONALES XL, S.A., C.A. OPORTUNIDAD, S.A., AMMONIA HOLD, INC., ROBERTO E. VEITIA, JAMES W. SPRATT III, JAMES A. SKALKO, JACK R. RODRIGUEZ, JOSE ANTONIO GOMEZ CORTES, ARNOLD ZOUSMER, CHARLES J. LIDMAN and MICHAEL PARNELL
Civil Action No. 99-1222-CV-22-A (M.D. Fla., Orlando) (filed September 27, 1999)
The Securities and Exchange Commission today brought a civil action against 17 defendants alleging securities fraud and other securities law violations in connection with the trading and promotion of the stock of at least 15 different microcap companies. The defendants charged in the Commission's 73-page Complaint include Corporate Relations Group, Inc. ("CRG"), a Winter Park, Florida-based public relations firm, Stratcomm Media Ltd., CRG's parent company, also located in Winter Park, and the president of both companies, Roberto E. Veitia. The Commission alleges that the defendants realized profits of at least $20 million in connection with their illegal activity, which began at least as early as September 1994 and continued beyond December 1996 to a date to be determined. The Commission is seeking the entry of injunctions against the defendants as well as orders requiring the payment of disgorgement and fines.
The Complaint alleges that CRG, Veitia and two of Veitia's associates, James W. Spratt III and James A. Skalko, obtained free or deeply discounted securities from public companies in return for touting the companies. The defendants conducted their touting activities in publications, faxes, press releases, and through the use of telephone solicitations to brokers by CRG employees known as "broker relations executives." CRG, Veitia, Spratt, and Skalko then secretly sold such securities at the same time as they recommended the securities as good investment opportunities, a practice known as "scalping." The Complaint further alleges that the publications, including MoneyWorld magazine, fraudulently failed to disclose the receipt of the securities as compensation and further failed to disclose the selling activity by the defendants.
The Complaint alleges that the defendants used elaborate means to carry out and conceal their illegal activity. Among other things the Complaint alleges that:
The Complaint also charges that in 1994 and 1995, Stratcomm and CRG engaged in an unregistered and illegal distribution of Stratcomm's stock and used certain employees to effect that distribution, thereby also acting illegally as an unregistered broker and/or dealer.
Defendant Ammonia Hold, Inc., whose principal offices are in Little Rock, Arkansas, is the only CRG client named as a defendant in the Complaint. The Complaint alleges that Ammonia Hold and defendant Michael D. Parnell, a major Ammonia Hold shareholder and later the company's president, violated the registration requirements of the Securities Act in the issuance and sale of its stock to CRG. The Commission also charges that Ammonia Hold and Parnell fraudulently reported the proceeds of the sale of stock to CRG, through its nominee defendant Fondo, as licensing revenues rather than infusions of capital, in a report required to be filed with the Commission, in a press release, and on the Company's website.
Other defendants in this action include Gulf Atlantic Publishing, Inc., another Stratcomm subsidiary located in Winter Park, Florida, which, during part of the relevant period, was the publisher of touting publications, and Pow Wow, Inc, a company controlled, during the relevant time, by defendant Skalko, that traded in the securities of some of CRG's issuer-clients.
The Commission's Complaint alleges that defendants CRG, Gulf Atlantic Publishing, Inc., Roberto E. Veitia, James W. Spratt, III, James A. Skalko, Jack R. Rodriguez, Fondo, Oportunidad, Gomez, Michael Parnell, and Ammonia Hold, Inc. violated the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 ("Exchange Act"). The Complaint alleges that defendants CRG, Gulf Atlantic Publishing, Inc., Roberto E. Veitia, James W. Spratt, III, and James A. Skalko violated the antitouting provision, Section 17(b) of the Securities Act, as a result of their failure adequately to disclose compensation received from issuers. The Commission is charging defendants CRG, Stratcomm Media Ltd., Roberto E. Veitia, James W. Spratt, III, James A. Skalko, Fondo, Oportunidad, Gomez, Michael Parnell, Ammonia Hold, Inc., New Concepts L.L.C., Arnold Zousmer, Charles J. Lidman, CJL Corporation, Pow Wow, Inc., and Jack R. Rodriguez with violating Section 5 of the Securities Act, the stock registration requirement. The Commission is charging defendants CRG, Stratcomm Media Ltd., James W. Spratt, III, James A. Skalko, and Jack R. Rodriguez with failing to register as brokers and/or dealers, violations of Section 15(a) of the Exchange Act. Finally, the Complaint alleges that defendants Stratcomm Media Ltd. and Roberto E. Veitia are liable for all of CRG's violations, as controlling persons of CRG, under Section 20 of the Exchange Act.
In a related action, the Commission today also initiated administrative proceedings against four stockbrokers who allegedly received payments from CRG in return for recommending Tracker stock to their customers. The administrative complaint alleges that the four brokers violated the antifraud provisions of the Securities Act and the Exchange Act by failing to disclose this compensation to their customers and prospective customers. Those named in the administrative action are Steven J. Erlsten, Jr., of Apopka, Florida, William H. Clark, of Chester, Vermont, Derek L. DuBois, of Hampstead, Maryland, and Aaron Finkelstein of New York, New York.
This enforcement action is part of the Commission's four-pronged approach to attacking microcap fraud: enforcement, inspections, investor education and regulation. For more information about the SEC's response to microcap fraud and the litigation releases for these cases, visit the SEC's Microcap Fraud Information Center at http://www.sec.gov/news/extra/microcap.htm.