SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17690 / August 20, 2002
SECURITIES AND EXCHANGE COMMISSION V. G. CHRISTOPHER SCOGGIN, Civil Action No. H-02-3119 (S.D. Tex.) (DH) (August 20, 2002)
SEC Sues Investment Newsletter Author for Fraud
On August 20, 2002, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the Southern District of Texas, alleging that G. Christopher Scoggin ("Scoggin") violated the federal securities laws by making repeated false representations that his stock picks appearing in his newsletter, "Stock Talk," and on his website, "Stocktalknews.com," were the result of "independent and diligent analysis." According to the Complaint, Scoggin's stock picks were derived solely from his undisclosed financial and other contractual obligations to the companies whose stocks he touted, rather than from any independent analysis. The Complaint further alleges that Scoggin failed to disclose that the issuers of the stocks he featured were the source of his compensation. As a result, Scoggin purposefully misled investors. The Complaint also alleges that Scoggin engaged in illegal "scalping" in two stocks featured in Stock Talk. That is, he advised his readers to buy two different stocks he was "independently" analyzing, with the undisclosed intent to begin selling his own positions in those stocks.
The Complaint alleges that Scoggin was the sole author and editor of all the content in all editions of the Stock Talk newsletter. The newsletters in question all followed the same general format: the newsletters contained several stock recommendations, followed by a disclaimer stating Scoggin's research and analysis was independent. While Scoggin did, in some cases, disclose his ownership interest in, or relationship with, the companies featured in his newsletters, the Complaint alleges that Scoggin failed to fully disclose his relationship with and/or compensation from four of the companies featured in Stock Talk between September 1998 and May 1999.
According to the Complaint, none of the disclaimers in Scoggin's newsletters disclosed that: (i) Scoggin received or expected to receive more than two million shares of one of the featured companies, amounting to nearly 5% of the company's then-outstanding stock, for touting its stock in his newsletter; (ii) Scoggin received the opportunity to invest in a private placement of another featured company at a special discount price in exchange for his promotional efforts; (iii) one featured company paid for the creation and distribution of the first edition of Stock Talk; or (iv) Scoggin was working as a promoter of another featured company with the expectation of either receiving cash or stock in exchange for his services, despite telling his readers that he had no relationship with that company. The Complaint alleges Scoggin willfully withheld material information that would have alerted a reasonable investor to Scoggin's possible bias and the consequent need to discount Scoggin's rosy predictions about the future of these companies.
The Complaint further alleges that Scoggin engaged in scalping with two stocks featured in the Stock Talk newsletters. Scoggin issued "BUY" and "STRONG BUY" recommendations, only to begin selling those stocks from his account shortly thereafter. Scoggin did not disclose his sales or his intent to sell these stocks in his newsletter.
The Commission's Complaint seeks a judgment against Scoggin: (i) permanently enjoining him from violating the antifraud provisions of the Securities Exchange Act of 1934, specifically Section 10(b) and Rule 10b-5 promulgated thereunder; (ii) permanently enjoining Scoggin from violating the anti-touting provision of the Securities Act of 1933, specifically Section 17(b); (iii) permanently barring him from any future participation in the offering of penny stocks, under Section 603 of the Sarbanes-Oxley Act of 2002; (iv) ordering disgorgement of ill-gotten gains Scoggin received as a result of his wrongful conduct, plus pre-judgment interest thereon; and (v) awarding civil monetary penalties.
SEC Complaint in this matter