SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17953 / January 28, 2003
JUDGE FINDS WAYNE F. GORSEK AND LYNDELL PARKS LIABLE OF SECURITIES FRAUD AND PERMANENTLY ENJOINS THEM FROM FUTURE VIOLATIONS; COURT IMPOSES ADDITIONAL SANCTIONS AGAINST GORSEK, PARKS AND P. BRENDEN GEBBEN; COMMISSION BARS GORSEK AND PARKS FROM ASSOCIATION WITH REGISTERED BROKER DEALERS
SEC v. Wayne F. Gorsek, Lyndell Parks, P. Brenden Gebben and Troy Justus, U.S. District Court for the Central District of Illinois, C.A. No. 99 CV 3072 (JES)
The Commission announced today that the Honorable Jeanne E. Scott, U.S. District Judge for the Central District of Illinois, has found two former brokers and stock promoters, Wayne F. Gorsek ("Gorsek") and Lyndell F. Parks ("Parks") liable for violating the antifraud provisions of the federal securities laws and has enjoined them from further violations of Sections 17(a) and (b) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rule 10b-5. Judge Scott also imposed additional sanctions against defendants Gorsek, Parks and P. Brenden Gebben ("Gebben"), as set forth below.
In a related proceeding, the Commission barred Gorsek and Parks from associating with a registered broker-dealer. Gorsek and Parks consented to the entry of the Commission's order barring them from association with any broker or dealer, without admitting or denying the Commission's findings against them.
The Commission's Complaint, filed on January 7, 1999, alleged that defendants Gorsek, Parks, P. Brenden Gebben ("Gebben") and Troy Justus ("Justus") fraudulently promoted approximately 20 microcap companies through Strategic Investment Advisory, Inc. ("SIA"), a Springfield, Illinois-based company, in exchange for cash and securities. The Complaint alleged SIA deceived investors into believing that it was an independent securities research firm providing objective investment advice about "undiscovered" companies when, in fact, SIA was merely a paid promotional firm that uncritically published glowingly optimistic recommendations of the securities of its clients in exchange for cash and securities.
The Complaint further alleged that at the same time defendants Gorsek and Parks engineered SIA's promotional scheme, they were co-owners and registered representatives at Strategic Investments, Inc. ("SII") (a broker-dealer). The Complaint alleged that as registered representatives at SII, Gorsek and Parks defrauded brokerage customers by recommending the purchase of securities issued by SIA clients without disclosing that they received cash and securities from the issuers of those securities. See Litigation Release No. 16018 (January 7, 1999).
History of the Proceedings and Sanctions Imposed by the Court
On April 21, 2001, Judge Scott entered an Order granting the Commission's motion for partial summary judgment against Gorsek, SIA's CEO, President and "Director of Research," and Parks, SIA's Chief Operating Officer, Vice President, and "Director of Financial Communications," for violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Section 17(b) of the Securities Act, for their fraudulent touting of securities while at SIA.
In January 2002, Gebben, who held the titles of "Lead Analyst" and "Assistant Director of Research and Communications" at SIA, was found liable by a jury for violations of Section 17(b) of the Securities Act (the anti-touting provisions of the federal securities laws). Moreover, at the close of evidence at trial, the Court directed a verdict in the Commission's favor, holding Gebben liable for violations of Section 10(b) of the Exchange Act, and Exchange Act Rule 10b-5 for fraudulently touting securities on the Internet. The Court reserved decision on remedy issues for a subsequent remedy hearing. See Litigation Release No. 17352 (February 5, 2002).
On April 17, 2002, Judge Scott, based on the Court's April 21, 2001 Summary Judgment Order, as well as Parks' Consent, entered an Order of Final Judgment Against Parks that enjoined him from further violations of Sections 17(a) and (b) of the Securities Act, Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5. The April 17, 2002, Order reserved for a subsequent remedy hearing the issue of the amount that Parks should pay in disgorgement, pre-judgment interest and civil penalties.
On May 28, 2002, Judge Scott found, after a bench trial, that Gorsek, who was SII's Compliance Officer and Supervisory Principal, as well as a broker at the firm, violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Exchange Act Rule 10b-5 by defrauding his brokerage customers at SII.
On August 19, 2002, Judge Scott entered a Final Judgment of Permanent Injunction and Other Relief against Gorsek, restraining and enjoining him from violating the antifraud provisions of the federal securities laws. The Court's Order (i) enjoined Gorsek from further violations of Sections 17(a) and (b) of the Securities Act, Section 10(b) of the Exchange Act, and Exchange Act Rule 10b-5, (ii) required Gorsek to pay $105,000 in disgorgement of ill-gotten gains, $70,000 in prejudgment interest thereon, and a civil penalty in the amount of $75,000, and (iii) barred Gorsek from participating in any offering of a penny stock, including acting as a promoter, finder, consultant, agent, or other person who engages in activities with a broker, dealer or issuer for purposes of the issuance or trading in any penny stock, for a period of five years. The Court's Order against Gorsek was based on the fraud findings set forth in the Court's Orders of May 28, 2002 and April 21, 2001, as well as Gorsek's Consent to entry of the final judgment against him.
Finally, on September 9, 2002, Judge Scott entered an Order of Final Judgment against Parks and Gebben, following a remedy hearing. The Court ordered Parks to pay $105,000 in disgorgement of ill-gotten gains, pre-judgment interest of $35,000, and a civil penalty of $10,000 (based, in part, on his inability to pay). The Court further ordered Gebben to disgorge $10,208.50 in ill-gotten gains, prejudgment interest totaling $7,128.93, and pay a civil penalty of $10,000.
For further information about the Commission's action, see Litigation Release Nos. 16018, 17010 (May 18, 2001) and 17352.