U.S. Securities and Exchange Commission
Litigation Release No. 18161 / May 28, 2003
SEC Obtains Permanent Injunction Against Roberto E. Veitia, Corporate Relations Group, Inc., Gulf/Atlantic Publishing, Inc. and Stratcomm Media Ltd. for Violations Of The Antifraud, Antitouting and Registration Provisions of the Federal Securities Laws, Along With Order To Disgorge Over $44 Million And To Pay Civil Penalties Totaling $1.7 Million
Jose Antonio Gomez Cortes, Fondo De Adquisiciones e Inversiones Internacionales XL, S.A. AND C.A. Oportunidad, S.A. Settle To Permanent Injunctions Against Violating The Antifraud and Registration Provisions Of The Federal Securities Laws
Securities and Exchange Commission v. Corporate Relations Group, Inc., et al., Civil Action No. 6:99-cv-1222-Orl-28A (M.D. Fla., Orlando) (filed September 27, 1999)
SEC Obtains $44 Million Disgorgement Order, Injunction and Penalties
An Orlando, Florida area resident and companies he controlled, which published promotions of publicly traded companies without adequately disclosing either that the promotions were paid for by the companies or that the defendants were selling the securities of those companies while heralding them to the public, were ordered by a United States District Court to disgorge over $44 million of unlawfully realized income and trading profits, including interest. All four defendants also were enjoined from further violating the provisions of the federal securities laws the Court found they violated and the individual defendant was ordered to pay a civil penalty of $1.4 million. The Court ordered the three corporate defendants to pay a civil penalty of $100,000 each.
The final judgment was entered by the United States District Court for the Middle District of Florida on May 13, 2003, after the Court granted a motion by the Securities and Exchange Commission ("Commission") for summary judgment. The defendants found liable for violating the securities laws through the promotion and sales scheme were Roberto E. Veitia ("Veitia"), Stratcomm Media Ltd. ("Stratcomm"), a publicly traded company, and two Stratcomm subsidiaries, Corporate Relations Group, Inc. ("CRG") and Gulf/Atlantic Publishing, Inc. ("Gulf")(collectively, "the Veitia Defendants"). Veitia was the senior officer of each of the defendant companies.
The Court found in granting summary judgment that the defendants engaged in a fraudulent scheme, primarily perpetrated by Veitia, CRG and its principals, involving 14 different small public companies. The Court found that CRG acquired large blocks of discounted stock from its issuer-clients to pay for promotions and then sold that stock, often in large unregistered distributions, while CRG was touting those stocks in various CRG-sponsored publications. Among other things, the Court found that CRG failed to disclose either its compensation from the issuers for promoting the securities or that CRG was selling its positions in those same securities while promoting the companies to the public. The promotions were published in publications such as Money World, Confidential Fax Alert, The Rumor Mill and Growth Industry Report, all owned and operated by the defendants.
The Court found that the Veitia Defendants violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The Court held the Veitia Defendants failed to disclose they were being paid for promoting the stock of CRG's clients or that they were profiting from their recommendations by selling their holdings while recommending that investors buy such stocks. These omissions were material and fraudulent, the Court concluded.
The Court also found that the Veitia Defendants violated Section 17(b) of the Securities Act, which prohibits a person from publishing any article describing a security for consideration without fully disclosing the receipt and amount of such consideration, on the ground that the Veitia Defendants' "disclosures" were insufficient under the statute. In doing so, the Court rejected the defendants' contention that the promoted companies disclosed this information in public filings they made with the Commission, finding that the plain language of Section 17(b) obligates the "person" who published the article to make the disclosure.
The Court also found that Veitia, CRG and Stratcomm violated Section 5 of the Securities Act by selling securities issues that were not registered with the Commission and were not subject to any exemption from registration. The Court concluded these defendants controlled two Costa Rican entities, Fondo de Adquisiciones E Inversiones Internacionales XL, S.A. ("Fondo") and C.A. Oportunidad, S.A. ("Oportunidad"), and misrepresented these entities to their issuer-clients as legitimate foreign purchasers to whom stock could be sold under Regulation S without registration. The Court found that sales to these entities were "de facto" sales to the defendants and that the defendants did not establish the availability of any exemption for such sales.
The Court further held that CRG violated Section 15(a) of the Exchange Act by acting as an unregistered broker. CRG directed its sales force to contact registered representatives and encourage them to pitch the securities of CRG's clients to their customers. Then, once the customer bought the security, CRG's sales personnel would submit proof of the purchase to CRG and collect compensation based upon the transaction. Similarly, the Court found that CRG and Stratcomm violated Section 15(a) by acting as an unregistered dealer. The Court determined that CRG acted as a dealer by buying and selling securities for its own account through its Costa Rican nominees, Fondo and Oportunidad, and that Stratcomm acted as a dealer by selling approximately one million shares of its common stock to the public and buying stock from other investors to make delivery to the new investors.
Finally, the Court found Veitia liable for CRG's violations as a controlling person of CRG pursuant to Section 20(a) of the Exchange Act.
The final judgment permanently enjoins the Veitia Defendants from violating Sections 17(a) and 17(b) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The judgment also enjoins Veitia, CRG and Stratcomm from violating Section 5 of the Securities Act, and CRG and Stratcomm from violating Section 15(a) of the Exchange Act by acting as an unregistered broker or dealer. Finally, the judgment enjoins Veitia, as a controlling person of CRG pursuant to Section 20(a) of the Exchange Act, from violating Sections 5, 17(a) and 17(b) of the Securities Act, Sections 10(b) and 15(a) of the Exchange Act, and Exchange Act Rule 10b-5.
The Commission Complaint, which was filed in 1999, named as defendants 13 other individuals and entities in addition to the Veitia defendants. Each of the other defendants entered into settlements with the Commission in which they were enjoined and, where ordered, paid disgorgement and penalties, without either admitting or denying the allegations in the Complaint.
Final Judgment Entered against Gomez, Fondo and Oportunidad
Previously, on July 19, 2002, the Court entered a final judgment by consent against Jose Antonio Gomez Cortes ("Gomez"), Fondo and Oportunidad. Without admitting or denying the Commission's allegations, Gomez, Fondo and Oportunidad each consented to the entry of a judgment which permanently enjoined them from violating Sections 5(a), 5(c) and 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5. The judgment also required Gomez to pay a civil money penalty in the amount of $75,000, which he has paid.
The Commission alleged in its Complaint that Gomez, Fondo and Oportunidad violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by actively participating in CRG's fraudulent scheme. Fondo and Oportunidad bought the securities of at least eight of CRG's issuer-clients in more than two dozen separate purchase agreements, the majority of which purportedly were undertaken pursuant to Regulation S, and then sold those securities in hundreds of transactions back into the United States, with much of the stock going to CRG to cover short positions it had taken. According to the Complaint, Gomez signed many of the purchase agreements, along with stock transfer documents, account opening documents, checks, wires and correspondence in connection with those transactions.
The Commission also alleged that, by virtue of the conduct described above, Gomez, Fondo and Oportunidad violated Section 5 of the Securities Act by selling securities of CRG's issuer-clients while no registration statement was in effect and without a valid exemption or safe harbor.
See also Litigation Release No. 16294 (September 27, 1999)(filing of action); Litigation Release No. 16415 (January 21, 2000)(final judgments entered against defendants Ammonia Hold, Inc. and Michael D. Parnell); Litigation Release No. 16447 (February 22, 2000)(final judgment entered against defendant Jack Rodriguez, Jr.); Litigation Release No. 16563, (May 24, 2000)(final judgment entered against defendants New Concepts, L.L.C., Arnold Zousmer, CJL Corporation, and Charles J. Lidman); Litigation Release No. 16717 (September 21, 2000)(final judgments entered against defendants James A. Skalko and Pow Wow, Inc.); Litigation Release No. 17571 (June 17, 2002)(final judgment entered against defendant James W. Spratt III).