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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 18280 / August 8, 2003

SEC Files Civil Lawsuit in Manipulation Case involving Unistar Financial Service Corp.

Securities and Exchange Commission v. Unistar Financial Service Corp., Marc A. Sparks, F. Jeffrey Nelson, Phillip H. Clayton, Dino A. Romano, Cynthia Jackson, Intermark Investments, Inc., Turner Holdings, Inc., and Nicole Clayton Caver, Civil Action No. 3:03CV1763-L (N.D. Tex.).

On August 7, 2003, the Securities and Exchange Commission filed a civil injunctive action against Unistar Financial Service Corp., formerly a Dallas-based insurance and financial services reporting company, Marc A. Sparks, 45, of Dallas, Texas, Phillip H. Clayton, 55, of Houston, Texas, and Dino A. Romano, 34, of Staten Island, New York, and Delray Beach, Florida, and others. The complaint alleges that Sparks, Unistar's former chairman and CEO, Clayton, a three-time convicted felon, and Romano, a securities fraud recidivist, engaged in a scheme to fraudulently inflate the value of Unistar's stock through false public statements, false Commission filings, and manipulative trades. According to the complaint, their fraudulent conduct in 1998 and 1999 drove Unistar's stock price to $61 per share and enabled the company to make the Russell 2000 index. In July 1999, at the height of the scheme, Unistar, a company that currently has no operations or assets, had a market capitalization of over $1.4 billion. During the course of the scheme, Sparks, Romano, and Clayton collaborated to exploit the market for Unistar stock that they had manipulated by directly and indirectly selling thousands of Unistar shares into the inflated market in a series of unregistered transactions, realizing $32 million in proceeds.

Other defendants include:

  • F. Jeffrey Nelson, 46, a resident of Meridian, Texas, the former president and CFO of Unistar, who allegedly authorized some of the company's misleading filings;

  • Cynthia Jackson, 44, of Houston, Texas, an assistant of Clayton's who allegedly sold Unistar stock and placed manipulative trades in Unistar stock at Clayton's direction;

  • Nicole Clayton Caver, 30, of Dallas, Texas, Clayton's daughter, who allegedly failed to disclose her indirect beneficial ownership and control of Unistar stock; and,

  • Intermark Investments, Inc., and Turner Holdings, Inc., two Texas corporations indirectly controlled by Clayton which allegedly conducted manipulative trades in Unistar stock, in the case of Turner Holdings, and sold Unistar shares, in the case of Intermark Investments.

According to the complaint, the scheme commenced in September 1998 when Unistar acquired an insurance company indirectly owned and controlled by Sparks. The value of the acquisition was materially overstated, and the related party nature of the acquisition and Clayton's role in financing the acquired company and his indirect beneficial ownership in Unistar was not disclosed. Thereafter, according to the complaint, Romano and Clayton, with the assistance of Jackson, manipulated the price of Unistar's stock through artificial trading activity and Sparks released fraudulent press releases and other public statements about the Unistar's acquisition, assets, earnings, past pro forma revenues and prospective revenues.

The Commission's complaint alleges that based on the conduct set forth above:

  • Unistar violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2), 14(a) and 15(d) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-13, 14a-3, 14a-9, 15d-1, 15d-11 and 15d-13 thereunder;

  • Sparks violated Sections 5(a), 5(c) and 17(a) of the Securities Act and Sections 10(b), 13(b)(5), 13(d), 14(a) and 16(a) of the Exchange Act and Rules 10b-5, 13b2-1, 13b2-2, 13d-1, 14a-3, 14a-9 and 16a-3 thereunder, and aided and abetted violations of Sections 13(a), 13(b)(2) and 15(d) of the Exchange Act and Rules 12b-20, 13a-13, 15d-1, 15d-11 and 15d-13 thereunder;

  • Nelson violated Section 10(b) of the Exchange Act and Rule 10b-5, thereunder, and aided and abetted violations of Sections 13(a), 13(b)(2) and 15(d) of the Exchange Act and Rules 12b-20, 13a-13, 15d-1, 15d-11 and 15d-13 thereunder;

  • Clayton violated Sections 5(a), 5(c) and 17(a) of the Securities Act and Sections 10(b), 13(d) and 16(a) of the Exchange Act and Rules 10b-5, 13d-1 and 16a-3 thereunder, and is liable, as a control, under Section 20(a) of the Exchange Act, for Unistar's violations of Sections 10(b), 14(a) and 15(d) of the Exchange Act and Rules 10b-5, 14a-3, 14a-9, 15d-1 and 15d-11;

  • Romano violated Sections 5(a), 5(c) and 17(a) of the Securities Act and Sections 10(b), 15(a)(1), 15(b)(6) and 15(c) of the Exchange Act and Rule 10b-5;

  • Jackson violated Sections 5(a), 5(c) and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder;

  • Intermark Investments violated Sections 5(a), 5(c) and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder;

  • Turner Holdings violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; and

  • Caver violated Sections 13(d) and 16(a) of the Exchange Act and Rules 13d-1 and 16a-3 thereunder.

The Commission is seeking various remedies in the civil injunctive action, including: permanent injunctions; disgorgement with prejudgment interest; civil money penalties; officer and director bars; repatriation orders; and an order directing Romano to comply with the Commission's prior order barring him from association with a broker or dealer.

 

http://www.sec.gov/litigation/litreleases/lr18280.htm


Modified: 08/08/2003