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U.S. Securities and Exchange Commission

SEC Charges 82 Individuals and Companies in Second Nationwide Microcap Fraud Sweep



26 Actions Involve More Than $12 Million

Washington, D.C., August 3, 1999 – The Securities and Exchange Commission today announced the filing of 26 enforcement actions against 82 defendants and respondents across the country for engaging in fraudulent microcap schemes from which they profited by more than $12 million and cost investors untold millions. This is the SEC's second nationwide sweep targeted at microcap fraud.

SEC Director of Enforcement Richard H. Walker said, "Today's microcap fraud sweep demonstrates that the Commission will continue to bring maximum resources to bear in cleaning up the microcap market. This market is too vital to our nation's small businesses to allow it to be spoiled by a corrupt few. Today's sweep caps off a successful string of actions over the last few years where, working with the NASD, federal, state and local authorities, we have locked the gate of some of the most notorious boiler rooms including Stratton Oakmont, A.S. Goldmen, A.R. Baron and Sterling Foster. Together, we have made great progress and we will not let up in our efforts until the job is done."

Today's actions take aim at all of the participants in a microcap fraud – from the dealmakers who orchestrate manipulations, to the salespeople in boiler rooms who help carry them out. Issuers, officers, directors, promoters, accountants, attorneys, broker-dealers (both introducing and clearing firms), and transfer agents were rounded up in these enforcement actions. In four cases, investors were lured into the market for a manipulated stock by false information communicated on the Internet.

Importantly, the actions include stiff sanctions against accountants and attorneys who create and file the necessary documents and put their professional stamp of approval on a fraud.

Selected Case Summaries

Today's cases include the following schemes:

  • In a classic pump-and-dump, defendants brought a California airline public through a merger with a public shell company. Although the airplanes never took off, the stock price did through bogus trades and false statements in press releases and an Internet newsletter. After pumping up the price to $5, defendants operated an unregistered broker-dealer to solicit investors to purchase stock defendants were dumping. Defendants unloaded 1 million shares before the price collapsed back to less than 20 cents. Four defendants had prior records, ranging from multiple felony convictions to a SEC injunction and a NASD bar. (SEC v. Durante)

  • Husband and wife officers of a California company stole offering proceeds of $900,000 to pay for personal expenses and vacations in Hawaii, New York and Europe. The couple also realized profits of $400,000 by selling stock while in possession of material nonpublic information about the company's fraudulent accounting practices. (SEC v. American Telephone + Data)

  • Ten brokers in the New York and Chicago branch offices of a broker-dealer targeted retired customers and engaged in classic boiler-room sales practice fraud. At least 77 customers lost over $800,000 while the brokers collected over $250,000 in commissions. Typical of the defrauded customers is an 81-year old retiree whose wife is suffering from Alzheimers disease. (SEC v. Barzilay)

  • A Bolivian mining company without basis inflated its assets by assigning a $40 million value to Bolivian mineral properties that had been acquired in a sham transaction. Respondents issued press releases and other material with false statements about these assets and other aspects of the company. Respondents dumped their stock onto the market, reaping nearly $4 million. (In the Matter of Dynamic American Corp.)
A chart summarizing all of the actions brought today is available by calling 202-942-0020.

The Commission had previously suspended trading in the stock of three issuers involved in today's actions (American Telephone + Data, Comparator Systems, and PanWorld International) for a single ten-day period based on the dissemination of false and misleading information about the companies. The Commission's suspension of trading stopped the ongoing manipulations and placed an additional burden on broker-dealers to update their files with accurate information about the companies before they resumed or began quoting the securities. Since the Commission's first microcap fraud sweep in September 1998, it has suspended trading in the stock of 19 microcap issuers.

These enforcement actions are part of the Commission's four- pronged approach to attacking microcap fraud: enforcement, inspections, investor education, and regulation. For information about the SEC's response to microcap fraud and the litigation releases for each of these cases, visit the SEC's Microcap Fraud Information Center at www.sec.gov/divisions/enforce/microcap.htm.

The SEC acknowledges the valuable assistance of the National Association of Securities Dealers in a number of these cases.

SEC Encourages Investors to Get the Facts

Information is an investor's best tool for investing wisely and avoiding fraud. But many microcap companies do not file reports with the SEC, making it difficult to get the facts about the company's management, products, services, and finances. When reliable information is scarce, fraudsters can easily spread false information about microcap companies – especially on the Internet – making profits for themselves while creating losses for unsuspecting investors.

"Get the facts before you invest – don't risk losing your life savings to fraud," said Nancy M. Smith, Director of the SEC Office of Investor Education and Assistance. "Sometimes, just one phone call to your state securities regulator to check out brokers and investments can save you from losing money."

Before investing in microcap stocks:

  • Call your state securities regulator and ask whether the broker and the firm are licensed and if there's a record of complaints or fraud.

  • Independently check the truth of every statement about the company–especially in a press release or newsletter.

  • Don't fall for promises of quick profits or guaranteed returns, or be pressured to invest before you investigate.

  • Get a free copy of the SEC brochure, "Microcap Stock: A Guide for Investors" at www.sec.gov or by calling toll-free 1-800-732-0330.
"Microcap Stock: A Guide for Investors" explains how to find information about companies, what to watch out for, and where to turn if you run into trouble. For more practical tips on how to invest wisely and avoid investment fraud, visit the SEC's website at www.sec.gov.

List of Cases and SEC Contacts