Saturday, August 30, 2014

Possible Accompanying Charges


Possible Accompanying Charges
______

Investor relations firm that are charged with violating Section 17(b) are sometimes hit with other charges as well.

Section 17(b) violators are often also charged with fraud violations under Section 17(a) of the Securities Act of 1933 and Rule 10b-5 of the Securities and Exchange Act of 1934. Section 17(a) is an anti-fraud provision as is 10b-5.

Naturally, if people are doing wrongful promotion and not abiding by 17(b), they are probably making false statements in the content of the promotion as well.

It is important to note that stock promotion companies have also been charged with insider trading for selling stock based on negative insider information not available in the market.

In the case of SEC v. Packetport.com, Inc. et al, the SEC charged IP Equity with violating 17(b) and insider trading. By virtue of its agreement with PacketPort.com to provide publicity services, IP Equity, its officers, and its employees obtained material non-public information about PacketPort.com, including but not limited to information about the company’s true financial condition, its customers, and its private offerings, as well as about the undisclosed securities transactions of its officers and directors. IP Equity, its officers, and its employees owed a duty of trust and confidence to PacketPort.com to refrain from using for personal gain any confidential information they obtained by virtue of their work for PacketPort.com.

On or about December 10, 1999, IP Equity initiated a campaign to generate positive publicity for PacketPort.com. IP Equity’s Internet Stock News, which purported to be “the Web’s leading source for information about Internet investment opportunities,” published what it claimed to be “an investment opinion to notify analysts, brokers, market makers, institutional and retail investors, as well media representatives that IP Telephony company PacketPort.com, Inc. has started trading . . . under the symbol ‘PKPT’.” Internet Stock News falsely stated that its press release contained “independent commentary about Internet stocks.”



On December 13, 1999, IP Equity’s Internet Stock News issued a recommendation for PacketPort.com. IP Equity stated that it had added PacketPort.com to its “Ones to Watch in 1999 group of Internet companies.” IP Equity claimed that PacketPort.com was “now fully restructured, debt-free, and poised to capitalize on the IP-based solutions market.” IP Equity claimed that its “Ones to Watch” group of companies was “up 200% year-to-date and, to [its] knowledge, . . . beat every single money management and mutual fund company in existence.” IP Equity also falsely and misleadingly claimed that its announcement contained “independent commentary about Internet stocks” and that it held “up to four hundred thousand shares of mPhase and PacketPort.com Inc.” On this same date, the transfer agent had delivered IP Equity’s 1.2 million restricted Linkon shares reissued as 400,000 PacketPort.com shares in an unlegended stock certificate.

IP Equity’s statement that PacketPort.com was debt-free was false and misleading. In fact, PacketPort.com remained liable for at least $802,500 in judgment debt. IP Equity’s statement in its recommendation that it held “up to” 400,000 shares of mPhase and PacketPort.com was false and misleading. At the time, defendant IP Equity actually owned 400,000 recently-acquired PacketPort.com shares and beneficially owned another 1,000,000 shares through its option to acquire 1,000,000 PacketPort.com shares at a privately offered price.

On December 21, 1999, defendant IP Equity exercised its private offering option and purchased 1,000,000 PacketPort.com shares at $0.13 per share. After buying PacketPort.com shares at $0.13 per share, IP Equity continued to recommend PacketPort.com to public investors on its Internet website and in subsequent press releases and continued to sell PacketPort.com shares to the public at an average price of about $9.58. About half of IP Equity’s total sales to the public occurred after it exercised this option. IP Equity did not disclose to the public the private offering of PacketPort.com shares at $0.13 per share, its purchases of PacketPort.com at $0.13 per share, or its essentially contemporaneous sales of PacketPort.com shares to the public at prices averaging $9.58 per share.

IP Equity’s officers caused IP Equity to sell PacketPort.com shares and benefited from the sales proceeds. While IP Equity sold PacketPort.com shares in December 1999 and at times thereafter, IP Equity's officers were in possession of material nonpublic information about the company, including but not limited to: the true financial condition of the company; the private offering price of shares; the paid-for publicity arrangement between itself and the company; and the scheme of the defendants to pump up the market price and sell their shares.



No comments:

Post a Comment