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SEC Charges RIA and Newsletter with 17(b) Violations

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By Mark J. Astarita, Esq.  


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October 27, 1998 – The SEC announced that it filed a Complaint against a group of individuals and corporations, consisting of an investor relations firm, and a regisered investment advisor, charging the defendants with illegally “touting” and “scalping” securities in violation of the federal securities laws.

In particular, the Complaint alleges the following: – that the defendants had an agreement with an Issuer whose stock is quoted on the OTC Bulletin Board Service, to provide “investor relations” and other promotional services. Under these agreements, each defendant published and circulated favorable promotional information about the Issuer in exchange for stock and/or money.

According to the SEC, from approximately February 1998 through September 1998, the defendants prepared reports and news releases that spoke glowingly about the Issuer and encouraged investors to purchase the company’s stock, without disclosing their compensation arrangement. According to the SEC, the defendants published this information on the Internet and in newsletters and circulated it in glossy folders sent to investors who responded to telephone numbers listed on the company’s Internet website or in promotional materials. The Commission alleges that the defendants also took advantage of the market interest their promotional efforts created by selling the Issuer’s stock into the market contrary to their recommendations to buy the same stock. This fraudulent practice is known as scalping.

According to the SEC, three of the defendants received stock proceeds totaling approximately $573,896, $66,416 and $42,650, respectively, each defendant failed to disclose their receipt of stock from and their intention to sell the stock contrary to their buy recommendations/favorable press releases.

The Complaint charges that the defendants’ practice of scalping violates the antifraud provisions found in Section 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities and Exchange Act of 1934, and Rule 10b-5 thereunder. The Complaint also charges the RIA defendant with antifraud violations found in Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, based upon these same activities. Finally, the Complaint also charges that each defendant violated the anti-touting provisions contained in Section 17(b) of the Securities Act. The Complaint seeks a permanent injunction against each defendant, as well as an accounting, disgorgement and civil penalties.

http://www.sec.gov/enforce/litigrel/lr15949.txt

Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.  


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Fraud, anti-touting violations alleged as well as scalpling.   


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Copyright 2010. VGIS Communications LLC. All Rights Reserved. VGIS Communications, LLC – 41 Watchung Plaza, Suite 249, Montclair, New Jersey 07042 – 973-559-5566. Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial adviser before acting upon the information contained in this article. For additional information, contact Mark J. Astarita, Esq., a partner in the law firm of Beam & Astarita, LLC, who represents clients in a wide variety of finance related matters. Mr. Astarita can be contacted by email at astarita@beamlaw.com.
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