SEC ANNOUNCES 2ND ROUND OF CHARGES FOR THOSE INVOLVED IN BOILER ROOM SHCEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today announced a second round of charges against individuals behind a boiler room scheme that hyped a company whose new technology was purportedly Super Bowl-bound.

The SEC previously charged the operators of the scheme based in the South Florida and Los Angeles areas.  Seniors and other investors were pressured into purchasing stock in Thought Development Inc. (TDI), an unaffiliated Miami Beach-based company that stated its signature invention is a laser-line system that generates a green line on a football field for a first-down marker visible not only on television but also to players, officials, and fans in the stadium. 

The SEC today is additionally charging four executives who helped make the scheme possible and three companies they operate – DDBO Consulting, DBBG Consulting, and CalPacific Equity Group.  Approximately $1.7 million was raised through these companies from more than 110 investors who were told that an initial public offering (IPO) in TDI was imminent and that their money would be used to develop the groundbreaking technology.  Instead, the SEC alleges that the IPO was not forthcoming as promised, and at least 50 percent of the offering proceeds were merely retained by these companies or paid to sales agents through undisclosed commissions and fees.  Certain executives, their sales agents and their companies lured investors by misrepresenting that TDI’s technology was about to be used by the National Football League (NFL).  One investor even made an additional $75,000 investment on top of an initial $2,500 investment after being told that NFL Commissioner Roger Goodell purchased TDI’s technology for use in the 2013 Super Bowl.  In fact, there was no such arrangement.   

“These sales agents misled investors to believe that TDI was on the brink of having its technology used in football stadiums across the country,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office.  “In reality, TDI had not reached any agreements with the NFL or any team to feature its technology during any games, and certainly not at the Super Bowl.”

The SEC’s complaints charge brothers Dean R. Baker of Coral Springs, Fla., and Daniel R. Baker of Valley Village, Calif., along with Bret A. Grove of Delray Beach, Fla., and Demosthenes Dritsas of Newhall, Calif. 

In parallel actions, the U.S. Attorney’s Office for the Central District of California announced criminal charges against Daniel Baker and Dritsas, and the U.S. Attorney’s Office for the Southern District of Florida announced criminal charges against Dean Baker and Grove as well as Peter Kirschner and Stuart Rubens.  The latter two were charged by the SEC in its initial complaint filed last year.  Dean Baker was previously barred from association with any FINRA member firm in 2006.   

According to the SEC’s complaint filed in federal court in Miami against Dean Baker, Grove, DDBO Consulting, and DBBG Consulting, they entered into an agreement with Kirschner to solicit investors and sell TDI stock.  Baker is president of DDBO Consulting and DBBG Consulting, and Grove is vice president of DBBG.  They recruited, hired, and supervised sales agents who were paid transaction-based compensation in connection with the offer and sale of TDI stock.  Grove misled investors about the use of proceeds by not disclosing fees of more than 50 percent, while Baker and sales agents falsely promised investors guaranteed returns from a purportedly pending IPO.  The sales agents further claimed that TDI’s laser-line technology would be used by the NFL, and Baker himself falsely told an investor in January 2012 that TDI’s technology would be used during the NFL’s upcoming preseason.

According to the SEC’s complaint filed in federal court in Los Angeles against Daniel Baker, Dritsas, and their firm CalPacific Equity Group, they similarly entered into agreements with Kirschner to act as sales agents to offer and sell TDI stock.  Daniel Baker told an investor that the proceeds would go “directly to the business” and no more than “ten cents on every dollar of investor money” would be used as a commission or other fee.  Dritsas told the same investor that he would not charge any commission for a trade – “not even a dime” – when in fact CalPacific received 50 percent of the investor’s proceeds as commissions or other fees. 

“The Bakers and others falsely claimed that an IPO was just around the corner for TDI, and they further enticed investors by saying there were extracting just minimal fees or commissions while more than half the money actually wound up in sales agents’ wallets,” said Glenn S. Gordon, associate director of the SEC’s Miami Regional Office.  “We will continue to bring actions against those who target seniors and other groups vulnerable to investment fraud.” 

The SEC’s complaints allege violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 as well as Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5. 

The defendants have all agreed to settle the SEC’s charges, while Daniel Baker and Dritsas have also entered into plea agreements in criminal cases relating to matters alleged in the complaint in this action.

The SEC’s investigation has been conducted by Kevin B. Hart, Fernando Torres and Mark Dee in the Miami office, and supervised by Jason R. Berkowitz.  The investigation followed an SEC examination conducted by Anson Kwong, Michael Nakis and George Franceschini under the supervision of Nicholas A. Monaco and the oversight of John C. Mattimore.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of Florida, the U.S. Attorney’s Office for the Central District of California and the Federal Bureau of Investigation.

SEC ALLEGES HYPING STOCK PRICE SCHEME IN FLORIDA

The following excerpt is from the SEC website:

Washington, D.C., Jan. 26, 2012 – The Securities and Exchange Commission today charged a Fort Lauderdale-based firm and its founder with conducting a fraudulent boiler room scheme in which they hyped stock in two thinly-traded penny stock companies while behind the scenes they sold the same stock themselves for illegal profits.

The SEC alleges that First Resource Group LLC and its principal David H. Stern employed telemarketers who fraudulently solicited brokers to purchase stock in TrinityCare Senior Living Inc. and Cytta Corporation. While recommending the securities in these two microcap companies, Stern sold First Resource’s shares of TrinityCare and Cytta stock unbeknownst to investors who were purchasing them – a practice known as scalping. As Stern was selling the stocks, he also purchased small amounts in order to create the false appearance of legitimate trading activity and induce investors to purchase shares in both companies.
“First Resource and Stern used a telephone sales boiler room to make inflated claims and defraud investors while simultaneously manipulating the price of the stocks and making profits for themselves,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “The SEC will continue to aggressively pursue perpetrators of microcap stock fraud schemes that hound potential investors to buy stock.”
Since the beginning of fiscal year 2011, the SEC has filed more than 50 enforcement actions for misconduct related to microcap stocks, and issued 63 orders suspending the trading of suspicious microcap issuers. Microcap stocks are issued by the smallest of companies and tend to be low priced and trade in low volumes. Many microcap companies do not file financial reports with the SEC, so investing in microcap stocks entails many risks.

According to the SEC’s complaint filed against Stern and First Resource in U.S. District Court for the Southern District of Florida, they violated federal securities laws by acting as unregistered broker-dealers. Stern hired and trained First Resource’s salespeople and gave them information about TrinityCare to prepare sales scripts and pitch the stock to potential investors. Stern reviewed the draft scripts, made edits, and approved the scripts before the salespeople were allowed to use them.
The SEC alleges that Stern gave the salespeople a list of potential investors to cold call and pitch the stocks. First Resource’s salespeople falsely claimed TrinityCare stock “is going to be $5-7 in 6-12 months” and the company “is going to be a half-a-billion dollar company in five years or roughly a $40 stock.” Stern also disseminated a research report on Cytta to investors and falsely touted: “Sales projections for 2010-2014 should exceed $500 million with a pre-tax net of over $400 million.”
The SEC’s complaint alleges that First Resource Group and Stern violated Section 17(a) of the Securities Act of 1933, and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5. The SEC is seeking permanent injunctions, disgorgement plus prejudgment interest, and financial penalties as well as a penny stock bar against Stern.

The SEC’s investigation was conducted by Jorge L. Riera under the supervision of Elisha L. Frank in the SEC’s Miami Regional Office in coordination with an examination of First Resource conducted by Anson Kwong, Michael J. Nakis, George Franceschini, and Nicholas A. Monaco of the SEC’s Miami office. Edward D. McCutcheon will lead the SEC’s litigation efforts.
The SEC’s investigation is continuing."

SEC ALLEGES uRGENT CORPORATION RAN A BOILER ROOM FRAUD

Many small investors dream of have a big payoff if they could just get in on the right deal at the right time. There are of course people who will target such investors with scams such as amazing real estate development deals or perhaps an initial public offering of a stock. Certainly, if you could have purchased some Microsoft stock before the company became public you could have become very wealthy. Unfortunately, such deals are usually reserved for investment bankers and small investors have very little chance of investing in any legitimate profitable company when it is on the verge of becoming public. I remember when a Mutual Savings and Loan company that I had an account with offered to sell stock to its staff and account holders just before the firm became a publicly traded entity. I did not buy stock because I thought the company had questionable loan practices. For sure the company went public and within two years it was insolvent. The stock price never moved much above the IPO price which was not much different than the price paid for the stock before the offering.

In the following case the SEC alleges that mUrgent Corporation ran a high pressure boiler room operation to sell stock in the company prior to an imminent initial public offering:

“On April 21, 2011, the Securities and Exchange Commission filed a complaint in the United States District Court for the Central District of California against mUrgent Corporation, Vladislav Walter Bugarski (Walter), and his twin sons Vladimir Boris Bugarski (Boris) and Aleksander Negovan Bugarski (Aleks). The SEC alleges that the defendants defrauded investors in a $10 million boiler room scheme.

The SEC alleges that mUrgent, chief executive officer Boris Bugarski, chief financial officer Walter Bugarski, and chief operating officer Aleks Bugarski operated a boiler room at the company to sell mUrgent stock. Boiler room employees cold-called investors, used high pressure sales tactics, and misrepresented to investors that mUrgent had a prospering business and would imminently conduct an initial public offering (IPO). The SEC also alleges that mUrgent and the Bugarskis falsely told investors that stock sale proceeds would not be used to pay cash salaries to the Bugarskis.

According to the SEC’s complaint, mUrgent and the Bugarskis conducted two unregistered securities offerings beginning in 2008 that raised nearly $10 million from at least 130 investors nationwide. The Bugarskis misused investor money to fund more than $1.3 million in cash salary and bonuses for themselves. They also established a separate “slush fund” of more than $500,000, and used investor funds to pay for luxury cars and other personal expenses.

The SEC seeks permanent injunctions against mUrgent and the Bugarskis for violations of the antifraud, offering registration, and broker registration provisions of the federal securities laws, disgorgement, civil penalties, and an order prohibiting the Bugarskis from serving as officers or directors of any public company.
As alleged in the SEC’s complaint, the defendants violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.”