The SEC is accusing First Resource Group LLC and its founder David H. Stern of violating sections of the Securities Act of 1933 and the Securities Exchange Act of 1934. The Commission contends that they ran a boiler room scam involving penny stock companies while selling the same stocks to make illegal earnings.
First Resource and Stern allegedly hired telemarketers to make fraudulent solicitations to brokers to buy Cytta Corporation and TrinityCare Senior Living Inc. stocks. Meantime, Stern was also selling Cytta stock and TrinityCare shares to investors while buying small quantities to make it look as if actual trading activity was taking place so that investors would buy the shares.
The SEC claims that Stern and First Resources used a telephone sales boiler room to defraud investors and make inflated claims while manipulating the stocks’ price and making a profit. The Commission says they acted as unregistered brokers.
The SEC contends that Stern would give the company’s salespersons information so that they could prepare sales scripts about TrinityCare and pitch the company’s stock. He would then look at and approve scripts before they were used while providing them with a list of people to pitch to and cold call.
The Commission says that Stern even sent out a research report about Cytta to investors that falsely claimed that for ’10 – ’14, sales projections should go beyond $500 million with a pre-tax net beyond $400 million. Meantime, Salespeople for First Resource are accused of falsely claiming that TrinityCare stock will be $5-7 with in six months to a year and that in five years, the company would be worth about $500,000 million (about $40/stock).
The SEC is seeking disgorgement, in addition to prejudgment interest, permanent injunctions, and financial penalties, in addition to a penny stock bar for Stern.
The term “Microcap stock” can be applied to companies with “micro” or low capitalization. These companies usually have limited assets. Because many of these companies don’t submit financial reports to the SEC, investing in microcap stocks can be risky. One reason for this is that there isn’t a lot of information available about them, which can make it easy for scammers to put out bogus information. A lot of microcap stocks are traded in the over-the-counter market.
Quotes on microcap stock can be found through the “Pink Sheets” or the OTC Bulletin Board. In addition to there being insufficient public information about microcap stocks, these stocks usually don’t have to satisfy any minimum listing standards and they are very high risk. One reason for this is that a lot of microcap companies are new and therefore lack a solid track record. They many not even have assets or operations. Also, due to the low volumes of trades, any trade size can have a significant impact on stock price.
Since the start of 2011, the SEC has filed over 50 enforcement actions over alleged microcap stock-related misconducted and 63 orders to suspend suspicious microcap issuers’ trading.If you believe that you were the victim of a microcap stock scam, contact our stockbroker fraud law firm right away to request your free case evaluation.
Read the SEC Complaint (PDF)
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