An irreverent Wall Street Blog
SEC Begins Sexual Healing of Public Relations Sex Machine
September 8, 2016
Lately, I've been getting a number of inquiries from folks whose opening line is to assure me that they're "totally legit," which, of course, results in the activation of my early-warning system. Many of these callers proceed to assure me that they're not stockbrokers, not investment advisers, and not investment bankers. Okay, sure, that's fine but what the hell are you and why are you calling me? Eventually, they explain that they are bloggers or writers of financial newsletters. After the preliminaries end and the caller finally gets to the point, we often start strolling through a scary, dark forest of stock promotion schemes and reverse merger pump-and-dumps; and hiding behind every tree and under every rock are scheming trolls and hobgoblins. After we exhaust all the idiotic ideas about funneling fees to the wife or son-in-law and briefly touch on the fact that the caller was barred from the securities industry, more often than not, I never hear back from individual seeking my legal services. Sadly, I was so looking forward to the $100,000 retainer for criminal defense work.
I admit that not all folks who seek to promote companies and their securities are crooks. There are some who are totally legit. The problem is that it's a dicey industry when it comes to following stocks and making recommendations. For those who fail to follow the rules, the prospect may be, at best, dancing with securities regulators, and, at worst, doing the perp walk with criminal prosecutors. As demonstrated in a recent Securities and Exchange Commission ("SEC") civil Complaint, Wall Street's cops are on the prowl and more than ready to charge those who seem to have gone astray.
Premature Litigation?
According to a recent SEC press release, the federal regulator:
[C]harged the CEO of a sexual health products retailer and a paid promoter with orchestrating fraudulent promotional campaigns to tout the company's stock.
"SEC Charges CEO and Paid Promoter With Fraudulently Promoting Stock of Las Vegas Health Products Company" (Press Release 2016-178, September 6, 2016),references the SEC's civilComplaint filed in the United States District Court Southern District Of New York ("SDNY"), which charges Scott S.Fraser, his newsletter company Contrarian Press, LLC., and Nathan Yeung with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 as well as Section 17(b) of the Securities Act of 1933. In addition to seeking to hold Fraser liable as a control person, the complaint further charges him and Yeung with aiding and abetting violations.Securities and Exchange Commission, Plaintiff, v. Contrarian Press, LLC, Scott S. Fraser, and Nathan Yeung, Defendants (Complaint, SDNY, 16 CV-06964 / September 6, 2016).
NOTE: A civil Complaint merely contains allegations and the defendants are presumed innocent unless and until prove guilty by a preponderance of the evidence in a court of law.
Sexual Healing
As set forth in the "Summary of Allegations" section of the SEC's Complaint:
1. From approximately September 2011, Fraser-the CEO of the penny stock issuer Empowered Products, Inc. ("EMPO")-concealed from the investing public his and EMPO's involvement with and funding of at least three separate promotional campaigns touting EMPO.2. As part of the first promotional campaign in September and October 2011, Fraser, who was also the writer and publisher of stock-picking newsletters, and Contrarian Press, Fraser's publishing company, made materially false and misleading statements about their relationship with EMPO. 3. Fraser and Contrarian Press touted EMPO's business prospects and repeatedly recommended-in e-mails and/or hard-copy mailers-the purchase of EMPO shares. Specifically, Fraser and Contrarian Press authored and distributed highly-positive articles about EMPO's business without disclosing in those articles that (a) EMPO's CEO Fraser prepared and distributed the articles and owned and ran Contrarian Press; and (b) EMPO and Contrarian Press had entered into an "Investor Relations / Sales and Marketing Agreement" ("Investor Relations Agreement"), under which EMPO paid thousands of dollars per month to Contrarian Press, in part, to promote its business and stock. As a result, the promotional campaign fraudulently hid the fact that it was, in essence, sponsored by the EMPO, the very company the promotional articles were recommending.4. In order to make this promotional campaign more effective, Fraser and Contrarian Press worded the promotional articles to create the false appearance of objectivity in reporting on EMPO's prospects. For example, Fraser wrote a number of the promotional articles under an alias, "Charlie Buck." These promotional articles failed to disclose that Fraser was both EMPO's CEO and the promoter hiding behind the alias of "Charlie Buck", and drafted to create the false and misleading appearance that the author was an objective third-party, unconnected to EMPO and Fraser, who was strongly recommending the purchase of EMPO stock. For example, (a) when using the "Charlie Buck" alias as the author of articles, Fraser referred to EMPO's CEO (himself) in the third person; and (b) the articles explicitly disclaimed Contrarian Press's receipt of payments from EMPO, despite the monthly payments made under the Investor Relations Agreement. 5. As part of the second and third promotional campaigns-which ran in May 2012 and October through mid-November 2012, respectively-Fraser and Contrarian Press hired third parties, including Yeung, to arrange the promotion of EMPO and its stock in order to further obscure Contrarian Press's and Fraser's direction of the promotional campaigns. For example, from approximately summer through fall 2012, Yeung-working under the alias "Mason Zhang" and through a front company, "Crown Pacifica Media Services"-arranged a promotional campaign for EMPO's stock. Although Yeung worked at Fraser's direction and under his control, the promotional materials did not disclose Fraser's and Contrarian Press's involvement in the campaign and the fact that EMPO was paying Contrarian Press to promote its business and stock. 6. As a result of Defendants' fraud, the investing public was misled both (a) as to the objectivity of the promotional material, specifically, that the promotional campaigns were arranged by EMPO's CEO; and (b) that EMPO paid for Contrarian Press to promote its stock.7. Defendants' efforts to promote EMPO's stock were successful. During each of the promotional campaigns, EMPO's stock volume and/or price increased substantially.
By way of further background, the Complaint asserts:
17. Empowered Products, Inc., is a Nevada corporation with its principal offices in Las Vegas, Nevada. EMPO described itself as a manufacturer of gels and other "sexual health" products.
Public Relations Sex Machine
Among the best defenses typically available to defendants in cases such as Contrarian Press is proof that the key relationships were at arm's-length and all conflicts (even so-called "potential" ones) were fully disclosed to potential investors. An example of what the Defendants are up against is best exemplified by this portion of the Complaint:
27. Shortly after entering into the Investor Relations Agreement-and true to its agreement to attempt to expand EMPO's shareholder base-Contrarian Press began touting EMPO's stock in promotional newsletters. However, in order to create the false and misleading appearance of objectivity, the Contrarian Press promotional materials, as drafted by Fraser, masqueraded as objective and independent stock picking newsletters, with no disclosure of Fraser's involvement with Contrarian Press, or that Fraser was, in fact, "Charlie Buck," the supposedly independent stock analyst-author of Contrarian Press newsletters that so highly touted the prospects of EMPO.28. For example, on September 9, 2011, Contrarian Press issued a newsletter called the "Stock-Profit Guide," which stated that "Empowered Products (EMPO) represents a solid growth stock that just launched at $1.25 per share." This newsletter purported to be written by "Charlie Buck." "Charlie Buck" was a pseudonym for Fraser, who was the true author of the Stock Profit Guide. In authoring the Stock Profit Guide, Fraser took additional steps to create the appearance that neither he nor EMPO were involved in its preparation. For example, Fraser phrased the newsletter as an objective evaluation of EMPO, for example by discussing himself in the third person, to create the false impression that Charlie Buck was an objective third party:
What I am impressed with most at this early stage is the company's global sales reach and expanding revenue/growth model. I also love that Empowered Products is a U.S. corporation operating in America, employing American workers, and manufacturing its production on U.S. soil . . . . According to the company, Empowered has obtained over 85 trademarks for its products worldwide. And, over the last five operational years, EMPO has reported a steady increase in the operational capacity/efficiency of its Las Vegas, Nevada, bottling facility . . . .I have known the founder, president, and CEO of Empowered Products, Scott Fraser, for many years and I've watched the company grow from a small, private entity nine years ago to a rapidly emerging publicly traded corporation today.
Bill Singer's Comment
It's probably not a great idea to be the CEO of a particular pennystock and also to be a CEO of a publisher that appears to be touting the pennystock. Moreover, even if you could clear up some of the discomfort of multiple CEO roles through full disclosure and transparent dealings, that's not likely going to be accomplished through the use of noms de plume and aliases--all of which defeat the point of disclosure. I mean, geez, it's nice that "Charlie Black" knew Empowered Products CEO Fraser for many years, particularly if the SEC's allegation is correct that Buck and Fraser are one and the same! It will be interesting to read the Defendants explanations and defenses to the charges.
The BrokeAndBroker.com Blog will stay on this scene like a sex machine and report back with further developments.