A Fort Lauderdale, Fla., firm and its founder hired telemarketers to hawk stocks from two small companies while behind-the-scenes the company manipulated the stock price, according to the Securities and Exchange Commission.
The SEC sued First Resource Group, LLC and its sole manager, David H. Stern, 48, of Tamarac, Fla., in federal court on Thursday for using telemarketers from December 2008 to May 2010 to fraudulently solicit brokers to purchase stock in TrinityCare Senior Living Inc. and Cytta Corporation. The telemarketers were given sales pitches that falsely hyped the two companies' business prospects, while the company secretly bought small amounts of stock to pump up its perceived value, the SEC said in court documents.
Eric I. Bustillo, director of the SEC's Miami Regional Office, said 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 himself.
According to the SEC's complaint filed in U.S. District Court for the Southern District of Florida, he and the company violated federal securities laws by acting as unregistered broker-dealers.
The SEC claims 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 to $7 in six to 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 that falsely stated, "Sales projections for 2010-2014 should exceed $500 million with a pre-tax net of over $400 million."
The SEC is seeking permanent injunctions, disgorgement of any illegal profits plus prejudgment interest, and financial penalties as well as a penny stock bar against Stern. The SEC's investigation is continuing.