U.S. Securities and Exchange Commission
Litigation Release No. 18669 /April 16, 2004
SECURITIES AND EXCHANGE COMMISSION v. JOHN W. SURGENT, BARRY ABRAMS, WARREN HEMEDINGER, SCOTT PICCININNI, PAUL TAHAN, ROBERT VITALE, MARK CHAVEZ, SAL PUCCIO, AND VICTOR A. LESSINGER, Civil Action No. 04-60493 -CIV (S.D. Fla.)(JIC)
COMMISSION CHARGES FORMER HEADS OF OREX GOLD MINES CORPORATION AND BOILER ROOM OPERATORS IN PUMP-AND-DUMP SCHEME
On April 16, 2004, the Commission filed a Complaint in the United States District Court for the Southern District of Florida against defendants John Surgent, Barry Abrams, Warren Hemedinger, Scott Piccininni, Paul Tahan, Robert Vitale, Mark Chavez, Sal Puccio, and Victor A. Lessinger in connection with a fraudulent pump-and-dump manipulation of the stock of Orex Gold Mines Corporation ("Orex") between March and July 1999.
The Commission's Complaint alleges that between March and July 1999, the defendants used false promotional materials and classic "boiler-room" tactics to sell approximately $6 million of Surgent's unregistered Orex securities. According to the Complaint, defendants Surgent, Abrams, and Hemedinger were all associated at the time with Orex, which claimed to be in the business of extracting gold from iron ore by means of an environmentally safe process. The Complaint further alleges that Surgent, a recidivist securities law violator and disbarred attorney, controlled the majority of Orex stock and -- together with Abrams and Hemedinger -- created and distributed promotional materials that falsely portrayed Orex as an active, established mining company with mines and a revolutionary gold extraction process. In truth, the Complaint alleges, Orex neither owned any mines nor possessed any mining equipment. Moreover, the gold extraction process that formed the cornerstone of the Orex promotional campaign had never been tested or implemented on a commercial basis.
The Complaint further alleges that defendants Piccininni, Tahan, Chavez, Puccio, and Vitale (the "Preferred brokers"), operated a brokerage "boiler room" from the Pompano Beach, Florida office of Preferred Securities Group, Inc., a broker-dealer registered with the Commission. The Complaint alleges that the Preferred brokers agreed to sell Surgent's Orex stock to unsuspecting investors through Preferred, in exchange for a share of the Surgent's profits. According to the Complaint, the Preferred brokers employed abusive sales practices and fraudulent misrepresentations to pressure customers to purchase Orex. The Complaint alleges that defendant Lessinger, Preferred's president, opened the Pompano Beach branch office, authorized the Preferred brokers to solicit transactions in Orex, and personally approved numerous transactions in Orex securities. According to the Complaint, the Preferred brokers also routinely failed to provide customers with the disclosures and documents required by the penny stock disclosure rules of the Securities Exchange Act of 1934 ("Exchange Act"). Preferred brokers ultimately sold approximately $3 million in unregistered Orex securities - and transactions in Orex stock grew to account for at least 50% of the business of the entire Pompano Beach branch office.
The Complaint alleges that the defendants' scheme drove the price of Orex stock from $1.50 per share to more than $7.50 per share over the course of three months, after which the price abruptly collapsed to just pennies a share. Between the Preferred boiler room and other means, the Complaint alleges, Surgent sold over 1 million Orex shares for a total gross profit of approximately $6 million.
The Commission's Complaint alleges that by engaging in the foregoing conduct, (1) defendants Surgent and Abrams violated Sections 5 and 17(a) of the Securities Act of 1933 (the "Securities Act"), Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5; (2) defendant Hemedinger violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5; (3) defendants Piccininni, Tahan, Chavez, Puccio, and Vitale violated Sections 5 and 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5, and aided and abetted violations of Section 15(g) of the Exchange Act and Exchange Act Rules 15g-2, 15g-4 and 15g-5; and (4) Lessinger, as a control person (pursuant to Section 20(a) of the Exchange Act) violated Sections 10(b) and 15(g) of the Exchange Act, and Exchange Act Rules 10b-5, 15g-2, 15g-4 and 15g-5, as well as NASD Conduct Rule 3010 (the NASD's Failure to Supervise rule).
The Commission seeks final judgments against the defendants that permanently enjoin them from further violations of the federal securities laws, bar them from participating in any penny stock offerings, and require them to pay to civil penalties and disgorgement (with prejudgment interest thereon). In addition, the Commission seeks officer and director bars against Surgent, Abrams, and Hemedinger.
Without admitting or denying the allegations in the Commission's Complaint, Piccininni and Tahan have consented to entry of final judgments against them that permanently enjoin them from violating Sections 5 and 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5 - and also enjoin them from aiding and abetting violations of Section 15(g) of the Exchange Act and Exchange Act Rules 15g-2, 15g-4 and 15g-5. If approved by the Court, the Final Judgments against Piccininni and Tahan will also permanently bar them from participating in any penny stock offerings.
In addition, without admitting or denying the SEC's findings, defendants Piccininni and Tahan have agreed to Commission administrative orders that permanently bar them from association with any registered broker or dealer, based on the federal district court's anticipated entry of injunctions against them. Piccininni and Tahan were previously convicted in a related criminal proceeding, in part from their conduct at Preferred, sentenced to terms of incarceration, and ordered to pay $5 million and $4,040,000, respectively, in restitution. In light of the criminal sanction and restitution order previously imposed against defendants Piccininni and Tahan, the Commission did not seek to impose disgorgement or civil penalties against them.
Finally, without admitting or denying the allegations in the Commission's Complaint, defendant Abrams consented to entry of a final judgment against him that would permanently enjoin him from violations of Sections 5 and 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5, permanently bar him from participating in any penny stock offering, and permanently bar him from acting as an officer or director of any public company. The proposed Final Judgment also orders Abrams to pay disgorgement of $50,000, plus prejudgment interest thereon, but waives payment of those amounts based on his demonstrated inability to pay.