The SEC just published a litigation release today, announcing a large settlement with Investools, a company that runs investment workshops. The release makes for some juicy reading. The SEC’s complaint is available online.
Investools agreed to a civil injunction and to pay a $3 million civil penalty. Drew and Miller agreed, respectively, to pay civil penalties of $380,000 and $130,000, and to be enjoined from violating the antifraud provisions of the federal securities laws. Drew and Miller additionally agreed to be enjoined, for five years, from receiving compensation for their participation in, among other related activities, the sale of classes, workshops, or seminars given to actual or prospective securities investors concerning securities trading. In settling the matter, Investools, Drew and Miller neither admitted nor denied the allegations in the Commission’s complaint.
Perhaps the funniest part is that while the Investools salesmen claimed they were great traders, they were allegedly poor traders who lost money.
The Commission’s complaint alleges that from 2004 to approximately June 2007 at Investools how-to-trade-securities workshops former Investools employees Drew and Miller misleadingly portrayed themselves as expert investors who made their living trading securities. They did so to mislead investors into believing that they too would make extraordinary profits trading securities if they purchased expensive Investools instructional courses and other products and followed Investools’ securities trading strategies. The complaint further alleges that in reality, neither Drew nor Miller made the trading profits they claimed. For example, in 2005 and 2006, while Drew was portraying himself as a successful investor, he had hundreds of thousands of dollars in net trading losses. In 2006 and 2007, while Miller was portraying himself as a successful investor, he had tens of thousands of dollars in net trading losses.
The SEC also states in the release that the investigation of Investools is ongoing.
Investools Ad
What is the moral of the story? Don’t trust anyone. If someone says they are a good trader and have a good trading system, ask for verification. If their results are audited, check out the auditor.
Disclosure: I have no positions and I have no connection to anyone involved. I have a disclosure policy.
The SEC has a habit of belatedly suing those that Andrew Left of Citron Research has criticized. This time the company is Home Solutions of America, a company that I have writtenabouta few times. I have written about Left many times before. Definitely make sure to see my “Can you trust the StockLemon” series, Part 1,Part 2,Part 3, Part 4.
The SEC alleges that Home Solutions of America, Inc. recorded millions of dollars in bogus revenue and issued a series of materially false press releases boasting robust financial results following Katrina and other weather-related disasters, thus inflating the company’s stock price. The stock price later plummeted after large insider stock sales, the filing of private securities lawsuits alleging fraud, and the company’s public announcement that it would restate its financial statements. Home Solutions then-CEO Frank Fradella, who is among seven individuals charged by the SEC in the scheme, dumped approximately $6.8 million worth of stock into the inflated market.
The SEC further alleges that Marshall engaged in a separate revenue-inflation scheme at Fireline, booking more than $9 million of fake construction revenue from undisclosed, related-party contracts with entities that Marshall controlled. In fact, at the time Fireline caused Home Solutions to record the revenue, very little work had been performed on the projects and most remained bare-dirt lots.
Unlike most SEC complaints, just about every executive at HSOA was named, and four of the lesser executives have already consented to the SEC’s findings, without acknowledging guilt of course
Four others charged today by the SEC simultaneously agreed to settle on the following terms, without admitting or denying the allegations in the complaint.
Former Home Solutions CFO and COO Rick O’Brien agreed to pay a $130,000 penalty.
Former Fireline controller Stephen Gingrich agreed to pay a $25,000 penalty and to an administrative order barring him from practicing before the Commission as an accountant for at least three years.
Former Fireline COO Thomas Davis agreed to pay a $25,000 penalty and to pay disgorgement and interest of $32,850.
In addition, O’Brien, Gingrich and Davis each consented to final judgments permanently enjoining them from violating Sections 17(a)(2) and (3) of the Securities Act and from aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.
Finally, Jeff Craft, a business partner of Marshall, consented to a final judgment permanently enjoining him from violating Rule 13b2-2 under the Exchange Act.
So it turns out that once again the short seller was right, the executives were (allegedly) crooked, and the SEC was slow.
Disclosure: I have no positions and I have no connection to anyone involved besides reading Left’s blog.
