SEC BRINGS TOUTING ACTION AGAINST INVESTOR RELATIONS FIRM
The Commission brought an action against a California-based investor relations firm and its principal, alleging violations of Securities Act Sections 17(a) and 17(b) and Exchange Act Section 10(b). SEC v. InvestSource, Inc., Case No. SACV 10-01041 (C.D. Cal. Filed July 9, 2010). InvestSource is an investor relation firm with about 85 issuer clients, each of whom is a penny stock. Defendant Songkram Sahachaisere controls InvestSource.
From January 2008, and continuing through early 2009, InvestSource sent a Daily Digest to those listed in its e-mail base. The Daily Digest typically discussed several clients, giving a profile, reviewing its business prospects in positive terms and recommending the stock. At the time a client company is written up in the Daily Digest, InvestSource also created and posted a company profile on its website. That profile typically discussed the company, its management and provided other data.
Frequently InvestSource was paid in shares of stock for its services. The Daily Digest did not disclose this fact. Likewise, defendants did not disclose the fact that InvestSource sold the shares it received while the Daily Digest was recommending the purchase of the securities. The website did contain a link to a “disclaimer” which referenced fees and the sale of client securities. Specifically, the disclaimer stated that Featured Companies “may” have compensated the company in either cash or securities and that InvestSource endeavored to liquidate any such securities on receipt.
The complaint claims the disclaimer is false and misleading. Contrary to its claim that the company “may” be compensated, in fact, it was always compensated. Likewise, securities received were not liquidated on receipt. Rather, they were sold while the company was recommending the stock.
The complaint identifies six companies which the defendants fraudulently touted: (1) China Forestry; (2) FIMA; (3) Heart Health; (4) New Asia Gold; (5) Obee’s Franchise Systems; and 6) Praebius Communications. In each instance, the defendants published positive profiles in the e-mails that were sent out about the company. In each instance, the defendants sold their shares of the client company while recommending the purchase of the stock without disclosing their sales. In each instance thousands of e-mails were sent out. The case is in litigation. See also Litig. Rel. 21591 (Jul. 9, 2010).