SANDRA J. HARRIS, Cal.
Bar # 134153
THOMAS
A. ZACCARO, Cal. Bar #183241
AIMEE
DOMINGUEZ SILVERS, Cal. Bar #145106
LISA
A. GOK, Cal. Bar # 147660
NICOLAS
MORGAN, Cal. Bar # 166441
ROBERTO
A. TERCERO, Cal. Bar # 143760
Attorneys for
Plaintiff
Securities and
Exchange Commission
Valerie Caproni,
Regional Director
5670 Wilshire
Boulevard, 11th Floor
Los Angeles, California 90036-3648
Telephone: (323) 965-3998
|
SECURITIES AND
EXCHANGE COMMISSION, Plaintiff, vs. STEPHEN C.
SAYRE, INDEPENDENT FINANCIAL REPORTS, INC., AND SILVER SCREEN INDUSTRIES,
INC., |
Case No. CV
00-3800 MMM (Ex) FIRST
AMENDED COMPLAINT FOR VIOLATIONS OF THE FEDERAL
SECURITIES LAWS |
Plaintiff
Securities and Exchange Commission ("Commission") for its First
Amended Complaint alleges:
JURISDICTION
1. The Commission brings this action
pursuant to the authority conferred upon it by Section 20(b) of the Securities
Act of 1933 ("Securities Act"), 15 U.S.C. § 78t(b), and Section
21(d) of the Securities Exchange Act of 1934 ("Exchange Act"), 15
U.S.C. § 78u(d), seeking to permanently restrain and enjoin Defendants
from engaging in the transactions, acts, practices and courses of business
alleged herein. The Commission further
brings this case pursuant to Section 20(d) of the Securities Act , 15 U.S.C.
§ 78t(d), and Section 21(d)(3) of the Exchange Act, 15 U.S.C. § 78u(d)(3),
seeking civil penalties against Defendants.
Defendants have, directly or indirectly, made use of the means or
instrumentalities of interstate commerce, of the mails, or of the facilities of
a national securities exchange in connection with the transactions, acts,
practices and courses of business alleged herein.
SUMMARY
2. The
Commission brings this action to stop a classic “pump and dump” scheme perpetrated
by defendant Stephen C. Sayre ("Sayre"), a Los Angeles tree-trimmer
who has masqueraded as a financial analyst, for the purpose of manipulating the
market for the stock of eConnect. Sayre
accomplished this scheme by releasing purportedly objective independent analyst
reports touting eConnect stock through a corporation he formed called
“Independent Financial Reports, Inc.” (“IFR”), while simultaneously and
secretly trading in eConnect stock.
Within weeks after releasing his first “opinion,” Sayre was able to dump
his eConnect shares and realize illegal profits of approximately $1.4 million.
3. Sayre
engaged in the same scheme on two separate occasions in February and March
2000. After he purchased shares of
eConnect stock through a nominee account in the name of Silver Screen
Industries, Inc. ("Silver Screen"), Sayre distributed IFR
"investment opinions" through Business Wire, touting eConnect as
undervalued and projecting a short term increase in share price from two to six
times the prevailing stock price. The
opinions also stated that IFR held no eConnect stock even though Sayre, IFR's
sole officer and director, held stock through the Silver Screen nominee
accounts each time an opinion was issued.
The opinions were posted on various Internet websites such as Silicon
Investor and Big Charts. Additionally,
eConnect posted at least one of the investment opinions on the Raging Bull
message board devoted to the company.
4. eConnect’s stock price rose dramatically
during the time period in which Sayre released his opinions concerning
eConnect. The increase in eConnect’s
share price is significantly attributable to false and misleading press
releases issued by eConnect and its then president, Thomas S. Hughes
("Hughes"). Sayre’s
“opinions” had the effect of reinforcing the false and misleading press
releases issued by eConnect and Hughes.
THE
DEFENDANTS
5. Stephen
C. Sayre ("Sayre"), age 43, resides in Hollywood, California. He purportedly operates a tree trimming
business. He is also the sole officer,
director and employee of IFR, and the President, Secretary and Treasurer of
Silver Screen.
6. Independent
Financial Reports, Inc. ("IFR") is a Nevada corporation
based in Hollywood, California. Sayre
has described IFR as an independent research corporation dedicated to offering
opinions concerning publicly traded stocks.
Sayre incorporated IFR on or about February 29, 2000.
7. Silver Screen
Industries, Inc. ("Silver
Screen"), who is named solely for
the purpose of obtaining full relief, is a Nevada corporation also incorporated
by Sayre and based in Hollywood, California.
Silver Screen had accounts at E*Trade Securities, Inc.
("E*Trade") and Morgan Stanley Dean Witter ("MSDW") from which
Sayre bought and sold eConnect stock.
Those securities trades generated approximately $1.4 million in trading
profits.
RELATED
NON-PARTY ENTITIES
8. eConnect is a Nevada corporation based in San Pedro, California. eConnect presently consists of two
businesses, Internet gaming and technology development for greater ATM and
smart card usage. Its stock is
registered with the Commission pursuant to Section 12(g) of the Exchange Act
and was quoted on the OTC Bulletin Board under the symbol "ECNC."
**
9. On
March 13, 2000, the Commission suspended trading in eConnect's securities
pursuant to Section 12(k) of the Exchange Act because of questions concerning
the adequacy and accuracy of publicly disseminated information concerning,
among other things, the existence of a strategic alliance with a U.S. broker-dealer
and a purported license arrangement with Palm, Inc.
10. On March 23, 2000,
the Commission filed an emergency action against eConnect and its president,
Hughes for violations of Section 10(b) of the Exchange Act and Rule 10b-5
thereunder. SEC v. eConnect and
Thomas S. Hughes, Civil Action No. 00-CV-02959 MMM (RCx) (C.D. Cal.). On April 3, 2000, eConnect and Hughes each
consented to permanent injunctions against them and other relief.
GENERAL
ALLEGATIONS
11. Sayre
opened a nominee brokerage account at E*Trade on or about January 27, 2000,
under Silver Screen's name. Sayre was
the sole person with trading authority over the account. From January 29 to February 28, 2000, Sayre
purchased 96,100 eConnect shares at prices ranging from $1.42 to $1.81 per
share, for a total purchase price of $143,305.50. Sayre purchased 86,100 of those shares on February 25 and 28,
2000, just before he distributed an investment opinion under IFR’s name
concerning eConnect on February 29.
12. In sworn testimony before the Commission on
March 31, 2000, Sayre falsely denied that either he or IFR had ever traded,
directly or indirectly, in eConnect's securities. He also falsely denied ever maintaining a brokerage account, having
control over a brokerage account or having a beneficial interest in a brokerage
account.
13. Sayre,
who has no training or education in financial analysis, began masquerading as a
financial analyst under IFR'S name and issuing “opinions” touting certain
publicly traded companies in early 2000.
On February 29, 2000, at 6:06 a.m., Sayre publicly distributed an IFR
investment opinion concerning eConnect through Business Wire. The investment opinion later appeared on
Internet websites such as Silicon Investor and Big Charts. eConnect's Chief Information Officer also
posted the investment opinion on the Raging Bull message board thread devoted
to eConnect.
14. The
opinion described IFR as "an independent research corporation dedicated to
tracking the best values on the market.
Most specifically stocks with the greatest potential for growth in the
short and long term." The opinion
went on to state, "eConnect (OTC BB:
ECNC) (ECNC), a tech stock, has been selected this week to clearly be
the company with the highest potential for growth." The opinion also provided the following
stock price projection, "ECNC is currently trading at an extremely under
valued [sic] $1.50 - $2.00 a share.
This stock could easily be trading between $12 - $25 or higher in the
short term and then aggressively move forward on the NASDAQ . . ." Finally, the opinion stated, "IFR holds no stock in ECNC and has not and
will not be compensated for its opinion in regard to ECNC." (Emphasis added.) IFR,
through one of Sayre's other companies, paid Business Wire to disseminate its
report.
15. On
March 1, 2000, at 6:03 a.m., Sayre publicly distributed another IFR investment
opinion on eConnect through Business Wire.
The opinion also appeared on the Silicon Investor and Big Charts
websites. The March 1 opinion stated
that IFR believed eConnect, "will not only sustain its growth over the
next several weeks but could very easily be trading at volumes and numbers
exponentially above its current figures."
The opinion again stated, "IFR
holds no stock in ECNC and has not and will not be compensated for its opinion
in regard to ECNC." (Emphasis
added.) Once again, IFR, through one of Sayre's other companies, paid
Business Wire to disseminate its opinion.
**
16. Contrary to the statements contained in the
opinions, however, IFR actually did hold ECNC stock because Sayre, its sole
officer and director, held 96,100 shares through the Silver Screen nominee
account.
17. The issuance of the investment opinions
coincided with a dramatic increase in the price and trading volume of
eConnect’s securities. From January 3
to February 28, 2000 (the last trading day before the investment opinions at
issue here), eConnect stock traded between $0.48 and $1.77 per share, closing
at $1.39 on February 28. From February
29 to March 1, 2000, the stock traded between $1.39 and $4.81 per share. The average trading volume, which was
approximately 4.4 million shares from January 3 to February 28, 2000, soared to
16.9 million shares between February 29 and March 1. The increases in eConnect’s stock price and trading volume are
attributable to both a false and misleading press release issued by eConnect,
and the reinforcement provided to that release by Sayre's "opinions"
issued through IFR.
18. After
releasing the two investment opinions, and as the price of eConnect's stock
began to rise, Sayre placed sell orders on March 1 and 2, 2000, for all the
eConnect shares in the Silver Screen account at E*Trade. He sold all 96,100 shares on March 2, 2000,
for a $246,681.69 profit.
19. On
March 3, 2000, Sayre bought 80,000 shares of eConnect for the E*Trade Silver
Screen account for prices ranging from $4.66 to $4.69 a share, for a total
purchase price of $374,278.35. On March
6, 2000, Sayre bought an additional 1,200 shares of eConnect in the E*Trade
Silver Screen account for prices ranging from $7.13 to $7.16 a share, for a
total of $8,565.62.
**
**
**
20. On
March 8, at 6:15 a.m., Sayre publicly distributed another IFR investment
opinion on eConnect through Business Wire.
The opinion also appeared on the Silicon Investor and Big Charts
websites. The opinion stated that IFR
believed eConnect "is very quickly rising to the target of $12 a share by
3/08/2000, and should easily reach $20 to $25 a share in the very short term .
. . eConnect could easily be trading at between $100 - $135 a share within the
next 9 - 12 months of trading."
The opinion again stated, "IFR
holds no stock in ECNC and has not and will not be compensated for its opinion
in regard to ECNC." (Emphasis
added.)
21. Contrary
to the statements contained in the opinion, however, IFR actually did hold ECNC
stock because Sayre, its sole officer and director, held more than 80,000
shares through the Silver Screen account.
22. The
issuance of the March 8 investment opinion coincided with yet another dramatic
increase in the price and trading volume of eConnect’s securities. From March 2 to 7, 2000, eConnect stock
traded between $1.40 and $11 per share, closing at $10 on March 7. On March 8, 2000, the stock traded between
$4.93 and $20 per share, closing at $16.50.
The average trading volume, which was approximately 10 million shares
from March 2 to 7, 2000, increased to 19.8 million shares on March 8, 2000. During
this same time period, on March 3, 2000, eConnect issued a press release
falsely claiming that it and its joint venture partner had a unique licensing
arrangement with Palm, Inc. (the makers of the Palm series of hand-held
computers). This press release had a
material effect on eConnect's stock price during this period and, along with
Sayre’s “opinions,” contributed to the significant increase in the stock price
during this time period.
**
**
23. On
March 8, 2000, Sayre placed a sell limit order for 80,000 shares of eConnect at
$20 a share. The sell limit order
expired - without having been executed – the next day. Also on March 8, 2000, Sayre opened a
brokerage account at MSDW. Like the
E*Trade account, the account at MSDW was opened under the name of Silver
Screen. On March 9, 80,000 shares of
eConnect were transferred from the E*Trade account to the MSDW account. Sayre sold the 80,000 shares that same day,
for prices ranging from $18.75 to $19.75 per share, for total proceeds of
$1,527,604.13 and a profit of $1,153,325.78.
After the transfer, 1,200 shares of eConnect remained in the E*Trade
account. Sayre sold these 1,200 shares
on March 10, 2000, at a price of $11 a share for total sale proceeds of $13,200
(a profit of $4,634.38).
24. In
total, Sayre bought and sold a total of 177,300 shares of eConnect for total
profits from his trading of approximately $1,404,641.85.
FIRST CLAIM FOR RELIEF
FRAUD IN THE OFFER OR SALE OF
SECURITIES
Section 17(a) of the Securities Act
(Against All Defendants Sayre and
IFR)
25. Paragraphs 1 through 24 are realleged and
incorporated by this reference.
26. Defendants, by engaging in the conduct
described above, directly or indirectly, in the offer or sale of securities, by
the use of means or instruments of transportation or communication in
interstate commerce or by the use of the mails:
(a) with scienter, employed devices, schemes or
artifices to defraud;
(b) obtained money or property by means of
untrue statements of material fact or by omitting to state material facts
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading; or
(c) engaged in transactions, practices or
courses of business which operated or would operate as a fraud or deceit upon
the purchasers of such securities.
27. By reason of the facts and circumstances
described above, Defendants violated, and unless restrained and enjoined will
continue to violate, Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].
SECOND
CLAIM FOR RELIEF
FRAUD
IN CONNECTION WITH THE PURCHASE OR SALE OF SECURITIES
Section
10(b) of the Exchange Act
and
Rule 10b-5 Thereunder
(Against
All Defendants Sayre and IFR)
28. Paragraphs 1 through 24 are realleged and
incorporated by this reference.
29. Defendants, by engaging in the conduct
described above, directly or indirectly, in connection with the purchase or
sale of securities, by the use of the means or instrumentalities of interstate
commerce, or of the mails, or of a facility of a national securities exchange,
with scienter:
(a) employed devices,
schemes or artifices to defraud;
(b) made untrue statements of material fact or
omitted to state material facts necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading; or
(c) engaged in acts, practices or courses of
business which operated or would operate as a fraud or deceit upon other
persons.
By reason of the
facts and circumstances described above, Defendants violated, and unless
restrained and enjoined will continue to violate, Section 10(b) of the Exchange
Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R.
§ 240.10b-5].
**
PRAYER
FOR RELIEF
Wherefore, the Commission
respectfully requests that the Court:
I.
Issue
findings of fact and conclusions of law that the Defendants Sayre and IFR, and
each of them, committed the alleged violations.
II.
Order Defendants, and each of them,
to disgorge all benefits gained and losses avoided as a result of their illegal
conduct, and to pay prejudgment interest thereon.
III.
Order
Defendants Sayre and IFR to pay civil penalties
under Section 20(d) of the Securities Act and Section 21(d)(3) of the Exchange
Act.
IV.
Retain jurisdiction of this action in
accordance with the principles of equity and the Federal Rules of Civil
Procedure in order to implement and carry out the terms of all orders and
decrees that may be entered, or to entertain any suitable application or motion for additional relief within the
jurisdiction of this Court.
V.
Grant such other and further relief
as this Court may determine to be just and necessary, including, but not
limited to, an accounting from all Defendants.
DATED: April 14, 2000 _________________________
Thomas
A. Zaccaro
Attorney
for Plaintiff
Securities
and Exchange Commission