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Washington, D.C. |
 | From August 1993 until November 1996, Melcher owned and ran SGA
Goldstar Research, Inc., publisher of the SGA Goldstar Whisper Stocks
newsletter. That newsletter profiled and made recommendations promoting
largely unknown and untested penny stock or small capitalization
companies, and was distributed over the internet and otherwise.
| Companies paid Melcher and SGA Goldstar in stock in exchange for
articles promoting their securities in the Whisper Stocks newsletter.
| Charles O. Huttoe, the CEO of Systems of Excellence, Inc. ("SOE"),
hired SGA Goldstar to promote SOE in the Whisper Stocks newsletter.
| In exchange for recommending SOE securities in the Whisper Stocks
newsletter, Huttoe caused SOE to issue unregistered, purportedly
free-trading stock to Melcher and Alpha Securities. SGA Goldstar and
Melcher failed to disclose that they had been compensated by SOE in
exchange for promoting SOE in the Whisper Stocks newsletter.
| At the same time that Melcher was recommending the purchase of SOE
stock through the Whisper Stocks newsletter, Melcher was selling his
unregistered SOE stock into the public market through brokerage accounts
in his name and that of Alpha Securities, Melcher's wholly owned
Bahamian shell company.
| The Melcher Defendants, over a three-year period, engaged in a
systematic practice of touting other companies in the Whisper Stocks
newsletter in exchange for stock. Neither Melcher nor SGA Goldstar
disclosed that they were being compensated for the promotional coverage
or that they were selling their shares at the same time that they were
recommending to investors that they buy the securities. | |
Including assets to be disgorged by the Melcher Defendants, the Commission will have recovered approximately $11 million from its enforcement actions related to the Systems of Excellence fraud. The Court-appointed Receiver is holding these funds for distribution to defrauded investors. The Commission and the Receiver hope to file a plan of distribution for the Court's approval within the next several months.
To date, six individuals have pleaded guilty to felony charges stemming from these matters and have been sentenced as follows:
| Huttoe received 46 months in prison, with two years of supervised
release, and a $10,000 fine, pursuant to a criminal information charging
him with one count of securities fraud and one count of money
laundering.
| Merle Finkel, the auditor for SOE, pleaded guilty to a criminal
information charging him with one count of conspiracy to commit
securities fraud and bank fraud. Finkel died prior to sentencing.
| Melcher received 12 months in prison, followed by two years of
supervised release, and a $20,000 fine, pursuant to a criminal
information charging him with conspiracy to commit securities fraud.
| Barclay Davis, a stock promoter, pleaded guilty to one count of
conspiracy to commit securities fraud and bank fraud, and one count of
money laundering. Davis is currently awaiting sentencing.
| Sheldon Kraft a broker at Commonwealth Associates and then M.H.
Meyerson, received three years of probation and six months of home
detention pursuant to a two-count criminal information charging him with
one count of conspiracy to commit securities fraud and money laundering
and one count of failure to file tax returns.
| Michelle Sotnikow, a stock promoter, received three years of
supervised probation with special conditions of being barred from the
securities industry, pursuant to a criminal information charging her
with one count of conspiracy to commit securities fraud and defeat the
lawful function of the Internal Revenue Service. | |
In a related matter, on May 30, 2000, the Commission revoked the registration of the common stock of Systems of Excellence, Inc. pursuant to Section 12(j) of the Exchange Act. The Order imposing the deregistration of SOE stock found that SOE failed to comply with Sections 5(a), 5(c), and 17(a) of the Securities Act, Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5, 13a-1, 13a-11, and 13a-13 thereunder. Deregistration of SOE's securities will prevent further parties from acquiring the now defunct company and using its securities for use in future manipulations.
This enforcement action is part of the Commission's four-pronged approach to minimizing Microcap fraud: enforcement, inspections, investor education, and regulation. For more information about the SEC's response to Microcap fraud, visit the SEC's Microcap Fraud Information Center at http://www.sec.gov/divisions/enforce/microcap.htm.
The Commission previously has made several announcements concerning these matters. See Securities Exchange Act Rel. 42616 (April 4, 2000); Lit. Rel. 16343 (October 27, 1999); Lit. Rel. 15996 (December 9, 1998); Securities Exchange Act Rel. 40509 (September 30, 1998); Lit. Rel. 15906 (September 24, 1998); Lit. Rel. 14900 (September 24, 1998); Lit. Rel. 15888 (September 18, 1998); Lit. Rel. 15677 (March 19, 1998); Lit. Rel. 15617 (January 14, 1998); Lit. Rel. 15600 (December 22, 1997); Lit. Rel. 15571 (November 25, 1997); Lit. Rel. 15490 (September 12, 1997); Lit. Rel. 15286 (March 12, 1997); Lit. Rel. 15490 (January 31, 1997); Lit. Rel. 15185 (December 12, 1996); Lit. Rel. 15153 (November 7, 1996); Securities Exchange Act Rel. No. 33791 (October 7, 1996).
http://www.sec.gov/litigation/litreleases/lr16632.htm
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Modified:07/24/2000 |