SECURITIES AND EXCHANGE COMMISSION Washington, D.C. Litigation Release No. 16018 / January 7, 1999 SECURITIES AND EXCHANGE COMMISSION v. WAYNE F. GORSEK, LYNDELL PARKS, P. BRENDEN GEBBEN, AND TROY JUSTUS, United States District Court for the District of Columbia, Civil Action No.: 99CV00033 (EGS) (D.D.C. January 7, 1999). SEC CHARGES STOCK PROMOTERS WITH FRAUD, CONTINUING ITS FIGHT AGAINST INTERNET AND MICROCAP ABUSES The Securities and Exchange Commission today filed fraud charges against former owners and associates of stock promoter Strategic Investment Advisory, Inc. ("SIA") for providing ostensibly independent recommendations about microcap companies that were actually bought and paid for. The SEC alleges that the defendants distributed their recommendations through tout sheets, scripted conference calls, Internet promotion, and extensive fax and telephone campaigns. In its complaint, the Commission alleges that between 1993 and 1997, in exchange for cash and securities in excess of $700,000, the defendants fraudulently promoted approximately 20 microcap companies through SIA, a Springfield, Illinois-based company. The SEC alleges that SIA deceived investors into believing that it was an independent securities research firm providing objective investment advice about "undiscovered" companies. In fact, the SEC alleges, SIA was merely a paid promotional firm that uncritically published glowingly optimistic recommendations of the securities of its clients in exchange for cash and securities. The SEC alleges that in some instances SIA secretly sold the securities it received from its microcap clients at the same time it was recommending that the public buy the securities, an illegal practice known as "scalping." The defendants, charged in the United States District Court for the District of Columbia, are Wayne F. Gorsek, the former owner, CEO, and President of SIA, Lyndell Parks, the former Chief Operating Officer and part-owner of SIA, P. Brenden Gebben, a former Lead Analyst and Assistant Director of Research for SIA, and Troy Justus, a former member of SIA’s Financial Communications Department and a registered broker at Strategic Investments, Inc. ("Strategic Investments"), a broker-dealer owned by Gorsek and Parks. According to the SEC, in consideration for its services, SIA typically received a block of company stock from its issuer-clients and often negotiated extra stock payouts if SIA was successful in pushing the price of the stock to certain pre-set target prices. To inflate the price of its client’s stock, and in turn maximize its own compensation, the defendants distributed tout sheets disguised as independent research reports, ran their "recommendations" to buy the stock in the financial press, promoted the securities through postings on Internet bulletin boards and financial news pages, hosted scripted "analyst" conference calls, and conducted extensive fax and telephone campaigns. In each instance, the SEC alleges, the defendants failed to disclose adequately that they had received compensation paid from their issuer-clients or the fact that they were selling the securities they were recommending to the investing public. The SEC also alleges that Gorsek published information that he knew, or was reckless in not knowing, was false and misleading. The SEC alleges that at the same time they were engaged in SIA’s promotional scheme, Gorsek, Parks and Justus worked as registered representatives at Strategic Investments. As brokers at Strategic Investments, Gorsek, Parks and Justus defrauded their customers by pushing the highly-speculative microcap stocks of SIA clients on their brokerage customers without disclosing that they received cash and securities from the issuers of the securities that they were recommending; to further the scheme, Gorsek, Parks and Justus provided their customers with SIA’s mock research reports and other false and misleading information. The SEC alleges that the defendants’ conduct violated the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission further alleges that the defendants violated the prohibition against touting securities while failing to adequately disclose that such activity was paid for by the issuers of the securities, Section 17(b) of the Securities Act of 1933. The Commission’s action asks the court to permanently restrain and enjoin the defendants from future violations of Sections 17(a) and 17(b) of the Securities Act, and Section 10(b) and Rule 10b-5 of the Exchange Act, and further seeks an order requiring the defendants to pay disgorgement, with prejudgment interest, and civil penalties. As the SEC also alleges that SIA spread some of its bogus promotions over the Internet, investors are advised to read the SEC’s "Cyberspace" Alert before purchasing any investment promoted on the Internet. The free publication, which alerts investors to the telltale signs of online investment fraud, is available on the Investor Assistance link on the SEC’s Home page on the World Wide Wed . To receive a copy of this useful publication call 800-SEC-0330. Investors are encouraged to report suspicious Internet offerings (or other suspicious offerings) via e-mail to . A user-friendly form to assist in making a report is available at the Enforcement Complaint Center on the Enforcement Division link on the SEC Home Page . Investors can also mail a report to the SEC’s Enforcement Complaint Center, Mail Stop 8-4, 450 Fifth Street, Washington, D.C. 20549. This Enforcement action is also 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/news/extra/microcap.htm.