The U.S. Securities and Exchange Commission on Wednesday sued a Las Vegas company it said perpetrated a scheme to defraud penny stock investors.
The SEC filed suit in U.S. District Court in Las Vegas against Prime Star Group Inc. and several officials it said were associated with the company, including CEO Roger Mohlman.
Last summer, the SEC suspended trading in Prime Star stock because of suspicions it had been involved in wrongdoing.
In a statement Wednesday, the SEC said the company had issued false and misleading press releases that touted lucrative agreements for the company’s food and beverage products.
“For example, Prime Star falsely claimed in a March 2010 press release that it had entered in a distribution agreement with another company in the beverage business valued at up to $16 million annually. Furthermore, certain Prime Star reports filed with the SEC understated the company’s net losses or overstated its cash balance,” the SEC said in its statement Wednesday.
“Prime Star and Mohlman used backdated consulting agreements and forged attorney opinion letters as a means to issue millions of shares to the consultants, who then dumped them on unsuspecting investors,” said Eric I. Bustillo, director of the SEC’s Miami regional office who was involved in the investigation. “The SEC will persist in its efforts to stamp out microcap fraud schemes.”
In a “pump-and-dump” scheme as alleged in this case, a stock price is pumped up by false information spread by insiders.
Unsuspecting investors are then harmed when the stock price falls after the insiders sell their shares by dumping them on the market.
Also sued were consultants and their companies the SEC says were involved in the scheme.
They are:
• Kevin Carson of Lake Worth, Fla.
• Danny Colon of Edgewater, N.J.
• Colon’s company DC International Consulting LLC
• Colon’s wife Marysol Morera of Edgewater, N.J.
• Colon’s half brother Felix Rivera of Clifton, N.J.
• Esper Gullatt Jr. of Aurora, Colo.
• Gullatt’s Minnesota-based company The Stone Financial Group Inc.
• Joshua Konigsberg of Palm Beach Gardens, Fla.
Attempts to reach Prime Star officials for comment were not successful Wednesday — the company’s phone number in Las Vegas is no longer active.
The SEC said Konigsberg has agreed to settle the SEC’s suit without admitting or denying the allegations by consenting to the entry of a judgment that would enjoin him from future Securities Act violations.
The SEC is seeking penalties including the surrender of profits from the alleged scheme from the other defendants.
The agency also wants the federal court in Nevada to bar Mohlman from serving as an officer or director of a public company and from participating in any penny stock offerings.
The SEC said it separately launched administrative hearings that could result in the revocation or suspension of each class of Prime Star securities because of the company’s failure to file required periodic reports that all public companies must file.
Prime Star, which had an address on South Decatur Boulevard, hasn’t filed anything with the SEC since June, records show.