The U.S. Securities and Exchange Commission filed a lawsuit this week against several Nevada and Utah individuals and companies involved in the penny stock market, requesting permanent injunctions restraining them from committing fraudulent acts and from selling unregistered securities.
Defendants in the fraud action are Blaine C. Taylor, listed as a Salt Lake businessman, enjoined in 1982 from violating registration and anti-fraud provisions of federal law;David M. Lamoreaux, Sandy, a certified public accountant;
Ray A. Warren, Las Vegas, investment counselor, who is part owner of Warren & Brown Associates;
Lee E. Walker, Las Vegas, an attorney enjoined in 1983 and 1987 from violating securities laws;
Elliott R. Pearson, Reno, publisher of a financial market letter titled Silver Baron/Stocks USA who appears on television and radio financial programs;
Silver Baron Inc., Reno, owned by Pearson;
Gary R. Littler, Santa Monica, Calif., executive vice president and chief financial officer from 1985-'87 of Advanced Biotherapy Concepts Inc. (ABCI).
Warren and Brown Associates Inc., formerly known as Edward Brown Securities Inc., a broker/dealer in Salt Lake City are not named in the fraud action but are accused of selling unregistered securities, as is James A. Foster, a Murray resident who is a private investor with an office in Salt Lake City
The suit says that in November, 1983, Foster caused ABCI to be incorporated. The next year, ABCI began a blind pool offering of three million shares at a penny per share, and it raised $30,000 from 67 Utahns.
On Oct. 9, 1985, Walker bought 80,000 shares of ABCI stock through Warren & Brown Assoc. for $1,772 "while in possession" of non-public information regarding a forthcoming merger between SBS and ABCI, the suit says. The first public information about the merger was released on Nov. 6, 1985, it says.
After that, the market price of ABCI rose from 31 cents per share on Nov. 5, 1985 to $2.50 on Nov. 11. On that day, Taylor sold 85,000 shares of ABCI stock realizing a profit of $133,875, the suit says.
From Nov. 6 through Nov. 8, WARCO, an entity controlled by Warren, sold 435,000 shares, realizing a profit of $28,125. The suit claims that on Nov. 11, 1985, another company controlled by Warren, Investment Associates, sold 132,500 shares, making a profit of $130,806 and that between November 1985 and April, 1986, Walker sold 97,500 shares making $111,077.
The suit says that in Nov. 1985, Pearson bought at least 35,000 shares of ABCI at prices between 37.5 cents to 87.5 cents per share.
"On Nov. 14, 1985, Pearson falsely stated in the newsletter that ABCI had a treatment for AIDS that was merely awaiting FDA approval. In fact, ABCI had no proven treatment and had sought FDA approval only for clinical testing for the purposes of developing a treatment."
On Dec. 9, 1985, it says, Pearson predicted a rise in the price of ABCI stock. From Dec 11, 1985 through March 20, 1987, while continuing to puff the stock, Pearson sold at least 116,000 shares , realizing a profit of $214,000.