SEC wins $3.79-million (U.S.) order for Ryan, McKeown

http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3a*SEC-1803541&symbol=*SEC®ion=C

2011-01-27 13:48 ET - Street Wire

by Mike Caswell

The U.S. Securities and Exchange Commission has won $3.79-million in penalties against Montreal penny stock promoters Dan Ryan and Carol McKeown. (All figures are in U.S. dollars.) The fine, which represents the outcome of a scalping case, is contained in separate default judgments entered against the pair on Jan. 25, 2011, by Florida District Judge James Cohn.

The penalty stems from a civil suit the SEC launched in June, 2010. It claimed that Mr. Ryan and Ms. McKeown promoted 65 stocks through their website, PennyStockChaser, as they secretly sold millions of shares. The couple failed to answer the charges, leading the SEC to seek the default judgment that it has now won.

The $3.79-million joint penalty represents disgorgement of ill-gotten gains from share sales, including interest. In addition to the financial penalty, the SEC has won orders permanently banning the couple from participating in penny stock offerings, as well as injunctions preventing future violations. The SEC has also won yet-to-be-determined civil penalties.

In handing down the default judgments, Judge Cohn continued an asset freeze that the SEC initially secured when it filed the suit. The freeze, which applies to brokerage accounts that the couple held in Florida, will remain in place until the SEC files a motion to claim those accounts. It is not clear from the judgment how much money is frozen.

While Ms. McKeown and Mr. Ryan never formally answered the charges, they did appear in the case early on. In a letter to the judge dated July 20, 2010, Ms. McKeown asked the judge for more time to secure a lawyer. She said that complying with the asset freeze left her and Mr. Ryan with no financial ability to defend themselves in court. Judge Cohn denied the request on Sept. 3, 2010.

SEC's complaint

The case began on June 23, 2010, when the SEC filed a civil complaint against the couple in the Southern District of Florida. In addition to Mr. Ryan and Ms. McKeown, the SEC named as defendants two private companies that they control, Meadow Vista Financial Corp. and Downshire Capital Inc. According to the complaint, the couple touted U.S. listed companies through their website, as well as on Facebook and Twitter, while failing to properly disclose that they were selling shares in those same companies.

Of the six promotions that the SEC listed, the most profitable was that of Atlantic Wind and Solar Inc., a Toronto pink sheets listing that touts itself as a developer of "rooftop solar energy parks." The stock appeared in PennyStockChaser on Oct. 14, 2009. A posting that day read, "[Atlantic] closed at $2.10 yesterday and it is poised to go into break out mode, THIS PICK IS HEADED TO $10.00." The next message, dated Oct. 21, 2009, stated: "PSC spoke to the company today and they tell us that members should buckle in. Big news is coming at the end of the week."

The stock reached an all-time high of $4.84 the next day on volume of over one million shares. As they were promoting the stock, Mr. Ryan and Ms. McKeown sold 360,000 shares between $1.49 and $3.37, grossing $780,600. The stock has since declined somewhat, and last traded at $1.08.

Another promotion the SEC described was that of Converge Global Inc., a Utah pink sheets listing that claimed to be a property developer. On May 14, 2009, a posting on PennyStockChaser stated that the company "rose over 400% since our last alert." The coverage continued on June 13, 2009, when the site stated that Converge was on the "news watch" list for a "100% - 300% move." The stock, which traded between 1.9 and 2.2 cents before the promotion, rose to four cents as PennyStockChaser touted it, and its volume increased by more than 50 times to 16 million shares per day. The SEC said that Mr. Ryan and Ms. McKeown sold 6.3 million shares during that time, grossing $602,000.

As Mr. Ryan and Ms. McKeown were selling their stock, they failed to provide adequate disclosure of their sales, according to the complaint. Their site only contained a disclaimer, which stated that the site's owner "may be selling shares of the stock at the same time the profile is being disseminated to potential investors; this should be viewed as a definite conflict of interest and ... the reader should take this into consideration."

The other four stocks listed in the complaint were Avro Energy Inc., Biocentric Energy Holdings Inc., Bluewave Group Inc. and MSE Enviro-Tech Corp., which followed similar patterns.

The SEC sought disgorgement of ill-gotten gains, appropriate civil penalties and permanent penny stock bans.

In addition to entering the default judgments against Mr. Ryan and Ms. McKeown, Judge Cohn applied the disgorgement orders to their two companies, Downshire and Meadow Vista.

http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3a*SEC-1803541&symbol=*SEC®ion=C