OffshoreAlert, October 11, 2007
U. S. JUDGE FINES AGORA SUBSIDIARY AND EDITOR $1.5 M FOR SECURITIES FRAUD
An investment newsletter’s publisher and its editor have been hit with $1.5 million in financial penalties after a U. S. federal judge determined they defrauded their own subscribers in a securities scam.
Judgment in favor of the Securities Exchange Commission and against Maryland-based Pirate Investor LLC, now called Stansberry & Associates Investment Research, LLC, and Frank Porter Stansberry was issued at the U. S. District Court for the District of Maryland on August 1, 2007 – 28 months after the completion of a bench trial. The penalty comprises disgorgement of $1.3 million in profits and interest from the fraudulent activity, for which Pirate Investor and Stansberry are jointly and severally liable, plus a fine of $120,000 against each defendant.
U. S. District Judge Marvin J. Garbis found in favor of a third defendant, Pirate Investor’s parent, Agora, Inc., determining that it could not be held liable for the fraudulent statements of its subsidiary simply “by virtue of its ownership and ability to control Pirate”. There was no evidence that Agora, as opposed to Pirate, directly made the false statements at issue, determined Judge Garbis.
The SEC had accused the defendants of fraud concerning a “Special Report” authored by Stansberry, using the pseudonym ‘Jay McDaniel’, about publicly-listed uranium enrichment services provider USEC, Inc. and a promotional “Super Insider Tip Email” offering the Special Report for sale that was distributed on May 14, 2002, after which Pirate Investor sold 1,217 reports for $1,000 each.
The promotional material offered purchasers of the report the opportunity to “double your money” by acting on “inside tips” that Stansberry had obtained from a “senior executive inside the company”, according to the SEC. However, the SEC alleged that the report, which included a claim that Government approval for a lucrative new pricing agreement involving USEC would be announced on May 22, was replete with lies and the judge agreed.
“The Super Insider Solicitation and the Special Report contain numerous statements that were untrue,” he commented. “Some of the untrue statements may not be actionable. [For example, the use of the pseudonym “Jay McDaniel” or even the predictive nature of some statements.] However, the essential fraudulent element – the misrepresentation that the purveyor of the Special Report had a particular inside source for the precise date on which the stock price would rise – is definitely actionable.”