The Securities and Exchange Commission today announced that a former market analyst and TV news commentator has agreed to settle charges that he and his company fraudulently promoted a penny stock to investors.
The SEC alleges that Tobin Smith and NBT Group Inc. were paid to prepare and disseminate e-mails, online blogs, articles, and other communications touting the stock of IceWEB Inc., a data storage company. Smith and NBT did not fully disclose their compensation to investors, who did not have the benefit of knowing that part of their pay was tied to a sustained increase in IceWEB’s share price. The promotional material also contained false and misleading statements intended to artificially increase the trading volume and share price of IceWEB’s stock.
Smith and NBT agreed to be barred from involvement in any future penny stock offerings and must pay disgorgement of $165,900 plus $16,893 in interest. Smith also must pay a $75,000 penalty.
“Smith and NBT claimed IceWEB was a ‘perfect tech stock’ in order to manipulate the market and enrich themselves with illicit stock promoter fees,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office.
According to the SEC’s complaint filed in U.S. District Court for the District of Columbia:
- Smith entered into two separate agreements on NBT’s behalf to promote IceWEB and its stock in exchange for $330,000 in cash and IceWEB stock.
- NBT could earn incentive fees of more than $250,000 if the marketing campaigns succeeded in increasing share price.
- Smith and NBT only disclosed some of their compensation and never informed investors that they would earn incentive fees if the stock price increased above a certain amount.
- Smith and NBT falsely stated in communications to subscribers that Smith discovered IceWEB when he was “searching for a solution” to his own company’s “rapidly growing cloud data storage problem.”
- In fact, Smith only “found” IceWEB after he was retained to promote the company. He did not actually use IceWEB for NBT data storage.
- Smith and NBT also falsely touted that IceWEB “provides the cheapest storage box and more important the lowest cost/highest performance solution to” public and private data storage centers including “Amazon cloud drive, Dropbox, Evernote, iCloud, Microsoft SkyDrive, Google Drive, SugarSync” and Facebook.
- Smith did not know whether any of these companies were actually IceWEB customers.
- Smith touted he could “easily make the case” for “10X Return -- $200 million valuation” on IceWEB given “what has been already paid for its competitors.”
- But Smith made these projections despite being well aware of IceWEB’s poor financial condition and knowing that no company was contemplating a purchase of IceWEB.
The SEC’s complaint charges Smith and NBT with violating the anti-touting and anti-fraud provisions of Section 17(b) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. Smith and NBT neither admitted nor denied the allegations in the settlement, which is subject to court approval.
The SEC’s investigation was conducted by Yolanda Ochoa and Finola H. Manvelian and trial counsel are John Berry and Karen Matteson in the Los Angeles office.
SEC Investor Alert: Fraudulent Stock Promotions