In the Matter of
ORDER INSTITUTING ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS, PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933 AND SECTIONS 15(b) AND 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDER
II. In anticipation of the institution of these proceedings, Respondents have submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over them and the subject matter of these proceedings, which are admitted, and except as provided herein in Section V with respect to Respondent Singh, Respondents consent to the entry of this Order Instituting Administrative Cease-and-Desist Proceedings, Pursuant to 8A of the Securities Act of 1933 and Sections 15(b) and 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order ("Order"), as set forth below.
III. On the basis of this Order and Respondents' Offer, the Commission finds1:
OTHER RELEVANT ENTITIES
Singh and Lavos Engaged in Paid Promotional Campaigns Which Were Misleading to Investors
6. Singh launched the promotional scheme in
7. Under this arrangement, Lidingo performed the day-to-day promotional work, including interfacing with writers and coordinating the publication of articles about issuer-clients. Singh provided ideas for certain articles. For many of the articles, Singh edited and approved articles, directed which writers should publish articles and directed when and where those articles should be published. Singh also encouraged Lidingo to use pseudonyms to publish articles ghost-written by other Lidingo writers and, at times, directed or approved which pseudonym to use. Singh disguised his involvement in promotional work from many of the issuers by, among other things, having the issuer contract with Lidingo or by signing his wife's name to the Lavos contracts. In addition, Lidingo employees called
8. Singh also directed that Lidingo not use writers who disclosed compensation. For example, in
9. As detailed below, either Lavos or Lidingo (or sometimes both) contracted with issuer clients to provide promotional services and received compensation from those clients for the services. Lidingo paid the expenses related to the promotional campaigns, including payments to writers for publishing articles. Lavos sent a portion of the compensation it received under its contracts to Lidingo both to share profits from the enterprise and to cover Lavos' share of Lidingo's promotional expenditures.
A. Singh, as CEO of IMUC,
11. The Lidingo-IMUC contract required IMUC to pay Lidingo
12. Lidingo, in turn, paid writers to publish articles describing IMUC securities on investment websites SeekingAlpha.com and Benzinga.com. In addition, Lidingo paid writers to ghost-write articles about IMUC, which Lidingo then published on Seeking Alpha's website under Lidingo-selected pseudonyms. None of the over 50 articles disclosed the writers' or Lidingo's compensation from IMUC or otherwise suggested that the articles were part of a paid promotion.
13. For example, on
14. In at least the beginning of Lidingo's work for IMUC, Singh had ultimate approval authority for all IMUC articles published by Lidingo or its writers. In addition, throughout the period in which Lidingo provided services to IMUC, Singh provided input on article content and gave directions on authors and publication timing.
15. For example, on
16. In another example, on
19. Lidingo, in turn, paid writers to publish articles and blog entries describing Lion securities on investment websites SeekingAlpha.com and WallStCheatSheet.com. In addition, Lidingo paid writers to ghost-write articles about Lion which Lidingo then published on Seeking Alpha's website under Lidingo-selected pseudonyms. None of the over 10 articles and blog entries disclosed the writers' or Lidingo's compensation from Lion or otherwise disclosed that the publications were part of a paid promotion. Moreover, more than 10 of the articles published on Seeking Alpha's website affirmatively misrepresented that the author had not been compensated.4
20. Singh contributed to certain of the articles published through Lidingo about Lion. For example, on
C. Lavos and
21. While CEO of IMUC and Lion and continuing until
22. Lavos' and Lidingo's promotional work for these 9 public companies resulted in the publication of over 350 additional articles on investment websites,5 or on Seeking Alpha's Instablog, of which more than 120 articles were by Lidingo published using Lidingo-selected pseudonyms. None of these publications disclosed that the writer was compensated by the issuer or that the articles were part of a paid promotion.6 More than 200 of the articles – the ones published on Seeking Alpha's website – affirmatively misrepresented that the author was not receiving compensation.
23. Singh, through Lavos, contributed to the promotional work performed for each of these public company clients. For example, pursuant to its contract with Lavos, one public company client paid Lavos
24. Singh reviewed, edited or commented on and approved many of the articles about these nine issuers and gave input on when they should be published. For example, on
25. Singh participated in other aspects of Lidingo's promotional work as well. He coached Bjorlin on business development, providing her, on
26. In addition, between
D. Singh Understood that Internet Publications Discussing Lavos and/or Lidingo Promotional Clients Either Did Not Disclose Compensation or Affirmatively Misrepresented that the Author Had Not Been Compensated
27. As set forth above, Singh, and Lavos through Singh, knew or was reckless in not knowing that Lidingo publications about the public companies, including IMUC and Lion, would either not disclose compensation or would affirmatively misrepresent that the author had not been compensated.
E. The Omissions and Misrepresentations in the
28. The omissions and misrepresentations about issuer payments for the promotional articles describing their securities discussed above were material because they suggested that the views contained in the publications were objective and independently formed. Singh understood that disclosing compensation made these communications less credible and less likely to be effective. As noted in Singh's
F. The Internet Publications Were Intended to Solicit Offers to
29. The over 400 articles published on the investment websites listed above described the securities of 12 public companies, including IMUC and Lion, and certain of the articles were intended to solicit offers to buy the companies' securities. For example, Seeking Alpha operated a widely-read website that held itself out as a "platform for investment research, with broad coverage of stocks, asset classes, ETFs and investment strategy" where "articles frequently move stocks, due to a large and influential readership which includes money managers, business leaders, journalists and bloggers."
Singh, as CEO of Lion, Engaged in Unlawful "Gun Jumping"
30. As set forth above, Singh, hired and paid Lidingo to generate articles about Lion securities. One of the Lion articles was published on Seeking Alpha's website during Lion's waiting period – between
31. As a result of the conduct described above, Respondents willfully violated Exchange Act Section 10(b) and Rule 10b-5(a) and (c) thereunder and Securities Act Sections 17(a)(1) and (3), which prohibit fraudulent conduct in the offer or sale of securities and in connection with the purchase or sale of securities.
32. As a result of the conduct described above, Respondents willfully aided and abetted and caused Lidingo's and certain writers' violations of Exchange Act Section 10(b) and Rule 10b-5 thereunder and Securities Act Section 17(a), which prohibit fraudulent conduct in the offer or sale of securities and in connection with the purchase or sale of securities.
33. As a result of the conduct described above, Respondents willfully violated Securities Act Section 17(b), which prohibits any person from publishing, giving publicity to, or circulating any communication that describes a security in exchange for direct or indirect consideration from an issuer, underwriter, or dealer without fully disclosing the past or prospective consideration and the amount.
34. As a result of the conduct described above, Respondents willfully aided and abetted and caused Lidingo's and certain writers' violations of Securities Act Section 17(b), which prohibits any person from publishing, giving publicity to, or circulating any communication that describes a security in exchange for direct or indirect consideration from an issuer, underwriter, or dealer without fully disclosing the past or prospective consideration and the amount.
35. As a result of the conduct described above, Respondent Singh willfully violated Securities Act Section 5(b)(1), which prohibits any person from directly or indirectly using interstate means to carry or transmit a prospectus relating to any security with respect to which a registration statement has been filed unless such prospectus complies with Securities Act Section 10. The article that Singh caused to be published after the filing of Lion's registration statement but before its registration statement was deemed effective was a prospectus that failed to meet the requirements of Securities Act Section 10.
Respondent Singh has undertaken to:
(a) Forgo, for a period of ten (10) years from the date of this Order, directly or indirectly, hiring for pay any third party for, or in any other way participating in, a paid promotional campaign engaged in by a third party. As used in this paragraph (a), "promotional campaign" means a campaign that includes directly or indirectly publishing, giving publicity to, or circulating any form of written communication, whether electronic or hard copy, which, though not purporting to offer a security for sale, describes such security.
(b) Certify, in writing, compliance with the undertaking set forth above. The certification shall identify the undertaking, provide written evidence of compliance in the form of a narrative and be supported, as appropriate, by exhibits sufficient to demonstrate compliance. The Commission staff may make reasonable requests for further evidence of compliance, and Respondent agrees to provide such evidence. The certification and supporting materials shall be submitted to Assistant Director
(c) In connection with this action and any related judicial or administrative proceeding or investigation commenced by the Commission or to which the Commission is a party, (i) appear and be interviewed by Commission staff at such times and places as the staff requests upon reasonable notice; (ii) accept service by mail, email or facsimile transmission of notices or subpoenas issued by the Commission for documents or testimony at depositions, hearings, or trials, or in connection with any related investigation by Commission staff; (iii) appoint his attorney in these proceedings as agent to receive service of such notices and subpoenas; (iv) with respect to such notices and subpoenas, waive the territorial limits on service contained in Rule 45 of the Federal Rules of Civil Procedure and any applicable local rules, provided that the party requesting the testimony reimburses Respondent Singh's travel, lodging, and subsistence expenses at the then-prevailing
In determining whether to accept the Offer, the Commission has considered the undertaking enumerated in Paragraph III(c).
IV. In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions agreed to in Respondents Lavos' and Singh's Offer.
Accordingly, pursuant to Section 8A of the Securities Act, and Sections 15(b) and 21C of the Exchange Act, it is hereby ORDERED that:
A. Respondents Lavos and Singh cease and desist from committing or causing any violations and any future violations of Sections 17(a) and 17(b) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Respondent Singh cease and desist from committing or causing any violations and any future violations of Section 5(b) of the Securities Act.
B. Respondent Singh be, and hereby is:
barred from participating in any offering of a penny stock, including: acting as a promoter, finder, consultant, agent or other person who engages in activities with a broker, dealer or issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock with the right to apply for reentry after five (5) years to the appropriate self-regulatory organization, or if there is none, to the Commission.
C. Respondent Singh be, and hereby is, prohibited for five years from the date of this Order from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act or that is required to file reports pursuant to Section 15(d) of the Exchange Act.
D. Respondent Singh shall, within 14 days of the entry of this Order, pay disgorgement of
Payment must be made in one of the following ways:
(1) Respondent may transmit payment electronically to the Commission, which will provide detailed ACH transfer/Fedwire instructions upon request;
(3) Respondent may pay by certified check, bank cashier's check, or
Accounts Receivable Branch
Payments by check or money order must be accompanied by a cover letter identifying
E. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be treated as penalties paid to the government for all purposes, including all tax purposes. To preserve the deterrent effect of the civil penalty, Respondent Singh agrees that in any Related Investor Action, he shall not argue that he is entitled to, nor shall he benefit by, offset or reduction of any award of compensatory damages by the amount of any part of Respondent Singh's payment of a civil penalty in this action ("Penalty Offset"). If the court in any Related Investor Action grants such a Penalty Offset, Respondent Singh agrees that he shall, within 30 days after entry of a final order granting the Penalty Offset, notify the Commission's counsel in this action and pay the amount of the Penalty Offset to the
F. Respondent Singh shall comply with the undertakings enumerated in Paragraphs III(a) and (b) above.
V. It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 523 of the Bankruptcy Code, 11 U.S.C. Section 523, the findings in this Order are true and admitted by Respondent Singh, and further, any debt for disgorgement, prejudgment interest, civil penalty or other amounts due by Respondent Singh under this Order or any other judgment, order, consent order, decree or settlement agreement entered in connection with this proceeding, is a debt for the violation by Respondent Singh of the federal securities laws or any regulation or order issued under such laws, as set forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. Section 523(a)(19).
By the Commission.
1 The findings herein are made pursuant to Respondents' Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.
2 Singh organized Lavos as a limited liability company with his wife as the managing member and sole principal. Singh's wife, however, did not have an operational role.
3 The contract had a four-month term, but Singh and IMUC continued to pay Lidingo for an additional seven months after the initial term ended.
4 These articles included a disclosure that stated, the author was "not receiving compensation for [the article]." In
5 The investment websites were: SeekingAlpha.com, Benzinga.com, WallStCheatSheet.com, SmallCapNetwork.com, TheStreet.com, MarketPlayground.com, InvestorVillage.com, Fool.com, InvestorHub.com, Investing.com, Minyanville.com,
6 In addition, prior to working with Lidingo, Singh performed promotional work for another pharmaceutical company, resulting in at least five articles, which were published without disclosing indirect compensation by the issuer.
7 The emails made incomplete or misleading disclosures that different entities, such as "Precision Investment Firm" or "Smart Money Finds," were "compensated by an outside vendor to distribute information." A potential investor receiving these emails would have no way of knowing that the issuer indirectly paid for the email content and that the content was not objective or independently created.
8 The article published on Seeking Alpha's website during this period was a
9 See 15 U.S.C Section 77b(10).