Penny Stock Fraud and Misrepresentation Litigation and FINRA Arbitration Attorney, Russell L. Forkey, Esq.
Securities and Exchange Commission v. James Roland Dial et al, Case No. 4.12-CV-01654 (S.D. Tex. filed June 1, 2012)
SEC Files Action Against Three Penny-Stock Fraudsters
The Securities and Exchange Commission (“SEC”) recently charged three individuals for their roles in a $3.9 million scheme to manipulate the market and to profit from the issuance and sale of Grifco International, Inc. (“Grifco”) stock. The SEC’s complaint alleges that the stock manipulation scheme was orchestrated and devised by James Roland Dial, Grifco’s former president, chief executive officer, and sole director, Evan Nicolas Jarvis, a stock promoter and de facto Grifco officer, and Alex W. Ellerman, another stock promoter.
The complaint alleges that between December 2004 through November 2006, Dial and Jarvis caused Grifco, a publicly-traded corporation that claimed to be an international provider of oil and gas services equipment, to issue over 13 million purportedly unrestricted Grifco securities to Ellerman, themselves or their nominees. The complaint alleges that Dial, Jarvis and Ellerman sold the Grifco securities to the investing public shortly after receiving their shares, often times selling those shares into a rising, artificial market they created by disseminating false and material misleading information about Grifco to prospective investors and shareholders. None of the securities transactions were registered with the SEC and the transactions did not satisfy any exemption from registration according to the complaint. The SEC alleges that, as a result of this conduct, Dial, Jarvis, and Ellerman collectively received nearly $3.3 million in ill-gotten gains from the sale of newly-issued Grifco stock. The complaint also alleges that Dial misappropriated at least $600,000 by looting Grifco’s cash account from September 2005 through December 2006.
The SEC’s complaint also alleges that Dial, Jarvis, and Ellerman engaged in a pump-and-dump scheme designed to defraud and deceive existing and potential investors into purchasing Grifco shares while they sold Grifco shares at inflated prices into an artificially active market that they created. The complaint alleges that Dial made false and misleading information about Grifco through press releases, investor conference calls, and other statements to Grifco shareholders that Jarvis and Ellerman, at times, disseminated. Dial, Jarvis, and Ellerman sold many of their own Grifco shares at or near the release of this information, even though they knew that the press releases and other statements contained false and misleading information regarding Grifco’s financial position and projected sales, its products and product development, and the company’s total outstanding shares.
The complaint charges that Dial, Ellerman, and Jarvis violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The SEC seeks permanent injunctions, disgorgement with prejudgment interest, officer and director bars, and penny stock bars against each.
Dial, Jarvis, and Ellerman have consented to the entry of a final judgment that: (i) enjoins them from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; (ii) and bars them from serving as an officer or director of a public company or participating in an offering of any penny stock. Dial, Jarvis, and Ellerman also consented to entry of a final judgment that orders them to pay disgorgement and prejudgment interest in the amount of $1,600,628, $2,095,524, and $939,650, respectively, which will be deemed satisfied upon entry of a restitution order in an equal or greater amount in a related enforcement action brought by the United States Attorney’s Office for the Southern District of Texas (Houston); United States v. Alex Ellerman et al., Cr. NO. H-10-56-S (S.D. Tex.) (U.S. v. Ellerman).
On May 22, 2012, the Honorable David Hittner, United States District Court Judge for the Southern District of Texas, sentenced Dial to a five-year prison sentence for conspiring to commit wire fraud. Also, Judge Hittner also sentenced Jarvis to a five-year term of imprisonment for conspiring to commit wire fraud while Ellerman received a reduced prison sentence of 40 months because he cooperated with the prosecution and provided evidence against his co-defendants. The sentencings followed March 2011 pleas of guilty by Dial, Jarvis and Ellerman for conspiracy to commit wire fraud.