James E. Franklin, et al.
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
Litigation Release No. 19507 / December 21, 2005
Securities And Exchange Commission v. James E. Franklin, et al., Civil Action No. 02CV0084 IEG (RBB) (S.D. Cal.)
Court Orders Permanent Injunctions and Penalties Against James E. Franklin and Samuel Wolanyk for Securities Fraud
On December 15, 2005, The Honorable Dana M. Sabraw, U.S. District Court Judge for the Southern District of California, entered a Final Judgment permanently enjoining James E. Franklin ("Franklin") and Samuel Wolanyk ("Wolanyk") from violating the antifraud provisions and the antitouting provision of the federal securities laws. The Final Judgment also permanently enjoins Franklin from violating certain registration provisions of the federal securities laws. The Court ordered Franklin to pay $770,000 and Wolanyk to pay $50,000 in third-tier civil money penalties.
On November 10, 2005, a jury found that Franklin and Wolanyk had engaged in securities fraud and other violations of the federal securities laws. The SEC had charged Franklin, Wolanyk, Dieter Raabe ("Raabe"), and four entity defendants under their control, with operating a "pump and dump" scheme beginning in 1997. The SEC's complaint, filed January 14, 2002, alleged that Franklin set up an internet website, "Red Hot Stocks," to tout stocks that he would acquire cheaply (through private offerings, open market purchases and consulting fees). According to the complaint, Franklin then sold those shares after their price increased following overly optimistic and misleading "profiles" on the companies which appeared on the Red Hot Stocks website. The SEC's complaint alleged that Wolanyk operated Red Hot Stocks, authored and distributed the "profiles" and also owned and sold some of the stocks that were touted.
The Final Judgment permanently enjoins Franklin and Wolanyk from violating Sections 17(a) and 17(b) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rule 10b-5. It also permanently enjoins Franklin from violating Sections 5(a) and 5(c) of the Securities Act.
Previously, on November 13, 2002, a final judgment of permanent injunction was entered against Raabe, who consented to the injunction, without admitting or denying the SEC's allegations. On March 13, 2003, a final default judgment was entered against one of the entity defendants, Vector Keel Ltd. On June 20, 2003, final default judgments were entered against the other three entity defendants, Avalon Trust, Initial Public Offering Consultants, Inc. and Net Income. In two related matters, Art H. Beroff, without admitting or denying the findings in the SEC's administrative order or the allegations in its complaint, consented to an order requiring him to cease and desist from committing or causing violations of Section 5 of the Securities Act and agreed to pay a $50,000 civil penalty. For further information, please see Litigation Release No. 19466 (November 16, 2005), Litigation Release No. 17311 (January 15, 2002), Litigation Release No. 17312 (January 15, 2002) and Administrative Proceeding File No. 33-8054 (January 14, 2002).