Friday, February 19, 2010
On February 18, 2010, the SEC filed a civil action in the United States District Court for the Southern District of New York charging issuer Greenstone Holdings, Inc., the company's Chief Executive Officer, Hisao Sal Miwa, the company's outside counsel, John B. Frohling, attorney Thomas F. Pierson, and four stock promoters, Daniel D. Starczewski, Joe V. Overcash, Jr., Frank J. Morelli, III, and James S. Painter, III with engaging in an illegal, and in some cases fraudulent, scheme to sell hundreds of millions of Greenstone shares to the public. At the same time, Greenstone and Miwa fraudulently "pumped" the market for Greenstone stock by issuing a series of false and misleading press releases and hiring third-party stock promoters to circulate many of these statements on the internet and via email. On June 18, 2008, as part of its Anti-Spam Initiative, the SEC suspended trading in Greenstone's securities.
The complaint also names as relief defendants thirteen companies controlled by the defendants and through which the defendants directed their illegal public sales of Greenstone's stock.
The SEC's complaint alleges that all defendants violated Sections 5 of the Securities Act of 1933 (the "Securities Act") and that Greenstone, Miwa, Starczewski, Overcash, Pierson, and Frohling violated Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The SEC's complaint also charges, alternatively, that Miwa, Starczewski, Overcash, Pierson, and Frohling aided and abetted Greenstone's violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC seeks injunctive relief and financial penalties from the defendants, disgorgement from Greenstone, Pierson, Starczewski, Morelli, Overcash, and Painter, penny stock bars for Miwa, Starczewski, Overcash, Pierson, Frohling, Painter, and Morelli, and an officer-and-director bar against Miwa.