Tuesday, February 2, 2010
On February 1, 2010, the SEC sued Stephen Czarnik, a securities lawyer, for his role in multi-million dollar pump-and-dump stock schemes. According to the complaint, the actions of Czarnik allowed three stock promoters — Ryan Reynolds, Jason Wynn and Carlton Fleming — to purchase millions of shares of stock in three penny stock companies for pennies per share, hype the companies through promotional mailers and other advertising, and illicitly sell their shares to the public for millions of dollars in profits. The Commission alleges that because the shares were not registered, Reynolds, Wynn and Fleming were able to deprive the investing public of important information about the actual financial condition and business operations of the companies.
According to the SEC, Czarnik purportedly served as counsel to the companies — My Vintage Baby, Inc., Alchemy Creative, Inc., and Beverage Creations, Inc. — and issued legal opinion letters and other documents proclaiming improper registration exemptions under Rule 504 of Regulation D. In these documents, Czarnik falsely represented that Reynolds, Wynn and Fleming intended to hold, rather than illegally distribute, shares of My Vintage Baby, Inc., Alchemy Creative, Inc. and Beverage Creations, Inc. in the public market. The SEC alleges that Czarnik knew or was reckless in not knowing that Reynolds, Wynn and Fleming intended to distribute the stock because he received emails describing the distribution plan and saw other indications of their promotional and trading activities.
The SEC alleges that by the above-mentioned conduct, Czarnik served as a necessary and substantial participant in unregistered offerings of stock, and as such, violated the registration provisions of the Securities laws, Sections 5(a) and (c) of the Securities Act of 1933. The SEC also alleges that by his fraudulent statements in the opinion letters and other associated documents, Czarnik violated Section 17(a) of the Securities Act and Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC is seeking against Czarnik a permanent injunction, a civil penalty, disgorgement of ill-gotten gains and a penny stock bar, among other relief.