The SEC Wednesday charged a Las Vegas-based food and beverage company and its CEO with conducting a fraudulent pump-and-dump scheme, abetted by several consultants who illegally sold company shares into the markets. Penny Stock Company. The SEC alleges that Prime Star Group Inc. under the direction of CEO Roger Mohlman ran the scheme, with the assistance of these consultants:

• Kevin Carson of Lake Worth, FL.
• Danny Colon of Edgewater, NJ - and, (i) his company, DC International Consulting LLC;  (ii) his wife Marysol Morera;  (iii) his half brother Felix Rivera.
• Esper Gullatt, Jr. of Aurora, CO. - and his MN-based company, The Stone Financial Group Inc.
• Joshua Konigsberg of Palm Beach Gardens, FL.

Trading in Prime Star was suspended in June 2011 due to questions about the adequacy and accuracy of information about the company. SEC Findings and Allegations. The SEC alleged that Prime Star, through CEO Mohlman, issued false and misleading press releases touting lucrative contract agreements  - e.g., falsely claiming in March 2010 that Prime Star had entered in a distribution agreement with another company in the beverage business valued at up to $16 million annually.  Furthermore, certain Prime Star reports filed with the SEC understated the company’s net losses or overstated its cash balance.

“Prime Star and Mohlman used backdated consulting agreements and forged attorney opinion letters as a means to issue millions of shares to the consultants who then dumped them on unsuspecting investors.”  -- Eric Bustillo, Director of the SEC’s Miami Regional Office.

Prime Star and Mohlman allegedly issued fraudulent free-trading Prime Star shares to the above-named consultants, who also are charged in the scheme.  Prime Star and Mohlman then pumped the stock by exaggerating the company’s operations and contracts in a series of press releases issued in October 2009 and March 2010. For instance, they issued an 10/14/09 press release claiming Prime Star’s subsidiary Wild Grill Foods had received purchase orders for more than $1.25 million of seafood products, accompanied by misleading quotes.  In reality, Prime Star’s just-established Wild Grill subsidiary had no operations and there were no purchase orders. The press releases, as noted above, coincided with the illegal issuance of millions of unregistered shares of Prime Star stock to the purported business consultants from August 2009 to March 2010.  Although Prime Star had a class of shares registered pursuant Section 12(g) of the Securities Exchange Act of 1934, that section does not permit transfers of those shares.  To transfer Prime Star stock in compliance with the securities laws, Mohlman, Prime Star and the consultants had to either register an offering of the company’s shares or meet an exemption to the offering registration requirement.  However, they did neither. The fraudulent promotional activities caused Prime Star’s stock price and trading volume to increase markedly. For example, a press release caused the following day's (3/16/10) trading volume to spike to more than 16 million shares - 10 times more than the previous day’s trading volume.  By 3/17, Prime Star’s stock price had plummeted. SEC Ongoing Fight Against Penny Stock Misconduct. Since the beginning of fiscal year 2011, the SEC has filed more than 50 enforcement actions for misconduct related to penny stocks, and issued more than 65 orders suspending the trading of suspicious microcap issuers.  Many penny stock companies do not file financial reports with the SEC, so investing in them entails many risks.  [Note: Investors and persons associated with financial services firm can obtain the SEC's microcap stock guide for investors and an Investor Alert about avoiding microcap fraud perpetrated through social media.] SEC Charges and Sanctions. Prime Star and Mohlman were charged with violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, among other rule violations. The SEC complaint further alleges that Mohlman violated Section 13(b)(5) of the Exchange Act and Rules 13a-14, 13b2-1 and 13b2-2 thereunder and aided and abetted Prime Star’s violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder. The SEC also alleges Section 5(a) and 5(c) violations against Colon, Morera, Rivera, DC International Consulting, Carson, Gullatt, The Stone Financial Group, and Konigsberg. Consultant Konigsberg has agreed to settle the SEC’s charges without admitting or denying the allegations.  The SEC seeks penalties, disgorgement plus prejudgment interest against the other consultants and Mohlman, as well as an officer and director bar against Mohlman, penny stock bars against Mohlman, Colon, Morera, Rivera, Carson, and Gullatt, and permanent injunctions against all defendants.  Separately, the Commission instituted administrative proceedings to determine whether the registration of each class of Prime Star securities should be revoked or suspended based on its failure to file required periodic reports. SEC Miami Office Staff Credits. Investigation by Julie Russo, Elisha Frank, Karaz Zaki;  Edward McCutcheon is leading the litigation. For further details, go to:  [SEC PR 12-39, 3/7/12] and  [SEC Administrative Proceeding 3-14787].