It's hot in Florida, but the SEC is going to do its best to make it hotter for a Ft. Lauderdale-based firm and its founder.  They're charged with operating a boiler room in which they hyped 2 thinly-traded penny stocks while, behind the scenes, they pumped and dumped the same stock for illegal profits. SEC Findings and Allegations. First Resource Group LLC and principal David Stern employed telemarketers who fraudulently solicited brokers to purchase stock in TrinityCare Senior Living Inc. and Cytta Corporation. While recommending these 2 microcap stocks, Stern sold First Resource's shares in TrinityCare and Cytta stock to investors - a practice known as "scalping."  As Stern was making the sales, he was placing small buy orders which created the false appearance of legitimate trading activity.

“First Resource and Stern used a telephone sales boiler room to make inflated claims and defraud investors while simultaneously manipulating the price of the stocks and making profits for themselves.” -- Eric Bustillo, Director - SEC Miami Reg'l Office.

In its complaint against Stern and First Resource, filed in U.S. District Court for the Southern District of Florida, the pair violated federal securities laws by acting as unregistered broker-dealers.   Stern hired and trained First Resource’s salespeople and gave them information about TrinityCare to prepare sales scripts and pitch the stock to potential investors.  Stern reviewed the draft scripts, made edits, and approved the scripts before the salespeople were allowed to use them. The SEC alleges that Stern gave the salespeople a list of potential investors to cold call and pitch the stocks. First Resource’s salespeople falsely claimed TrinityCare stock “is going to be $5-7 in 6-12 months” and the company “is going to be a half-a-billion dollar company in five years or roughly a $40 stock.” Stern also disseminated a research report on Cytta to investors and falsely touted: “Sales projections for 2010-2014 should exceed $500 million with a pre-tax net of over $400 million.” The SEC’s complaint alleges that First Resource Group and Stern violated Section 17(a) of the Securities Act of 1933, and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5. The SEC is seeking permanent injunctions, disgorgement plus prejudgment interest, and financial penalties as well as a penny stock bar against Stern. Since the beginning of fiscal year 2011, the SEC has filed more than 50 enforcement actions for misconduct related to microcap stocks, and issued 63 orders suspending the trading of suspicious microcap issuers. Microcap stocks are issued by the smallest of companies and tend to be low priced and trade in low volumes. Many microcap companies do not file financial reports with the SEC, so investing in microcap stocks entails many risks. The SEC has published a microcap stock guide for investors and an Investor Alert about avoiding microcap fraud perpetrated through social media. SEC Miami Office Staff Credits. Investigation by:  Jorge Riera, Elisha Frank, Anson Kwong, Michael Nakis, George Franceschini, Nicholas Monaco.  Edward McCutcheon will lead litigation efforts. The SEC’s investigation is continuing. [SEC PR 12-18, 1/26/12]