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Monday, June 04, 2012 4:45:02 PM
Re: Sunnybank post# 71830 Post # of 71838
I got the complaint ...looks like a sting operation.
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO.
SECURITIES AND EXCHANGE COMMISSION, )
)
Plaintiff, )
v. )
)
ROBERT L. COTTON and )
COTTON & WESTERN MINING, INC., )
)
Defendants. )
)
COMPLAINT
Plaintiff Securities and Exchange Commission alleges as follows:
I. INTRODUCTION
1. From February through March 2010, Defendants Robert L. Cotton and
Cotton & Western Mining, Inc. engaged in a fraudulent market manipUlation scheme
involving Cotton & Western's stock.
2. Through a middleman, the Defendants paid a bribe to a purported corrupt
broker to induce the broker to purchase shares of Cotton & Western stock in the open
market.
3. The Defendants engaged in the scheme to generate the appearance of
market interest in Cotton & Western, induce public purchases of the stock, and artificially
increase its trading price and volume.
4. Unbeknownst to the Defendants, the purported corrupt broker was a
creation of the FBI, did not in fact exist, and the middleman was a witness cooperating
with the FBI.
5. As a result of the conduct described in this Complaint, the Defendants
violated Section 17(a)(1) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. §
77q(a)(1); and Section 10(b) and Rule 10b-5(a) and (c) of the Securities Exchange Act of
1934 ("Exchange Act"), 15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5(a) and (c). Unless
restrained and enjoined, they are reasonably likely to continue to violate the federal
securities laws.
6. The Commission respectfully requests that the Court enter: (a) a
permanent injunction restraining and enjoining the Defendants from violating the federal
securities laws; (b) an order directing the Defendants to disgorge their ill gotten gains,
plus prejudgment interest; (c) an order directing the Defendants to pay civil money
penalties; and (d) a penny stock bar against Cotton.
II. DEFENDANTS
7. During the relevant time period, Cotton was the president and chief
executive officer of Cotton & Western. He resides in Houston, Texas.
8. Cotton & Western is a Nevada corporation with its principal place of
business in Humble, Texas. The company purports to be an iron ore mining company
engaging in the production and sale of iron ore. During the relevant time period, its
common stock was quoted on aTC Link operated by OTC Markets Group, Inc. under the
symbol "CWRN." Its securities have never been registered with the Commission.
9. Cotton & Western's stock is a "penny stock" as defined by the Exchange
Act. At all times relevant to this Complaint, the stock's shares traded at less than $.004
per share. During the same time period, Cotton & Western's stock did not meet any of
the exceptions to penny stock classification pursuant to Section 3(a)(51) and Rule 3a51-1
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of the Exchange Act. For example, the company's stock: (a) did not trade on a national
securities exchange; (b) was not an "NMS stock," as defined in 17 C.F.R. §
242.242.~00(b)( 4 7); (c) did not have net tangible assets (i.e., total assets less intangible
assets and liabilities) in excess of $5,000,000; and (d) did not have average revenue of at
least $6,000,000 for the last three years. See Exchange Act, Rule 3a51-1 (g).
III. JURISDICTION AND VENUE
10. The Court has jurisdiction over this action pursuant to Sections 20( d) and
22(a) of the Securities Act, 15 U.S.C. §§ 77t(d) and 77v(a); and Sections 21(d) and 27 of
the Exchange Act, 15 U.S.C. §§ 78u(d) and 78aa.
11. This Court has personal jurisdiction over the Defendants, and venue is
proper in the Southern District of Florida, because many of the Defendants' acts and
transactions constituting violations of the Securities Act and the Exchange Act occurred
in the District. For example, on February 25, 2010, Cotton met with the cooperating
witness in Broward County to finalize the scheme.
12. The Defendants, directly or indirectly, made use of the means or
instruments of transportation or communication in interstate commerce, or of a means or
instrumentality of interstate commerce, or of the mails, in connection with the conduct
alleged in this Complaint.
IV. THE FRAUDULENT SCHEME
Market Manipulation and Bribe
13. In February 2010, Cotton and the cooperating witness discussed having a
purported friend and business associate of the cooperating witness buy Cotton &
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Western's common stock to create the false impression the stock was developing an
active public market and pump up the stock price.
14. The cooperating middleman told Cotton that his friend and business
associate, the corrupt broker, would use money held in his customers' discretionary
accounts to buy shares of Cotton & Western stock in the open market over a period of
approximately four weeks. The stock purchases would be "coordinated" with press
releases Cotton would issue on behalf of the company.
15. In exchange, Cotton agreed to pay the broker Cotton & Western shares
worth one third the value of the company's stock the broker purchased in the open
market. The middleman told Cotton that before the broker would begin buying stock,
Cotton would have to provide the broker a deposit of either $3,000 or $5,000 of freetrading
shares of Cotton & Western stock, to be issued in the name of the broker's
girlfriend. Cotton agreed.
16. During one of their telephone conversations, the cooperating witness told
Cotton the broker wanted " ... to make sure that at least the beginning of the program is
coordinated with press releases." Cotton responded, "I have plenty of news. That's not a
problem." During another conversation, Cotton assured the cooperating witness that" ...
we'll be pumping it with news."
17. When the cooperating witness asked Cotton where he thought the price of
the stock would go, Cotton responded that if the broker bought $300,000 worth of Cotton
& Western stock, the buying would "push it up in the teens at least." Cotton said it
would be fine with him if the broker could get the stock price to between three and five
cents a share.
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18. On February 25, 2010, Cotton met with the cooperating witness In
Broward County to finalize the scheme. At that time, they agreed the broker would
purchase $300,000 worth of Cotton & Western stock in the open market over the course
ofamonth.
19. The cooperating witness told Cotton that after two weeks, the broker
would provide him with a reconciliation of the broker's stock purchases, which he would
then forward to Cotton. The cooperator also told Cotton the broker would expect Cotton
to compensate him by issuing free trading shares of Cotton & Western in the name of the
broker's girlfriend. Two weeks later, the broker would provide a second reconciliation of
his stock purchases, and then would expect to receive additional shares of Cotton &
Western stock.
20. Ultimately, Cotton and the cooperating witness agreed the broker would
begin purchasing Cotton & Western stock on March 8. They also agreed Cotton would
have the company issue a press release that day to coincide with the inception of the
stock purchasing scheme. Cotton agreed to provide the press release to the cooperating
witness before March 8 to show it to the broker.
21. On March 3, as he had agreed to do, Cotton wired $3,000 as a down
payment to the cooperating witness, with the understanding the cooperating witness
would forward it to the broker. The same day, Cotton sent a copy of a press release -- to
be issued on March 8 -- to the cooperating witness to give the broker.
22. On March 8, the FBI purchased 500,000 shares of Cotton & Western stock
in the open market at $.003 and $.0029 per share, for a total cost of approximately
$1,472.
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23. That same day, Cotton & Western issued the press release Cotton had
provided to the cooperating witness five days earlier. Cotton issued this press release to
create the false impression the increased buying activity was spurred by the positive news
about Cotton & Western in the press release.
COUNT I
Fraud In Violation of Section 17(a)(I) of the Securities Act
24. The Commission realleges and incorporates paragraphs 1 through 23 of its
Complaint.
25. From February through March 2010, the Defendants directly and
indirectly, by use of the means or instruments of transportation or communication in
interstate commerce and by use of the mails, in the offer or sale of securities, as described
in this Complaint, knowingly, willfully or recklessly employed devices, schemes or
artifices to defraud.
26. By reason of the foregoing, the Defendants, directly and indirectly,
violated and, unless enjoined, are reasonably likely to continue to violate, Section 17(a)(l)
of the Securities Act, 15 U.S.C. §77q(a)(I).
COUNT II
Fraud in Violation of Section 10(b) and Rule 10b-5(a) and (c) of the Exchange Act
27. The Commission realleges and incorporates paragraphs 1 through 23 of its
Complaint.
28. From February through March 2010, the Defendants, directly and
indirectly, by use of the means or instrumentalities of interstate commerce, and of the
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mails in connection with the purchase or sale of securities, knowingly, willfully or
recklessly:
(a) employed devices, schemes or artifices to defraud; or
(b) engaged in acts, practices and courses of business which have
operated, are now operating and will operate as a fraud upon
the purchasers of such securities.
29. By reason of the foregoing, the Defendants directly or indirectly violated
and, unless enjoined, are reasonably likely to continue to violate, Section 1 O(b) of the
Exchange Act, 15 U.S.C. § 78j(b), and Rule IOb-5(a) and (c), 17 C.F.R. § 240.10b-5(a)
and (c).
RELIEF REQUESTED
WHEREFORE, the Commission respectfully requests that the Court:
I.
Declaratory Relief
Declare, determine, and find that the Defendants have committed the violations of
the federal securities laws alleged in this Complaint.
II.
Permanent Injunctive Relief
Issue a Permanent Injunction restraining and enjoining the Defendants, their
officers, agents, servants, employees, attorneys, and all persons in active concert or
participation with them, and each of them, from violating Section 17(a)(I) of the
Securities Act and Section lO(b) and Rule lOb-5(a) and (c) of the Exchange Act, as
indicated above.
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III.
Disgorgement
Issue an Order directing all Defendants to disgorge all ill-gotten gains, including
prejudgment interest, resulting from the acts or courses of conduct alleged in this
Complaint.
IV.
Penalties
Issue an Order directing the Defendants to pay civil money penalties pursuant to
Section 20(d) of the Securities Act, 15 U.S.C. § 77t(d); and Section 21(d) of the
Exchange Act, 15 U.S.C. § 78( d)(3).
V.
Penny Stock Bar
Issue an Order barring Cotton from participating in any offering of penny stock,
pursuant to Section 20(g) of the Securities Act, 15 U.S.C. § 77t(g), and Section 21(d) of
the Exchange Act, 15 U.S.C. § 78u(d), for the violations alleged in this Complaint.
VI.
Further Relief
Grant such other and further relief as may be necessary and appropriate.
VII.
Retention of Jurisdiction
Further, the Commission respectfully requests that the Court retain jurisdiction
over this action in order to implement and carry out the tenns of all orders and decrees
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that it may enter, or to entertain any suitable application or motion by the Commission for
additional relief within the jurisdiction of this Court.
June 4,2012 By:
Respectfully submitted,
J-JEdward
D. McCutcheon
Senior Trial Counsel
Florida Bar No. 683841
Direct Dial: (305) 982-6380
E-mail: mccutcheone@sec.gov
Lead Attorney
Trisha D. Sindler
Senior Counsel
Florida Bar # 0773492
Direct Dial: (305) 982-6352
E-mail: FuchsT@sec.gov
ATTORNEYS FOR PLAINTIFF
SECURITIES AND EXCHANGE COMMISSION
801 Brickell Avenue, Suite 1800
Miami, Florida 33131
Telephone: (305) 982-6300
Facsimile: (305) 536-4154
