1. This case involves a fraudulent touting scheme. In 2012, Defendant Tobin S. Smith, on behalf of his company, Defendant NBT Group, Inc. ("NBT"), entered into two separate agreements to provide "investor awareness" marketing services promoting IceWEB, Inc. ("IWEB"), a penny-stock company. The Defendants entered into these agreements as part of a scheme involving the now-deceased CEO of IWEB and a broker to inflate the price of IWEB stock. Under the terms of the agreements, Smith's company, NBT, was to receive a total of $330,000 in cash, as well as IWEB stock, for promoting IWEB. Although the Defendants did not receive the full amount contemplated by the agreements, they did receive $165,900 and 1,217,105 shares of restricted IWEB stock in exchange for preparing and disseminating emails, online blogs, articles, and other media touting IWEB, with the goal of increasing IWEB's trading volume and share price. The agreements also provided that NBT could earn over $250,000 in additional compensation if the marketing campaigns succeeded in obtaining a sustained increase in share price ("incentive fees"). The Defendants failed to fully and adequately disclose their compensation or the promised incentive fees for promoting IWEB; they also made additional material misrepresentations and omissions regarding IWEB, including unsupported financial projections, and false representations that Smith was immediately purchasing IWEB stock, that IWEB was an acquisition target, and that Facebook was a customer of IWEB.2. By engaging in this conduct, the Defendants violated the antifraud provisions of Sections 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5, and the antitouting provisions of Section 17(b) of the Securities Act of 1933 (the "Securities Act"), 15 U.S.C. § 77q(b).3. The SEC seeks a permanent injunction prohibiting future violations, penny stock bars, and disgorgement of ill-gotten gains together with prejudgment interest against both Defendants, and a civil penalty against Defendant Smith.
12. On or about May 9, 2012, Johnson, who personally owned approximately 1,520,000 shares of IWEB, and whose customers owned an additional 9,377,681 shares of IWEB, emailed Smith and suggested that Smith get together with IWEB's then CEO.13. Smith understood from his initial communications with Johnson that Johnson owned "a ton" of IWEB stock. Additionally, from a subsequent May 10, 2012 email from Johnson stating "I was just a little early," Smith understood that Johnson's investors were under water, that the stock was not trading, and that the stock price was below what Johnson's clients paid for it.
19. In none of the promotional materials that the Defendants created and issued regarding IWEB from May 21 to May 25, 2012, did the Defendants disclose that IWEB had agreed NBT would be paid incentive fees if the price of IWEB stock increased to a certain level following the May 21-25 marketing campaign.20. Smith understood that IWEB contracted with him through the consulting group because IWEB wanted to increase its number of shareholders, to increase its trading volume, and to "uplist" from trading on the over-the-counter (OTC) market to the NASDAQ. Smith also understood that IWEB had $2 million in outstanding $0.17 warrants that could be converted by the warrant holders to IWEB stock once the stock price increased sufficiently (to about $0.20 per share). Exercise of the warrants would result in IWEB receiving the $2 million from warrant holders purchasing IWEB stock.
22. On May 18, 2012, the Defendants received two payments totaling $44,500. These payments constituted partial payment for the anticipated email campaign to be conducted on behalf of IWEB.23. On May 21, 2012, the Defendants initiated the campaign regarding IWEB by posting on NBT's website a report authored by Smith entitled "By Dumb LUCK I Just Discovered the PERFECT Tech Stock. . . In My Backyard!" [Emphasis original.] Among other representations, the report states that "NBT is initiating coverage" of IWEB, promising that "We will complete an in-depth report on the company. . . but here is the condensed version of our equities research report in progress." The report sets forth an "initial target [price] of $2.25 or 10X projected 2013 sales of $45 million in their low cost/high efficiency unified data storage systems," a "more than 10X upside from the current price per share of .15." An "About the Author" description at the end of the report includes Smith's picture and states that he is a "Contributor and Anchor Fox News Channel and Fox Business Network," in addition to stating his positions at NBT.
Bill Singer's CommentSmith and NBT agreed to be barred from involvement in any future penny stock offerings and must pay disgorgement of $165,900 plus $16,893 in interest. Smith also must pay a $75,000 penalty.