SEC Files Charges in Alleged MicroCap Fraud Scheme
On Monday, the SEC charged Andalusian Resorts and Spas, Inc. (OTC: ARSP), its former president and CEO Bernard Fried, and the company’s actual control person John Madsen with defrauding investors by issuing false press releases about business prospects and hiding Madsen’s secret control of the company.
The SEC alleges that Madsen concealed a past guilty plea to mail fraud by recruiting Fried to serve as a strawman executive of Andalusian while Madsen called the shots from behind the scenes. According to the SEC’s complaint, Fried drafted press releases at Madsen’s direction announcing the company’s intent to acquire a Costa Rican hotel and touting anticipated revenue from the hotel acquisition. Andalusian’s press releases were allegedly misleading as the company had no assets, operations, or ability to finance the purchase of the hotel or otherwise satisfy the requirements of the potential transaction. The SEC alleges that the party with whom Andalusian had entered into a letter of intent to purchase did not even have legal title to the hotel, which was in bankruptcy.
According to the SEC’s complaint, Andalusian’s misrepresentations were intended to fraudulently generate public demand for the company’s stock to enable Madsen or his associates to profit from selling their shares into the artificially-inflated market. However, the SEC effectively halted the pump-and-dump scheme before it had the intended effect by suspending trading in Andalusian’s securities soon after dissemination of the press releases.
The SEC is seeking penny stock bars, permanent injunctions, and disgorgement of any ill-gotten gains plus interest and penalties against Madsen and Fried. The SEC also seeks an officer-and-director bar against Fried. The SEC also seeks a permanent injunction against Andalusian.
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