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To: scion who wrote (17860)8/8/2007 2:36:49 PM
From: StockDung  Read Replies (2) | Respond to of 19419
 
=DJ IN THE MONEY: Judge Finds Newsletter Broke Securities Laws

Wednesday, August 08, 2007 1:26 PM
By Carol S. Remond
A Dow Jones Newswires Column

It took quite a while, but a federal judge has found that Pirate Investor LLC, an Internet newsletter published by Agora Inc., violated securities laws when it disseminated false inside information about USEC Inc. (USU) several years ago.

The Securities and Exchange Commission sued Baltimore-based publisher Agora, Pirate Investor and its editor Frank Porter Stansberry in April 2003, alleging that they engaged in a scheme to defraud investors by disseminating false information in several newsletters. The case was heard in front U.S. District Court judge Marvin Garbis in early 2005 and parties had been awaiting his decision since then.

Judge Garbis sided with the SEC and found that Stansberry and Pirate Investor violated securities laws when they offered to sell a report purportedly containing insider information about USEC to investors for $1,000.

But Garbis found that the Commission did not prove that Agora was liable for the truth of the statement expressed in Pirate Investor's insider report about USEC. Pirate Investor is a wholly owned subsidiary of Agora.

Finding that Stansberry intentionally made false statements about USEC to induce the recipients of a promotional email to pay $1,000 for a special report about the company, Garbis enjoined the editor and Pirate Investor from future violations of securities laws and SEC regulations. The judge also ordered Stansberry and Pirate Investor to disgorge, or repay, $1,312,620 and fined Stansberry and Pirate Investor $120,000 each.

The judge said in his opinion that "Stansberry's conduct undoubtedly involved deliberate fraud, making statements that he knew were false" and that Pirate Investor "acted in reckless disregard of regulations when it published Stansberry's unbelievable claims without a thread of confirmation."

Lawyers for Agora, Pirate Investor and Stansberry weren't immediately available to comment.

USEC, which began as an arm of the U.S. government and was privatized in 1998, is the world largest provider of uranium enrichment services. Back in 2002, USEC and its Russian counterpart were renegotiating a pricing agreement subject to approval by the U.S. and Russian governments.

After speaking with USEC's head of investor relations, Stansberry in early May 2002 drafted a report about the company and a promotional "Super Insider Tip Email" offering that report for sale. Both were penned under the pseudonym Jay McDaniel.

The promotional email offered to sell the special report for $1,000, promising that investors could "double (their) money on May 22 on this super insider tip."

Agora's promotion and report had a huge impact on USEC's trading volume. From May 14 to May 23, daily trading volume in the company's stock averaged 3.3 million, up from a daily trading volume of about 189,000 shares in the five months preceding Pirate Investor's May 14 email solicitation. USEC's stock price was also affected, dropping from $9.89 on May 20 to $8.20 on May 22 after it became clear that the positive event forecast in Pirate Investor's USEC report didn't take place.

Agora, Stansberry and Pirate Investor had claimed that their actions were protected by the First Amendment. But Judge Garbis found that, while protected by the First Amendment, Stansberry and Pirate Investor engaged "in a fraud scheme whereby victims were induced to pay $1000 each for a 'sure thing' stock tip allegedly based upon 'inside information' presented separately from defendants' regular publications"

"The super insider solicitation and the special report contain numerous statements that were untrue. Some of the untrue statements may not be actionable. However, the essential fraudulent element - the misrepresentation that the purveyor of the special report had a particular inside source for the precise date on which the price would rise - is definitely actionable," Garbis said in his decision.

The judge also found that Stansberry's and Pirate Investor's false statement was made in connection with the sale of securities.

"The very essence of the fraudulent scheme was to induce its victims to purchase USEC stock prior to May 22 and, of course, to pay some $1000 for the privilege of being misled to believe that there was a particular plausible specific reason to do so," Garbis said in his decision.

Pirate Investor sold 1,217 copies of the special report with gross proceeds of about $1.2 million of which Stansberry received $200,400. The newsletter later reimbursed 215 purchasers of the report, giving it net proceeds of $1,002,000. The court tagged $310,000 in interest to that sum when it ordered Stansberry and Pirate Investor to pay back $1,312,620.

The Agora newsletter group was founded by James Dale Davidson. It's unclear whether the publishing group will appeal Garbis' findings in the U.S. District Court for the District of Maryland.

(Carol S. Remond is an award-winning columnist who won a Gerald Loeb Award in 2005 for best news service content with "Exposing Small-Cap fraud," a series of articles that described how three small companies unscrupulously pumped up their stocks.)

-By Carol S. Remond, Dow Jones Newswires; 303-997-5783; carol.remond@dowjones.com

(END) Dow Jones Newswires

08-08-07 1326ET

Copyright (c) 2007 Dow Jones & Company, Inc.