A federal judge dismissed the SEC’s civil injunctive action against Marc Barhonovich and his company, Equity Advisors, Inc.. The SEC requested the dismissal of the case, which was set to go to trial the following month.

In connection with the dismissal, the SEC entered cease-and-desist and disgorgement orders against Barhonovich and Equity Advisors. Barhonovich and Equity Advisors consented to the filing of these orders without admitting or denying guilt.

The SEC began investigating Barhonovich and Equity Advisors in 2002 for their part in preparing and distributing misleading newsletters touting the thinly traded stocks of two public companies whose shares are quoted on the Over-the-Counter Bulletin Board.

In 2003, a federal judge granted the SEC’s request for default permanent injunctions against two newsletter writers named as defendants in the same complaint. The judge permanently barred Thomas E. Loyd of Houston, Texas, and Paul A. Spray of Tampa, Florida, from future participation in penny stock offerings.

But in 2002, the same judge denied the SEC’s request for preliminary injunctions against Barhonovich and Equity Advisors.

According to the Commission’s September 2002 complaint, Barhonovich contracted Spray and Loyd to mass fax and email newsletters touting the stocks of New Millennium, a billboard advertising company, and Dtomi, an internet technology provider in 2001. At the time, New Millennium and Dtomi had hired Barhonovich to conduct an investor awareness campaign. Barhonovich paid Spray and Loyd in cash and shares of the penny stocks they touted.

The newsletters, prepared and distributed by Spray and Loyd, contained misleading information. Among other things, the newsletters falsely stated the dollar amount of New Millennium’s contracts, falsely represented that New Millennium's "management" was projecting a 28% net profit margin for the company, and falsely stated that New Millennium's revenue for the quarter ending March 31, 2001 exceeded the revenue of the entire previous year by 90%. In addition, the newsletters grossly overstated New Millennium's potential revenue stream and projected share price.

The newsletter discussing Dtomi failed to disclose that the company was in default on certain promissory notes and had accumulated almost $4.8 million in operating losses since its inception, failed to disclose that the company had no clients and falsely represented that the company had revised its earnings projections upward. In addition, the newsletter groundlessly stated that the company had the potential to achieve revenues of $80 million a year.

These misleading newsletters fueled a rise in both the price and trading volume of New Millennium's and Dtomi’s stock. New Millennium’s trading volume rose from as low as 30,000 shares a day immediately before the faxing began to as high as 502,000 shares a day during the periods when the newsletter was faxed. And the price of New Millennium stock rose by as much as 67%.

Following several days of faxing and emailing, the average number of shares traded per day of Dtomi stock rose 600%. The price rose from $1.95 per share to as high as $2.36 per share during the same time frame.

The 2002 complaint alleged that Barhonovich knew, or was reckless in not knowing, about the newsletters’ misleading information. The current cease-and-desist order, however, alleges that Barhonovich hired the newsletter writers and paid for the mass faxing, but failed to review the newsletters before they were publicly disseminated.

The SEC also ordered Barhonovich to pay disgorgement and prejudgment interest stemming from his sales of stock during the faxing periods.

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