Prime Star Group, Inc.

Pump and Dump Fraud and Misrepresentation FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

March, 2012:

Prime Star Group, Inc.

SEC Charges CEO of Las Vegas-Based Penny Stock Company and Several Consultants in Pump-and-Dump Scheme

The Securities and Exchange Commission recently charged a Las Vegas-based food and beverage company and its CEO with conducting a fraudulent pump-and-dump scheme, and charged several consultants for their illegal sales of company shares into the markets.

The SEC alleges that Prime Star Group Inc. under the direction of CEO Roger Mohlman issued false and misleading press releases that touted lucrative agreements for the company’s food and beverage products. For example, Prime Star falsely claimed in a March 2010 press release that it had entered in a distribution agreement with another company in the beverage business valued at up to $16 million annually. Furthermore, certain Prime Star reports filed with the SEC understated the company’s net losses or overstated its cash balance.

The SEC suspended trading in Prime Star in June 2011 due to questions about the adequacy and accuracy of information about the company.

“Prime Star and Mohlman used backdated consulting agreements and forged attorney opinion letters as a means to issue millions of shares to the consultants who then dumped them on unsuspecting investors,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “The SEC will persist in its efforts to stamp out microcap fraud schemes.”

Since the beginning of fiscal year 2011, the SEC has filed more than 50 enforcement actions for misconduct related to penny stocks, and issued more than 65 orders suspending the trading of suspicious microcap issuers. Microcap stocks are issued by the smallest of companies and tend to be low priced and trade in low volumes. Many penny stock companies do not file financial reports with the SEC, so investing in them entails many risks. The SEC has published a microcap stock guide for investors and an Investor Alert about avoiding microcap fraud perpetrated through social media.

The SEC’s complaint against Prime Star and Mohlman alleges that they fraudulently issued free-trading Prime Star shares to consultants who also are charged in the scheme:

• Kevin Carson of Lake Worth, Fla.
• Danny Colon of Edgewater, N.J.
• Colon’s company DC International Consulting LLC
• Colon’s wife Marysol Morera of Edgewater, N.J.
• Colon’s half brother Felix Rivera of Clifton, N.J.
• Esper Gullatt, Jr. of Aurora, Colo.
• Gullatt’s Minnesota-based company The Stone Financial Group Inc.
• Joshua Konigsberg of Palm Beach Gardens, Fla.

The SEC alleges that Prime Star and Mohlman pumped the stock by exaggerating the company’s operations and contracts in a series of press releases issued in October 2009 and March 2010. For instance, they issued an October 14 press release claiming Prime Star’s subsidiary Wild Grill Foods had received purchase orders for more than $1.25 million of seafood products. Mohlman was quoted saying, “Prime Star Group is thrilled at the growth of this business unit. We will continue to grow the Wild Grill brand, its domestic distribution, and have begun exploring international opportunities for distribution abroad.” However, in reality, Prime Star’s just-established Wild Grill subsidiary had no operations and there were no purchase orders.

According to the SEC’s complaint, Prime Star’s press releases coincided with the illegal issuance of millions of unregistered shares of Prime Star stock to the purported business consultants from August 2009 to March 2010. Although Prime Star had a class of shares registered pursuant Section 12(g) of the Securities Exchange Act of 1934, that section does not permit transfers of those shares. To transfer Prime Star stock in compliance with the securities laws, Mohlman, Prime Star and the consultants had to either register an offering of the company’s shares or meet an exemption to the offering registration requirement. However, they did neither.

The SEC alleges that Mohlman and Prime Star’s fraudulent promotional activities caused Prime Star’s stock price and trading volume to increase markedly. For instance, on March 16, a prior day press release caused trading volume to spike to more than 16 million shares, which was 10 times more than the previous day’s trading volume. Prime Star’s stock price plummeted the following day.

The SEC’s complaint filed in federal court in Nevada alleges Prime Star and Mohlman violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. The complaint also alleges that Prime Star violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. The complaint further alleges that Mohlman violated Section 13(b)(5) of the Exchange Act and Rules 13a-14, 13b2-1 and 13b2-2 thereunder and aided and abetted Prime Star’s violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder. The SEC also alleges Section 5(a) and 5(c) violations against Colon, Morera, Rivera, DC International Consulting, Carson, Gullatt, The Stone Financial Group, and Konigsberg.

One of the consultants – Konigsberg – has agreed to settle the SEC’s charges without admitting or denying the allegations by consenting to the entry of a judgment that would enjoin him from future violations of Sections 5(a) and 5(c) of the Securities Act. The SEC is seeking penalties and disgorgement plus prejudgment interest against the other consultants and Mohlman as well as an officer and director bar against Mohlman, penny stock bars against Mohlman, Colon, Morera, Rivera, Carson, and Gullatt, and permanent injunctions against all defendants. Separately, the Commission instituted administrative proceedings to determine whether the registration of each class of Prime Star securities should be revoked or suspended based on its failure to file required periodic reports.