Securities Fraud Notice for United Kingdom Investors – SEC Enforcement Action

Securities and Exchange Commission v. Pharma Holdings, Inc., Edward Klapp IV and Edward Klapp Jr. Civil Action No. 10-cv-81615 (S.D. Fla., filed December 22, 2010)

The Securities and Exchange Commission on December 22, 2010 charged Jupiter, Florida-based Pharma Holdings, Inc., its CEO Edward Klapp IV, and its CFO Edward Klapp Jr., with violations of the antifraud provisions of the federal securities laws. The SEC’s complaint alleges that from 2005 through September 2009, Pharma Holdings, purportedly in the pharmaceutical supply business, and the Klapps raised approximately $5 million from at least 80 European investors, primarily residing in the United Kingdom, through the fraudulent offer and sale of Pharma Holdings stock.

The SEC’s complaint alleges that Pharma Holdings and the Klapps engaged various sales offices and agents to conduct Pharma Holdings’ offerings, and also directly offered shares in later offerings to existing shareholders. According to the SEC’s complaint, in connection with its stock offerings, Pharma Holdings issued false press releases and made false postings on its website overstating Pharma Holdings’ sales revenues and net profits, and touting non-existent business agreements with multinational corporations.

The complaint further alleges that Pharma Holdings and its sales agents repeatedly told investors and prospective investors, both in written materials from Klapp IV and on the company’s website, that Pharma Holdings would soon conduct an IPO or be bought out by a large corporation or mutual fund. The complaint also alleges that Klapp Jr. falsely promised investors an imminent IPO. Further, the complaint alleges that Pharma Holdings and the Klapps failed to disclose that Edward Klapp IV had been criminally convicted of a felony involving fraud.

The SEC’s enforcement action charges Pharma Holdings and the Klapps with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, thereunder. The SEC is seeking permanent injunctions, disgorgement and financial penalties against Pharma Holdings, Klapp IV and Klapp Jr., and the imposition of officer and director bars against Klapp IV and Klapp Jr.

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