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United States Securities and Exchange Commission v. Meltzer

July 10, 2006


The opinion of the court was delivered by: Hurley, District Judge



The United States Securities and Exchange Commission ("SEC") filed the present securities fraud claim against Samuel Aaron Meltzer ("Defendant" or "Meltzer"), alleging that he sent "spam" e-mails that "touted" or "recommended" certain stocks on the basis of false or misleading information in violation of Section 17(a) of the Securities Act ("Securities Act"), 15 U.S.C. § 77q(a), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. Both sides have moved for summary judgment. Because issues of material fact remain undetermined, the Court DENIES both motions.


The following recitation of the facts is undisputed unless otherwise indicated and has been culled from the SEC's Rule 56.1 Statement and Meltzer's response thereto.

Meltzer, a Minnesota resident, was the sole owner and operator of two private corporations that engaged in web design, web hosting, and "unsolicited bulk email advertising services," i.e., "spamming." From 1998 or earlier until February 2001 or later, Meltzer was hired by stock promoters to send bulk e-mails (typically five million e-mails, but sometimes 10-20 million) speaking in highly favorable terms about at least twelve publicly traded companies, which shall be referred to as the "subject issuers". Most of these subject issuers were publicly traded in the over-the-counter ("OTC") market, were quoted on the OTC bulletin board, and were "penny stocks" within the meaning of Section 3(a)(51) of the Securities Exchange Act of 1934 and Rule 3a51-1 promulgated thereunder.

In conjunction with the e-mails, Meltzer established multiple websites, each with a distinct domain name, internet address, and business name, such as "GrowthStocks2000," "Wisestocks 2000," or "Stock-Vest." According to the complaint, the use of multiple distinct internet identities allowed Meltzer to "flood the Internet with promotional materials" while "avoid[ing] detection by web hosts who seek to prevent Internet spam." (Compl. ¶ 12.)

Below is the content (including grammatical and typographical errors) of the first bulk e-mail sent by Meltzer, though attributed to Stock-Vest:



We have come across a company we feel is establishing a stronghold in an area that has historically been extremely profitable, and even more so, in developing countries where good bargains are available. This Company has its eyes and ears open. The Company has strategically positioned itself alongside some of the largest players in the oil industry. Its exclusive concession rights border oilfields run by the World's Major oil Companies. After speaking to management, we believe that down the road it could be a potential takeover target. Also, according to Company management, a future acquisition is possible. We believe all of this may cause the Company's undervalued stock price to recognize its true asset value. Based on its proven oil and gas reserves the share price should be valued at over ten times its Current share price. It is approximately one-tenth its potential value.

I'm sure you will agree that the Oil and Gas Industry is one of the most profitable arenas to be involved in these days. Return on Capital is at a high with excessively generous cash flows. This is all derived from the production of hydrocarbons into usable products in our society including: motor oil, gasoline, kerosene, airplane fuel, cigarette lighters, barbecues, cosmetics, plastics, and on and on. . . This production will keep a company liquid and strong. It also gives the company flexibility, resourcefulness, and product development in an ever-changing world, which is most appealing of all.

CityView Energy Corporation Ltd., symbol CVCL, on the NASDAQ Small Cap, as well as, the Australian Stock Exchange, symbol CVI, is an aggressive oil and gas development and production company. It was incorporated in 1987 and has been in the energy resource industry for the past several years. The Oil and Gas Industry is an exciting, dynamic industry in which companies are transforming the worldwide production of oil and natural gas into more efficient uses.

CityView Energy Corporation Ltd., is an innovator in the booming oil and gas business. Its combination of experienced entrepreneurial-minded management with highly skilled natural resources development personnel take care of the essentials for success in this rapidly growing industry. Add on strong financial backing and the latest technology for finding oil and natural gas reserves and oil drilling methodologies, you spell PROFIT, PROFIT, PROFIT! The company has achieved a stake of the dwindling worldwide oil and gas reserves (as well as aiming for new stakes), thereby maintaining an assurance of future profits.


When it comes to profitability in both real estate and the oil industry, the key is LOCATION, LOCATION, LOCATION! CityView has that location, with proven reserves in one of the richest hydrocarbon areas in the world. We believe that with oil reserves dwindling worldwide, CityView is a prime take-over candidate from major oil companies sometime down the road as it owns the oil and natural gas concession rights to a land mass almost twice the size of the State of Rhode Island, USA.

There are proven reserves, which at an in-situ price of $2 per barrel of oil and $0.27 per MFC of natural gas, would value Citiview's Hydrocarbon Reserves at $54,400,000 in Assets!


The Company is planning to surge forward into the year 2000 utilizing the most technologically advanced, the most current and the most cost-efficient equipment, resources and processing known to the industry and to add to its reserves. The company has access to industry leading experts in the areas of - development, communications, applications, security, finance, banking, engineering, accounting, seismology, plate tectonic mathematics and natural oil and gas refinement. Additionally CityView's subsidiary Citra Management Pte Ltd. has recently obtained the rights to have their company trade oil and natural gas products and bi-products.. The company expects to achieve a high percentage stake of the dwindling worldwide reserves so that future profits will be assured for generations to come. Virtually all worldwide oil and natural gas reserves will come to a halt one day; the company is developing new methodologies and energy-generating techniques to both improve efficiency on a current basis and to possibly utilize other energy sources in the future (i.e. solar).

Once again, please visit [internet address] for full details.

Disclaimer ----------This material is being provided by Stock-Vest, an electronic newsletter paid by the issuer for publishing the information contained in this report. Vestcom Holdings, Inc. has paid a consideration of 15,000 free trading shares of common stock of CityView Energy Corporation Limited to Stock-Vest as payment for the publication of the information contained in this report. Stock-Vest and its affiliates have agreed not to sell the common stock received as payment for its services until January 6, 2000, which date is 15 days from the initial dissemination of this report. After such date, Stock-Vest may sell such shares.

Because Stock-Vest is paid for its services, there is an inherent conflict of interest in Stock-Vest's statements and opinions and such statements and opinions cannot be considered independent. The information contained in this publication is for informational purposes only, and not to be construed as an offer to sell or solicitation of an offer to buy any security. Stock-Vest makes no representation or warrant relating to the validity of the facts presented nor does Stock-Vest represent or warrant that all material facts necessary to make an investment decision are presented above. All statements of opinions are those of Stock-Vest. Stock-Vest relies exclusively on information gathered from public filings on featured companies, as well as, in certain circumstances, interviews conducted by Stock-Vest management of featured companies. Investors should not rely solely on the information contained in this publication. Rather, investors should use the information contained in this publication as a starting point for conducting additional research on the featured companies in order to allow the investors to form his or her own opinion regarding the featured companies. Factual statements contained in this publication are made as of the date stated and they are subject to change without notice. Stock-Vest is not a registered investment advisor, broker or a dealer. Investment in the companies reviewed is speculative and extremely high-risk and may result in the loss of some or all of any investment made in CityView Energy Corporation Limited. This publication contains forward-looking statements that are subject to risk and uncertainties that could cause results to differ materially from those set forth in the forward-looking statements. These forward looking statements represent the judgment of CityView Energy Corporation Limited as of the date of this publication. The Company disclaims any intent or obligation to update these forward-looking statements. (Decl. of Valerie Ann Szczepanik, dated July 28, 2004, Ex. 7 at 1-6.)

Some later e-mails distributed by Meltzer under various other names were lengthier and included more specifics about the subject issuer's structure, location, business plans and strategies, officers, financial information, etc. Although some of the subject issuers discussed in later e-mails were in different industries (including "global thermoplastics," internet gambling, breast cancer detection, artificial flowers and house plants, clothing, prepackaged school cafeteria food, and online banking), all of the e-mails invariably spoke in similarly glowing terms about the subject issuers' situations and prospects. Many contained company press releases. Nearly all contained "disclaimers" similar to the one above, but in many of the later e-mails sent by Meltzer the disclaimer appeared in the margins, written in smaller typeface. Some of the e-mails' subject lines began with the label "ADV," indicating that it was an advertisement, rather than an independent report.

Meltzer did not enter into any contracts with the subject issuers discussed in his e-mails and websites, and the information contained in his e-mails and websites came largely from promotional materials provided by two stock promoters, Steven M. Cohen and Howard I. Weinstein ("Cohen and Weinstein"). In fact, Meltzer testified at deposition that he "never changed anything on [his] own." (Dep. of Samuel Aaron Meltzer, dated March 25, 2004 ("Meltzer Dep.") at 22.) From time to time, he would indicate that he had a problem with the content, saying, "If they came out with something saying, you know, this was a strong buy or if the stock would soon be at this price or target price or anything of that nature, I would say, 'You can't -- I will not put that in there . . . . [b]ecause my lawyer told me I should not . . . ." (Id.) These suggestions, however, were not based upon any expertise, as Meltzer had none. (See id. at 87 (Q: "[D]o you have any background in finance or accounting?" Meltzer: "No.").) Meltzer also added press releases to the e-mails and websites, which he had culled from and Ultimately, the e-mails and websites involved no original information from Meltzer; his contribution was collecting and formatting, but involved no actual knowledge of securities. (See id. at 40 ("I would take the information number by number. I would not change anything.").)

Turning to the disclaimers, which were created by Meltzer, they misrepresent a number of facts. For example, the above-quoted disclaimer states that "[a]ll statements of opinions are those of Stock-Vest," when, as Meltzer now insists, the statements of opinions were entirely those of Cohen and Weinstein. (See id. at 65 (Q: "[W]hose opinions are represented in the e-mail?" Meltzer: "Howard Weinstein and Steve Cohen's, because they had sent me the material . . . .").) Meltzer's disclaimer also indicated that he "relie[d] exclusively on information gathered from public filings on featured companies, as well as, in certain circumstances, interviews [with] management." This too was misleading: Meltzer may have attached or linked the press releases or public filings of the companies he discussed, and he may have spoken with management on a limited number of occasions (see id. at 49-50 (Q: "So was [your conversations with management concerned] more the format of the web site as opposed to the content?" Meltzer: "Yes.")), but the opinions expressed in the e-mails were written entirely by Cohen and Weinstein, and not Meltzer nor the invented corporation Stock-Vest (see id. at 73 (Q: "[B]ut what you're telling me today is that the opinion was actually those of your client." Meltzer: "Yes.")). It was not established whether Cohen and Weinstein had conducted interviews with "management."

Cohen and Weinstein compensated Meltzer primarily by transferring thousands of shares of stock in the subject issuers into Meltzer's personal brokerage accounts. Meltzer admits that he understood that Cohen and Weinstein, for their promotional services, were paid considerably more shares of the subject issuers' stock than he was paid, but deliberately removed this information from those materials before publishing and disseminating them in his websites and spam emails. Thus, the amounts of shares listed in the disclaimer reflected the amount received by Meltzer, rather ...

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