SEC, Baltimore-based Agora Inc. spar in fraud trial

Daily Record, The (Baltimore), Mar 22, 2005 by Peter Geier

A federal judge in Baltimore heard brief opening statements yesterday in the trial of the U.S. Securities and Exchange Commission's $1 million securities fraud action against Baltimore- based publisher Agora Inc., one of Agora's newsletters and the newsletter's editor.

The SEC alleges that Agora, Pirate Investor LLC which runs a financial advisory Web site and newsletter, and Pirate editor Frank Porter Stansberry violated the Securities Exchange Act of 1934 by publishing purported insider information about a publicly traded company.

Karen L. Martinez, one of three SEC lawyers trying the matter, told the court that this is a relatively straightforward case of publishing fraudulent and misleading information to promote the sales of a newsletter.

Furthermore, Agora's conduct was extremely reckless because its staff and counsel let Stansberry's insider information be published without checking his facts and with no due diligence, Martinez said.

The SEC is seeking a permanent injunction against Agora, disgorgement of more than $1 million in profits and a third tier civil monetary penalty, due to the high degree of scienter- in an amount significant enough to deter future violations, she told the court.

However, defense attorney Lee T. Ellis Jr. said nothing could be further from the truth.

For my clients, Ellis said, this has been a strange experience.

He introduced Stansberry, Agora corporate representative Laura Davis and general counsel Matthew J. Turner to the court.

Publishing baseless speculation and outright lies to sell subscriptions, as the SEC alleges in its amended complaint, is not what Agora is, he said.

One succeeds in the newsletter industry not because you're giving people false and misleading information but because you're providing a helpful service to your subscribers, Ellis said.

Writing about stocks has become a staple of the newsletter business, he said - one that gives investors an alternative [to] the Baltimore Sun or the Wall Street Journal for information.

Thus the case is not just important for his clients, but for the newsletter industry as a whole, he said.

The newsletter business is not an afterthought in publishing, but a major business in America, Ellis said.

The case arises from an e-mail Stansberry sent to Pirate customers in May 2002 promoting a report which purportedly contained insider information concerning government approval of a contract that would yield billions for an unnamed company listed on the New York Stock Exchange.

For a $1,000 fee, about 1,200 subscribers learned, purportedly via a senior company executive, that the U.S. and Russian governments were prepared to approve a pricing agreement between United States Enrichment Corp. Inc. of Bethesda, which supplies enriched uranium fuel for commercial nuclear reactors, and its Russian counterpart Techsnabexport, or Tenex.

Claiming to have spoken with a USEC source (who now denies giving Stansberry the information), Stansberry told his subscribers what a good deal USEC was. And although the pricing agreement was ratified a month later than he said it would be, Stansberry's information was borne out, Ellis said.

The stock has doubled and it's on the way to tripling-, Ellis said. Russia has been successful, Agora has been successful, Mr. Stansberry has been successful and his operations have been successful.

While about 200 subscribers asked for and received their money back, the government is seeking disgorgement of Agora's gain of $1,005,000 from the remaining subscribers.

This is not a mass of unhappy people, but people who understood what was going on - and are still customers, Ellis told Senior U.S. District Judge Marvin J. Garbis, who is presiding over the bench trial in Baltimore that is scheduled to last about two weeks.

The defendants did not trade in the stock and had no fiduciary duty to their readers or the market as a whole, Ellis said.