SEC Wins Stiff Judgment in Big Fraud Case

The Securities and Exchange Commission won a record judgment Tuesday against Orange County’s “penny stock king” David D. Sterns, including more than $12 million in restitution and a lifetime ban from ever running another publicly traded company.

Once an accountant for Arthur Andersen & Co., Sterns was accused last year of stealing $10 million from thousands of investors nationwide--including Olympic gold medalist Mark Spitz--through Laguna Hills-based Ultimate Business Network.

U.S. District Judge Edward Rafeedie granted the SEC unprecedented punishments against Sterns and several associates after they failed to mount any defense against the agency’s charges.

Sterns could not be reached for comment Tuesday.

The SEC said Sterns and his associates sold 36 million shares of unregistered stock to the public and hyped a number of bogus products, including a diet patch that was supposed to suppress the wearer’s appetite.

Besides restitution and the ban, Rafeedie said that later this year he would impose civil penalties against Sterns--the first time the SEC has ever won court approval to fine a defendant in a penny stock fraud case.

“This is the first case of its kind in which the court has gone this far and ordered relief this extensive to a repeat securities violator like David Sterns,” said Eva Heffernan, the agency’s branch chief of enforcement.

She said Sterns could be fined up to $100,000 per violation.

Sterns, 55, is only the second person to be sued under the Securities Enforcement Remedies and Penny Stock Reform Act of 1990, which allows the SEC to seek civil penalties and the kind of career ban that was issued against Sterns.

Congress enacted the legislation last October in an effort to contain penny stock fraud, which costs investors about $2 billion annually.