Publisher Who Touted O.C. Firm’s Stock Faces Charges

The Securities and Exchange Commission filed fraud charges Wednesday against a New Jersey newsletter publisher it says failed to disclose that he was being paid to tout an Orange County biomedical company’s stock.

The alleged fraud took place in 1991 and 1992 and the company, Davstar Industries Ltd., has since changed management and has new majority owners and a new name, Urohealth Systems Inc.

James Johnson, Urohealth’s executive vice president, said no present managers, officers, directors or employees of the company worked there when the alleged stock touting occurred.

The SEC suit was filed against newsletter publisher Yale Hirsch, alleging that he published positive articles on Davstar Industries in the newsletters “Ground Floor” and “Smart Money” during 1991 and 1992.

As payment, Davstar awarded Hirsch warrants in October 1991 to purchase 31,000 common shares at 87 cents each, according to the suit, filed Tuesday in a New Jersey federal court. Davstar shares jumped from about $1 in mid-1991 to $13.75 in November 1992, and the warrants brought Hirsch profits totaling $131,905, the suit said.

The SEC alleges that the favorable reports distributed by Hirsch were false and that Hirsch did not adequately disclose that he was being paid to promote the company.

An attorney for Hirsch said the newsletters contained the required disclosure of Hirsch’s stake in Davstar.

The suit seeks civil penalties, the return of any gains and a bar on further violations of federal securities laws. In a separate case, Jerry Silver, Davstar’s former chairman and chief executive officer, agreed to settle SEC charges without admitting or denying guilt.