SEC Sues Penny Stock Traders, Alleging Manipulation

By Eric Torbenson
The Dallas Morning News
March 14, 2008

Two Dallas men behind penny stock Connect-A-Jet Inc., whose shares were halted from trading last fall by regulators who suspected stock manipulation, are in trouble again.

The Securities and Exchange Commission this week sued Jason Wynn, 25, and Ryan Reynolds, 36, alleging they illegally manipulated the stock price of a Minnesota-based company called Beverage Creations Inc. for their own profit.

The SEC halted trading in Beverage Creations on Wednesday and won a temporary restraining order late Thursday to freeze Mr. Wynn's and Mr. Reynolds' assets and bar them from any stock promotion efforts.

The SEC's suit alleges that Mr. Wynn and Mr. Reynolds earned at least $2.4 million promoting Beverage Creations after having bought millions of shares for 2 cents each and selling them for as much as 64 cents each. The shares were halted at $1.83.

Mr. Reynolds' lawyer, Spencer Barasch of Andrews Kurth, said his client is innocent and he will defend him vigorously. He also represents Mr. Reynolds in a separate SEC case filed against him and others last summer related to penny stocks. Mr. Reynolds has denied those allegations.

In a filing seeking to lift the freeze order in the Beverage Creations case, Mr. Barasch argues that Mr. Reynolds has lost $65,000 from trading the shares and that the freeze is too draconian and would prevent him from caring for his 4-year-old daughter.

Mr. Reynolds was barred from the brokerage industry by regulators in 2003 over an alleged 1997 stock scam involving Dallas-based Continental Investments Corp.

Mr. Wynn's attorney, David Clouston of Patton Boggs, said his client is unfairly accused and expects a favorable outcome.

"Although my clients still have not been served or received a complete copy of the exhibits to the complaint at this time, our initial review indicates that the vetting of the allegations and the sparse alleged evidence in support of the complaint will establish that Mr. Wynn and Wynn Industries are being unfairly targeted," Mr. Clouston wrote in an e-mail.

The SEC's suit also names Carlton Fleming, 47, of McKinney as profiting in the scheme along with Mr. Wynn and Mr. Reynolds. Attempts to reach Mr. Fleming, who runs Thomas Wade Investments LLC, weren't successful Friday.

The suit says the three men received 9,999,999 shares total of Beverage Creations in December and then promoted the company, which says it's developing a sports drink that includes breathable oxygen, through e-mails and color fliers produced by Mr. Wynn's company, Wynn Industries Inc.

The company hasn't produced any drinks and is losing money, the SEC suit says. The shares have traded at over $1 a share, the suit says, and Mr. Reynolds has bought and sold shares for family members.

The company disavowed any relationship with Mr. Wynn or Wynn Industries in a news release Feb. 21. The SEC contends the release is false because the company gave Mr. Wynn shares in exchange for promotion.

The suit asks the court to force the men to give up the money they earned in trading the shares and to permanently enjoin the defendants from promoting stocks and participating in any penny stock offering.

In the Connect-A-Jet case, Mr. Wynn and Mr. Reynolds borrowed money from a Dallas businessman to promote the Austin-based air charter service, whose shares were halted for two weeks last fall.

The businessman said in a suit filed last fall that he's still owed $250,000 he lent to the pair. Mr. Wynn and Mr. Reynolds have denied the allegations in that suit.

Promotions of Connect-A-Jet included slick commercials that ran on CNBC and highlighted the company's stock ticker. The stock peaked at $2.74 a share in September and now trades at 7 cents.

Mr. Wynn has answered SEC investigators' questions in the case but has faced no action.

[ RGM Short Selling Home page ]