LEGAL NEWSLINE

WASHINGTON (Legal Newsline) - A California-based lawyer has been charged by the Securities and Exchange Commission for fraudulently giving out baseless legal opinion from letters posted on his website regarding penny stocks.

The SEC alleges Brian Reiss of Huntington Beach, Calif., set up 144letters.com to promote his legal opinion letters which are issued to transfer agents and typically require a lawyer's opinion explaining the legal basis for lifting restriction on the stock allowing for free trade.

Reiss did not seek professional legal advice before issuing and advertising a $285 rate per letter and a "volume discount" of $195 per letter while noting "penny stocks not a problem," on his website, according to the SEC announced March 7.

According to the SEC's complaint filed in federal court in Manhattan, Reiss began fraudulently issuing legal opinion letters in 2008. He routinely made inaccurate statements bearing on whether the restriction should be lifted, and failed to conduct even a token inquiry into the underlying facts.

The SEC claims Reiss knew or recklessly disregarded the fact that shareholders seeking his opinion letters intended to sell their stock in the public markets. Reiss also disregarded the fact that transfer agents would likely rely on his opinion letters to issue stock certificates without restrictive legends.

"Reiss flouted his responsibilities as a gatekeeper in the issuance of stock, and churned out opinion letters to make a quick buck," said Andrew M. Calamari, Director of the SEC's New York Regional Office. "Attorneys who act as gatekeepers in our markets have a solemn responsibility to ensure that they provide accurate information to the marketplace."

Traffic from potential customers was steered by Reiss making bids on search terms through Google's AdWords. Then he relied on a computer-generated template to draft his opinion letters within minutes without any true analysis behind each stock offering.

The letters from Reiss made false and misleading statements and facilitated securities sales in violation of the registration provisions of the federal securities law, according to the SEC.

"Reiss falsely claimed he had conducted investigations into various stocks and determined them to be exempt from registration under the securities laws. He misrepresented critical facts, and our enforcement action seeks to bring Reiss's opinion mill to an end," said Sanjay Wadhwa, Senior Associate Director of the SEC's New York Regional Office.

The SEC seeks disgorgement of ill-gotten gains with prejudgment interest and financial penalties. The SEC is pursuing a ban on Reiss from participating in the offering of any penny stock pursuant to Section 20(g) of the Securities Act.

Permanent injunctions, including an injunction prohibiting Reiss from providing legal services in connection with an unregistered offer or sale of securities will be sought according to the SEC.

The SEC's complaint charges Reiss with violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.