The judge considered it “appropriate to hold Stansberry and Pirate jointly and severally liable for disgorgement of the entire amount”, noting Stansberry’s testimony that “he ran the ‘show’ and was the “person in charge” of Pirate.
“Stansberry and Pirate were intimately involved in perpetrating the fraud at issue. Stansberry drafted the Super Insider Solicitation using a Pirate author’s pseudonym, utilized Pirate’s mailing list and newsletter, had sales of the Special Report, had Pirate receive the proceeds and keep the majority for itself.
“Furthermore, Stansberry testified that he received a bonus that was a percentage of Pirate’s net income, and that in 2002, the year of this fraud, he “made substantially more.” He was unable to recall his specific bonus in 2002, estimating that it ranged from between $200,000 and $400,000. Stansberry profited handsomely from Pirate’s gain from the fraudulent scheme.”
Tipster's conduct "deliberate fraud"
In coming to the conclusion that Stansberry should receive the $120,000 maximum fine for an individual that he was allowed to give, the judge noted that Stansberry’s conduct “undoubtedly involved deliberate fraud” and “making statements that he knew to be false;”. Judge Garbis determined that Stansberry had “testified falsely at trial” and did not recognize his “financial culpability”.
The judge also entered an injunction prohibiting Stansberry and Pirate Investor from committing further securities fraud. “Defendants have not admitted the current fraudulent scheme,” stated the judge. “If Stansberry were to provide an assurance, that there would be no future violations, the Court would not find him particularly credible. The existence of an injunction against future fraudulent schemes of the type involved here will provide a needed measure of security against recidivism. The Court finds, after weighing the relevant factors, that there is ample evidence of a “reasonable and substantial likelihood” that Defendants will violate securities laws in the future, absent an injunction.”
Pirate Investor and Stansberry have announced their intention to appeal the judgment.
A cornerstone of their unsuccessful defense was that they were protected by the First Amendment of the U. S. Constitution, which protects free speech. In his judgment, Judge Garbis stated: “There is no doubt that each of the Defendants was engaged in the production and distribution of publications entitled to substantial First Amendment protection. However, as discussed herein, the instant case does not relate to such publications. Rather, the instant case relates to a fraud scheme whereby victims were induced to pay $1,000 each for a “sure thing” stock tip allegedly based upon “inside information” presented separately from Defendants’ regular publications.” He held that the comments were not “pure speech” but “commercial speech”, which entitled them to lesser First Amendment protection. Referring to case law, Judge Garbis stated that, n order to receive First Amendment protection, commercial speech “must be neither misleading nor related to unlawful activity” and, therefore, Stansberry and Pirate were not entitled to receive such protection.
In entering judgment in favor of Pirate Investor’s parent, Agora, Inc., Judge Garbis commented: “The SEC has not proven that Agora – as distinct from its subsidiary Pirate – made the statement at issue. In the instant case, the SEC asserts liability against Agora only on the basis that it could be found to have made the statement itself. Accordingly, Agora is not liable for the charge at issue.
“Neither the Super Insider Solicitation nor the Special Report contained any indication that it was sent by Agora or that Agora (as distinct from its subsidiary) was adopting or expressing a belief as to the truth of the statements therein.
“The Commission asserts that Agora is liable for the statements made because its legal counsel reviewed the Super Insider Solicitation and the Special Report, but did not independently fact-check it. However, Agora’s legal counsel was also legal counsel for Pirate. Thus, the Court does not find that counsel, while doing his review, was acting for Agora as distinct from Pirate.
“Moreover, even if the attorney had been acting for Agora as well as Pirate, that would not establish that Agora made the false statements in the communications.
“The Court does not accept the SEC’s contention – if it is being pressed – that Agora is to be considered to have made the statements in the Super Insider Solicitation and Special Report by virtue of its ownership and ability to control Pirate. The Court does not find that Agora itself made the false statements at issue.”
In its complaint, the SEC describes Agora as a Maryland corporation that publishes “books, magazines, newsletters and operates at least 15 financial web sites in the United States and Europe. Agora's publications include The Cutting Edge, Penny Stock Advisory, The Red Zone, Taipan, Rogue Trader, The Flying V Lockup Trader, CSX Trader, Fleet Street Letter, Options Hotline, Outstanding Investments, Richebacher Letter, Daily Reckoning Investment Advisory, Carpathia Letter, Strategic Opportunities, Jim Davidson's Vantage Point Investing, and the Contrarian Speculator. Agora publications have well over 21,500 paid subscribers.”
Research by OffshoreAlert showed that Pirate Investor, LLC was incorporated in Maryland on June 19, 2001 as Porter Stansberry, LLC, changing its name to Pirate Investor, LLC on July 31, 2001. The entity was forfeited on October 7, 2003 – just six months after the SEC filed its fraud complaint – for failure to file a property return for 2002 and reinstated on September 1, 2004. The entity’s name was changed again – to its current name of Stansberry & Associates Investment Research, LLC – on October 24, 2005.
The domain name ‘pirateinvestor.com’, which is registered to Agora, Inc., no longer points to a web-site and appears not to have done so since 2006. However, Stansberry’s business can be found on the Internet at www.stansberryresearch.com, whose corresponding domain name is registered to Agora Publishing. “Founded in 1999 – and based in Baltimore's historic Mount Vernon neighborhood – Stansberry & Associates Investment Research is an independent investment research firm, with subscribers in more than 100 different countries,” reads the site’s home page. “Stansberry & Associates has more than two dozen research analysts and assistants at our headquarters as well as at satellite offices in Florida, Oregon, and California. These folks have worked in the financial industry as stockbrokers, mutual fund vice presidents, hedge fund managers, and equity analysts at some of the most important money-management firms in the world. Our analysts follow a range of investment strategies, including value investing, maximizing income, following insider trading, investing in energy and resources, short-selling and options trading, and investing in biotech and medical technologies. Unlike Wall Street investment banks and brokerages, we are completely independent. We only publish investment research. We do not solicit banking business. We do not provide brokerage services or manage money. We believe that's how the investment business should be, no hidden interests or secret agendas. We simply publish our best investment ideas. And our customers only stay with us if these ideas work.”
Company claimed 70,000 subscribers
On another of the Agora group’s web-sites, at www.investmentu.com, it is claimed that Stansberry & Associates Investment Research “provides independent financial and equity research to 70,000 subscribers worldwide”. According to the site, “Prior to launching Stansberry & Associates Investment Research, Porter was the first American editor of the Fleet Street Letter, the oldest financial newsletter in the English language. Porter Stansberry began his career in financial journalism with Welt Publishing LLC, where he covered Latin America's seven major economies and China. Porter Stansberry’s economic background is Austrian; his political philosophy is libertarian; his equity research interests are focused on technological innovation and value stocks. Porter Stansberry is best known for predicting the demise of AT&T and an ongoing legal controversy with the Securities and Exchange Commission over the publication of corporation information in a Stansberry & Associates Investment Research equity research report.”