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February 15, 2002


The opinion of the court was delivered by: Jeanne E. Scott, United States District Judge



The uncontroverted evidence adduced at trial established that, from December 1994, to September 1996, Gebben worked for a company called Strategic Advisory, Inc., sometimes known as Strategic Investment Advisory, Inc. (SA). SA contracted with corporations (Issuers) to prepare and distribute promotional materials, principally materials called Profiles and Updates (collectively referred to as Promotional Materials), designed to encourage the purchase of stock issued by the Issuers. SA also promoted Issuer stock through telephone calls, Internet postings, and various broadcast and print media. Issuers paid SA in stock (including warrants or options to purchase stock) and cash for these services. Some Issuers agreed to pay additional stock or other consideration to SA if the market price of the stock rose to a predetermined target price.

The Promotional Materials falsely represented that SA was a research firm that performed independent analyses of the Issuers, and, based on such analyses, made recommendations to buy Issuers' stock and rendered opinions that Issuers' stock should increase in value. In fact, SA did no independent research or analysis of Issuers, but merely edited, or as Gebben put it, "regurgitated" information provided by the Issuers. Gebben said he was not an analyst and did no analysis. The Promotional Materials did not disclose the type or amount of consideration paid to SA for producing and distributing the materials.

Gebben held several different titles at SA, including Financial Communications, Assistant Director, Research & Communications, and Lead Analyst. The particular title he held at any point in time seems to have been at the whim of SA's president Wayne Gorsek. Gebben performed several duties at SA. He prepared Promotional Materials from materials supplied by Issuers. He said that he did no original writing. He proofread and edited Promotional Materials prepared by others. He mailed and faxed Promotional Materials to brokers and potential investors. He spoke to brokers and investors by telephone about Issuers. He appeared on a radio investment show once to discuss an Issuer's stock. He also performed tasks unrelated to promoting stock, such as unloading delivery trucks, making copies, and running other office equipment. He testified that he pretty much did whatever Gorsek told him to do.

Gebben also made postings to an Internet web site called Silicon Investor. The Silicon Investor web site allowed members of the web site to discuss a stock. A member could begin a discussion by making an initial posting about a topic, called a thread header. Other persons could then post responses, called replies. Each reply was numbered in the order posted. The thread header and all replies were collectively referred to as a thread. Anyone could view the site including all threads, but only members could post messages.

On June 6, 1996, an investor identified as Bob Lee posted a thread header asking for comments on a press release.*fn1 Bob Lee quoted the entire release. The press release stated, in part, "Strategic Advisory Inc. announced today that they have initiated coverage on American BioMed, Inc., (ABMI). . . . Strategic has instituted a strong buy recommendation with a 12 to 18 months target valuation of $5 to $6 per share. . . ." The end of the quoted press release contained SA's 800 telephone number and listed Brendon Gebben as the contact.*fn2

Gebben posted several replies to this ABMI thread. On June 13, 1996, Gebben posted Reply No. 6, addressed to Robert Cartelli. Cartelli had written Reply No. 2 on the thread. Gebben said, in part, "I have been following this little gem for some time. I did have an opportunity to visit their Irvine production facility and speak to some of the executives at the company. With the various product lines and now aggressive marketing I think this one can be a winner. . . ." That same day, Bob Lee, in Reply No. 7, wrote, "Also, I spoke to Brendon Gebben, the analyst assigned by Strategic Advisory, Inc. to research the company. . . . Brendon indicated that he was preparing a `glossy 8-10 page research report' on ABMI that will come out next week."

On June 17, 1996, a person identified as Fred McGriff posted Reply No. 11 in which he stated, "ABMI looks like hype to me. . . ." He then cited problems with the company. An individual identified as Joe Ragan wrote in Reply No. 14, "Fred's assessment of ABMI in post #11 would seem to be accurate. Would certainly advise reading the companies recent 10K and 10Q filings before jumping on board."

Gebben responded to Ragan on June 18, 1996, in Reply No. 15. Gebben said:

If your looking at the 10k's and 10q's it might also be wise to also look at the S3's and S8's that were filed for the end of May. . . . It is also prudent to remember that ABMI is a Company that is coming out of the development, R&D phase and into the commercialization process. This being the case the Company does not have scads of cash sitting around. Looking at the core technologies and comparing them to other firms within the same industry segment, it is easy to draw the parallel that ABMI is an undervalued Company especially when factoring in the new management and how they intend to make their cash.

Cartelli then wrote a reply to Gebben, "thanks for the info, appreciate your input. i agree, look at the products, patents, particular market they serve in the growth/earnings stage of the co." Gebben replied the same day to Cartelli, on the web site:

Something to keep the eyes on . . . I had a conversation with Carry Lieman about ABMI. She is the medical analyst for the Zweig forecast. It would be interesting to see what happens if they bind coverage as well. Have to wait and see if this happens. They do have a large and influential readership. It looks as if the bid-ask will close above $2 today. That would be a nice foundation from which to trend upwards. If the stock could go over $3 for a bit ...

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