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SEC NEWS DIGEST

Issue 2006-129

July 6, 2006

 

SEC SUES HYDROFLO, INC. AND ITS FORMER CEO, DENNIS MAST, FOR ISSUING
FALSE PRESS RELEASES

On July 5, the Commission charged HydroFlo, Inc. (HydroFlo) and its
former CEO, Dennis Mast (Mast), with defrauding investors by making
false and materially misleading statements about Hydroflo's water
treatment business, contracts, and prospects in a series of press
releases in 2005. Without admitting or denying the Commission's
allegations, HydroFlo and Mast have consented to entry of injunctions
against further violations of the antifraud provisions of the federal
securities laws. Mast, of Apex, North Carolina, has also consented to
entry of an order requiring him to pay a $100,000 civil penalty,
barring him from serving as an officer or director of a public
company, and barring him from participating in offerings of penny
stock.

The Commission's complaint, filed in the United States District Court
for the Eastern District of North Carolina, Western Division, alleges
that HydroFlo and Mast misled investors by (i) mischaracterizing an
agreement involving a subsidiary's consignment customer as a
guaranteed contract worth $210 million to HydroFlo; (ii) touting a
positive stock analyst report as "independent" and "unbiased" without
disclosing that HydroFlo had paid $19,500 for the analyst coverage;
and (iii) repeatedly publishing false statements claiming that
HyrdroFlo subsidiaries were providing filtration equipment and water
purifying consulting services to government agencies engaged in
Hurricane Katrina relief efforts when in fact the company had not
shipped any products, nor provided any such services. All of these
false press releases had the effect of increasing trading volume in,
and the price of, HydroFlo's common stock.

The complaint charges HydroFlo and Mast with engaging in transactions,
acts, practices and courses of business in violation of Section 10(b)
of Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5
thereunder. HydroFlo and Mast consented to the entry of permanent
injunctions against future violations of Section 10(b) of the Exchange
Act and Rule 10b-5 thereunder. Mast also consented to entry of an
order requiring him to pay a $100,000 civil penalty under Section
21(d)(3) of the Exchange Act, permanently barring him from serving as
an officer or director of a public company under Section 21(d)(2) of
the Exchange Act, and barring him from participating in offerings of
penny stock under Section 21(d)(6) of the Exchange Act. [SEC v.
HydroFlo, Inc. and Dennis Mast, Civil Action No. 5:06-cv-270, USDC,
EDNC, Western Division] (LR-19755)

 

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