SEC GOES AFTER PENNY STOCK FRAUDSTERS

When stocks are really low priced there is usually a reason for it. Many low priced companies either offer really new products which may not be accepted by the public or, the company could be one that is in bankruptcy or going into bankruptcy. Hence, the stock is selling at a very low price. In many cases this investing in low priced stocks is a bit of a gamble. However, sometimes this gamble can pay off big time as happened recently after the last big stock market meltdown.

One favorite way that many entrepreneurs make millions is to buy up a lot of stock in a really cheap company and then recommend that stock in news letters, on TV business shows or, in this case on Facebook and Twitter (the new technology for fraudsters). The following is an excerpt from the SEC web site regarding the case the Sec has brought against a Canadian couple and the companies they control.

“Washington, D.C., June 29, 2010 — The Securities and Exchange Commission announced today that it has obtained an emergency asset freeze against a Canadian couple who fraudulently touted penny stocks through their website, Facebook and Twitter. The SEC also charged two companies the couple control and obtained an asset freeze against them.
According to the SEC's complaint, the defendants profited by selling penny stocks at or around the same time that they were touting them on www.pennystockchaser.com. The website invites investors to sign up for daily stock alerts through email, text messages, Facebook and Twitter.
Since at least April 2009, Carol McKeown and Daniel F. Ryan, a couple residing in Montreal, Canada, have touted U.S. microcap companies. According to the SEC's complaint, McKeown and Ryan received millions of shares of touted companies through their two corporations, defendants Downshire Capital Inc., and Meadow Vista Financial Corp., as compensation for their touting. McKeown and Ryan sold the shares on the open market while PennyStockChaser simultaneously predicted massive price increases for the issuers, a practice known as "scalping."

"As alleged in our complaint, McKeown and Ryan used all the modern methods to communicate with investors including the PennyStockChaser website, e-mail, text messages, Facebook, and Twitter yet failed to adequately communicate that their rosy predictions for touted stocks were accompanied by their sales of those very same stocks." said Eric I. Bustillo, Director of the SEC's Miami Regional Office.

The SEC's complaint, filed in the U.S. District Court for the Southern District of Florida, also alleges McKeown, Ryan and one of their corporations failed to disclose the full amount of the compensation they received for touting stocks on PennyStockChaser. The SEC alleges that McKeown, Ryan and their corporations have realized at least $2.4 million in sales proceeds from their scalping scheme.

The SEC's complaint charges McKeown, Ryan, Downshire Capital Inc. and Meadow Vista Financial Corp. with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The SEC's complaint also charges McKeown, Ryan and Meadow Vista Financial Corp. with violating Section 17(b) of the Securities Act of 1933. In addition to the emergency relief already granted by the U.S. District Court the Commission also seeks a preliminary injunction and permanent injunction, along with disgorgement of ill-gotten gains plus prejudgment interest and the imposition of a financial penalty, penny stock bars against the individuals and the repatriation of assets to the United States.

In the course of its investigation, the SEC worked with the Quebec Autorité des marchés financiers (AMF), which was also investigating this matter. As a result of both ongoing investigations, the AMF obtained an emergency order freezing assets and a cease trade order against McKeown, Ryan, Downshire Capital Inc. and Meadow Vista Financial Corp. The SEC appreciates the collaboration with the AMF.”

The SEC did well in this case. The one lesson that everyone should take away from this case is that when you invest money you must do the research. Nobody is out there to give you completely free advice on where to invest your hard earned dollars. Most real investors do not share with others what they are investing in until they have already completed their purchase. If some large investor announced that he was buying stock in a certain company before he started to buy it then, he would end up paying perhaps twice as much for the stock. On the other hand, many big investors are more than happy to disclose that they have purchased stock in a given company after the fact because then the public jumps in and the big investor’s stocks price increases dramatically and that big investor makes a lot of money in a hurry. The public that jumps in when they find out a big investor has taken a position in a certain company may find their returns to be a big disappointment.