SEC Files Emergency Action Against Promoter Behind Microcap Stock Scalping Scheme, Obtains Asset Freeze
The Securities and Exchange Commission yesterday filed an emergency action ex parte against John Babikian, a promoter behind a platform of affiliated microcap stock promotion websites. The Complaint alleges that John Babikian used AwesomePennyStocks.com and its related site PennyStocksUniverse.com, collectively "APS," to commit a brand of securities fraud known as "scalping." The APS websites disseminated e-mails to approximately 700,000 people shortly after 2:30 p.m. Eastern time on the afternoon of Feb. 23, 2012, and recommended the penny stock America West Resources Inc. (AWSRQ). What the e-mails failed to disclose among other things was that Babikian held more than 1.4 million shares of America West stock, which he had already positioned and intended to sell immediately through a Swiss bank. The APS emails immediately triggered massive increases in America West's share price and trading volume, which Babikian exploited by unloading shares of America West's stock over the remaining 90 minutes of the trading day for ill-gotten gains of more than $1.9 million.
According to documents filed simultaneously with the SEC's complaint in federal court in Manhattan, Babikian was actively attempting to liquidate his U.S. assets, which he holds in the names of alter ego front companies. He was seeking to wire the proceeds offshore. The Honorable Paul A. Crotty granted the SEC's emergency request to preserve these assets by issuing an asset freeze order.
According to the Commission's complaint, America West's stock was both low-priced and thinly traded prior to Babikian's mass dissemination of the APS e-mails promoting it. America West's trading volume in 2011 averaged approximately 15,400 shares per day. There was not a single trade in America West stock on Feb. 23, 2012, before the touting e-mails were sent. However, in the immediate aftermath of Babikian's e-mail launch, more than 7.8 million shares of America West stock was traded in the next 90 minutes as America West's share price hit an all-time high. Absent the fraudulent touts, Babikian could not have sold more than a few thousand shares at an extremely lower share price.
The court's order, among other things, freezes Babikian's assets, temporarily restrains him from further similar misconduct, requires an accounting, prohibits document alteration or destruction, and expedites discovery. Pursuant to the order, the Commission has taken immediate action to freeze Babikian's U.S. assets, which include the proceeds of the sale of a fractional interest in an airplane that Babikian had been attempting to have wired to an offshore bank, two homes in the Los Angeles area, and agricultural property in Oregon.
The Commission acknowledges the assistance of the Quebec Autorité des Marchés Financiers, the Financial Industry Regulatory Authority, and OTC Markets Group Inc.
The Commission's investigation of this matter is continuing.
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