SEC ALLEGES FRAUD IN CASE INVOLVING THE TOUTING THE PROSPECTS OF CERTAIN MICROCAP COMPANIES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

05/26/2015 12:30 PM EDT

The Securities and Exchange Commission today announced fraud charges against a securities lawyer who used his New York law office as the headquarters for planning and implementing market manipulation schemes.  Also charged are two stock promoters from Canada who assisted him.

The SEC alleges that Adam S. Gottbetter orchestrated promotional campaigns that touted the prospects of microcap companies and enticed investors to buy their stock at inflated prices so he and his cohorts could sell shares they controlled and reap massive profits.  Gottbetter enlisted Mitchell G. Adam and K. David Stevenson to help him in the last of three schemes he conducted in a six-year period.  They repeatedly cautioned each other about the dangers of missteps that might draw law enforcement attention to the scheme, such as failing to keep secret the identities of Adam and Stevenson.  The three rehearsed stories they would tell if ever questioned by law enforcement.  During one meeting in New York City, Gottbetter complained about the difficulties of stock manipulation but conceded that robbing a bank was the only other way to make so much money so quickly.

Gottbetter agreed to pay $4.6 million to settle the SEC’s charges.  Stevenson also agreed to settle the SEC charges against him while a case against Adam will be litigated in federal court in Newark, N.J.

In a parallel action, the U.S. Attorney’s Office for the District of New Jersey today announced criminal charges against Gottbetter, Adam, and Stevenson.

“As a securities lawyer, Gottbetter should have served as a gatekeeper and protected the capital markets and investors from fraudsters.  Instead, he swung the gates wide open and illicitly profited at investors’ expense,” said Andrew Ceresney, Director of the SEC’s Division of Enforcement.

According to the SEC’s complaint, Gottbetter was involved in the manipulation of the stocks of Kentucky USA Energy Inc. (KYUS) and Dynastar Holdings Inc. (DYNA) before teaming up with Adam and Stevenson in July 2013 to utilize their offshore ties for a new and potentially more lucrative scheme.  Together they schemed to drive up the stock price for purported oil and gas exploration company HBP Energy Corp. (HBPE) through fraudulent trades generated by a trading algorithm.  They then planned to launch an extensive promotional campaign featuring multiple call centers, roadshows, and a listing on the Frankfurt Stock Exchange.  After creating the false appearance of liquidity and investor interest, they planned to dump their shares of the stock on unsuspecting investors around the world.  While Stevenson and Adam managed to do some small coordinated trades, the scheme was thwarted before the planned manipulation and promotion could be launched when Stevenson was arrested by the FBI.

The SEC’s complaint alleges that Gottbetter violated Sections 5(a), 5(c) and Section 17(a) of the Securities Act of 1933, and violated and aided and abetted violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The complaint alleges that Adam and Stevenson violated and aided and abetted violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.

Gottbetter agreed to be barred from the penny stock industry in addition to paying $4.6 million in disgorgement and prejudgment interest from ill-gotten gains in the Kentucky USA Energy manipulation scheme.  He consented to injunctions against future violations.  Stevenson also agreed to be barred from the penny stock industry and consented to an injunction against future violations.  The settlements are subject to court approval.

The SEC’s investigation was conducted by Simona Suh of the Market Abuse Unit and Nancy A. Brown and Elzbieta Wraga of the New York office.  The case was supervised by Amelia A. Cottrell and Michael J. Osnato Jr.  The SEC’s litigation against Adam will be led by Ms. Brown and Ms. Suh.  The SEC appreciates the assistance of the Newark Field Office of the Federal Bureau of Investigation, the U.S. Attorney’s Office for the District of New Jersey, and the Financial Industry Regulatory Authority.

SEC SAYS FINAL JUDGEMENTS ENTERED AGAINST PENNY STOCK SCHEMERS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

The United States Securities and Exchange Commission announced today that the Honorable James V. Selna of the United States District Court for the Central District of California entered final judgments against defendants Thomas Rubin, Christopher Scott, BGLR Enterprises, LLC and E-Info Solutions, LLC on May 22, 2013. The final judgments imposed on Rubin and Scott permanent injunctions against future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The judgments also imposed on BGLR Enterprises, LLC and E-Info Solutions, LLC permanent injunctions against future violations of Sections 5(a) and (c) of the Securities Act. The court also entered ten-year penny stock bars against Rubin and BGLR Enterprises, along with five-year penny stock bars against Scott and E-Info Solutions as well as a five-year officer and director bar against Scott. Also, Scott was ordered to pay full disgorgement of approximately $112,000, prejudgment interest of approximately $12,000, and a civil penalty of $75,000, while the court will determine if and to what amount monetary relief will be ordered against Rubin.

The SEC's complaint, filed on September 22, 2011, charged Rubin, who was the Chief Executive Officer of a now-defunct broker-dealer named Westcap Securities, Inc., and Scott, Westcap's former Chief Compliance Officer, with engaging in a continuing series of schemes with others to conduct unlawful unregistered offerings and/or fraudulently manipulate the market for the common stock of four microcap companies. The complaint alleged that Rubin and Scott personally engaged in various manipulative activities including coordinated and matched trading activity and that the two took advantage of the manipulated markets for certain of the above-described issuers by selling shares they had received in these issuers for substantial profits. The complaint also alleged that Rubin and Scott, through their respective related entities, BGLR Enterprises, LLC and E-Info Solutions, LLC, violated the registration provisions of Section 5(a) and (c) of the Securities Act by selling stock in unlawful unregistered offerings.

4 CHARGED IN ALLEGED PENNEY STOCK SCAM

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Dec. 21, 2012 — The Securities and Exchange Commission today charged four securities industry professionals with conducting a fraudulent penny stock scheme in which they illegally acquired more than one billion unregistered shares in microcap companies at deep discounts and then dumped them on the market for approximately $17 million in illicit profits while claiming bogus exemptions from the federal securities laws.

The SEC alleges that Danny Garber, Michael Manis, Kenneth Yellin, and Jordan Feinstein acquired shares at about 30 to 60 percent off the market price by misrepresenting to the penny stock companies that they intended to hold the shares for investment purposes rather than immediately re-selling them. Instead, they immediately sold the shares without registering them by purporting to rely on an exemption for transactions that are in compliance with certain types of state law exemptions. However, no such state law exemptions were applicable to their transactions. To create the appearance that the claimed exemption was valid, they created virtual corporate presences in Minnesota, Texas, and Delaware. The SEC also charged 12 entities that they operated in connection with the scheme.

According to the SEC’s complaint filed in federal court in Manhattan, Garber, Manis, Yellin, and Feinstein all live in the New York/New Jersey area and operated the scheme from 2007 to 2010. They each have previously worked in the securities industry either as registered representatives or providers of investment management or financial advisory services.

"These penny stock purchasers had enough securities industry experience to know that their penny stock trading was not exempt from the securities laws as they claimed," said Andrew M. Calamari, Director of the SEC’s New York Regional Office. "They repeatedly violated the registration provisions and in the process also committed securities fraud. We will continue to fight microcap stock abuses that result in the unregistered distribution of shares without vital information about those companies being known to investors."

The SEC’s complaint alleges that Garber, Manis, Yellin, Feinstein and the named entities violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933; Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The SEC’s complaint seeks a final judgment, among other things, ordering all of the defendants to pay disgorgement, prejudgment interest and financial penalties; permanently enjoining all the defendants from future violations of the securities laws; and permanently enjoining all the defendants from participating in penny stock offerings.

The SEC’s investigation, which is continuing, has been conducted by Michael Paley, Laura Yeu, Elzbieta Wraga, Haimavathi Marlier, Yitzchok Klug and Paul Gizzi of the New York Regional Office. Mr. Gizzi and Ms. Marlier will lead the SEC’s litigation.