STOCK PRICE SPIKE INDICATED STOCK RISE SCAM ACCORDING TO SEC

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

07/31/2015 04:30 PM EDT

The Securities and Exchange Commission charged a Canadian citizen with conducting a scheme to conceal his control and ownership of a microcap company whose price quickly spiked last year.  The SEC suspended trading in the stock, Cynk Technology Corp., before the alleged schemer, Phillip Thomas Kueber, could profit on the gains from the stock’s rise to more than $21 from less than 10 cents per share.

The SEC alleges that Kueber was behind a false and misleading registration statement filed by Cynk and enlisted a small group of straw shareholders and sham CEOs to conceal his control of purportedly non-restricted shares in Cynk stock.  The complaint alleges that the straw shareholders – mainly Kuber’s family members and associates in British Columbia and California – never received the shares they “purchased.”  Kueber allegedly transferred the shares to brokerage accounts and offshore shell companies he secretly controlled and misled broker-dealers about his ownership of the shares to create the false appearance of a company with publicly held shares.

According to the SEC’s complaint filed in U.S. District Court for the Eastern District of New York, Kueber was unable to cash in on selling his Cynk shares when the SEC suspended trading in Cynk on July 11, 2014 amid suspicious activity surrounding the company’s stock.  Once trading resumed, the share price fell, closing at 60 cents per share on July 28, 2014.

“We allege that Kueber used straw shareholders, offshore dummy corporations, and puppet corporate officers to gain and conceal control over the majority of Cynk shares,” said Michael Paley, Co-Chair of the SEC Enforcement Division’s Microcap Fraud Task Force.  “Law enforcement has again pierced through the layers of deceit to hold an alleged wrongdoer accountable, in this case before he could liquidate his shares in the open market and realize ill-gotten profits.”

The SEC’s complaint alleges that Kueber violated the antifraud provisions of federal securities laws and related SEC antifraud rules.  The SEC is seeking to impose a civil monetary penalty, to bar Kueber from serving as a public company officer or director or participating in a penny-stock offer, and to be subject to a court-ordered injunction against future antifraud violations.

The SEC’s continuing investigation has been conducted by Joshua R. Geller, Joseph G. Darragh, and Michael Paley of the Microcap Fraud Task Force along with Wendy Tepperman of the New York office.  The litigation will be conducted by Preethi Krishnamurthy and Mr. Geller.  The case is being supervised by Sanjay Wadhwa.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of New York, Federal Bureau of Investigation, Internal Revenue Service, Department of Homeland Security, and Financial Industry Regulatory Authority.

3 FORMER OPPENHEIMER & CO. EMPLOYEES SETTLE SEC CHARGES RELATED TO UNREGISTERED SALES OF PENNY STOCKS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

7/23/2015 12:35 PM EDT

The Securities and Exchange Commission announced that three former employees of Oppenheimer & Co. Inc. have agreed to settle charges stemming from the unregistered sales of billions of shares of penny stocks on behalf of a customer.  The actions involve a portion of the conduct announced in January in a settled enforcement action against Oppenheimer in which the broker-dealer admitted wrongdoing and paid $20 million to the SEC and the Treasury Department’s Financial Crimes Enforcement Network.

Today’s actions were instituted against Scott A. Eisler, a former registered representative at Oppenheimer’s branch in Boca Raton, Fla., his former branch manager and supervisor Arthur W. Lewis, and Lewis’s supervisor Robert Okin, a former head of Oppenheimer’s Private Client Division.

According to the SEC’s orders instituting settled administrative proceedings, on behalf of the Oppenheimer customer, Eisler executed billions of penny stock shares in illegal unregistered distributions with Lewis participating in and in some cases approving the sales.  Although securities laws provide an exemption from liability for brokers who engage in a reasonable inquiry into the facts surrounding a customer’s proposed sale, the SEC’s orders find that Eisler and Lewis failed to make the requisite inquiry despite substantial red flags associated with the sales.

The SEC’s orders found supervisory failures by Lewis and Okin because they did not respond to red flags that the individuals they supervised were violating federal securities laws.

“In the face of red flags that their customer’s stock sales were not exempt from registration, Oppenheimer’s branch personnel allowed these unregistered transactions to occur,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “Okin, one of Oppenheimer’s senior-most executives, also failed to properly supervise by allowing these transactions to occur and failing to respond appropriately to the red flags suggesting violations of the federal securities laws.”

Scott W. Friestad, Associate Director of the SEC’s Division of Enforcement, added, “These actions show the SEC’s resolve in holding responsible individuals, including senior managers, when they violate the securities laws.”

Eisler agreed to pay a $50,000 penalty and be barred from engaging in penny stock sales or working in the securities industry for at least one year.  Lewis agreed to pay a $50,000 penalty and be barred from working in a supervisory capacity in the securities industry for at least one year.  Okin agreed to pay a $125,000 penalty and be barred from working in a supervisory capacity in the securities industry for at least one year.  They each agreed to the settlements without admitting or denying the SEC’s findings.

The SEC’s investigation was conducted by Margaret W. Smith with assistance from Christian Schultz and Matthew Scarlato.  The case was supervised by Nina B. Finston and Jan Folena.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

SEC CHARGES MICROCAP PROMOTER WITH ILLEGALLY SOLD PENNY STOCK USING OFFSHORE FRONT COMPANIES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

06/23/2015 04:55 PM EDT

The Securities and Exchange Commission charged a microcap promoter with illegally selling more than 83 million penny stock shares that he secretly obtained through at least 10 different offshore front companies.

According to the SEC’s complaint filed in U.S. District Court for the Eastern District of New York, Gregg R. Mulholland surreptitiously accumulated at least 84 percent of the issued and outstanding shares of Vision Plasma Systems Inc.  Once he effectively controlled the company through this majority ownership, Mulholland liquidated his shares for proceeds of at least $21 million.  No registration statement was filed or in effect covering Mulholland’s sales, and no exemption from registration was available.

In a parallel action, the U.S. Attorney’s Office for the Eastern District of New York today announced criminal charges against Mulholland.

“Mulholland’s intricate web of offshore entities failed to hide his alleged illicit sales,” said Stephen L. Cohen, Associate Director in the SEC’s Division of Enforcement.  “We are committed to holding accountable those who abuse the microcap markets, regardless of the elaborate steps they take to conceal their misconduct.”

According to the SEC’s complaint, Mulholland lives in Canada and was previously charged by the SEC in 2011 for the fraudulent pump-and-dump manipulation of a sports drink company founded by Daniel “Rudy” Ruettiger, known for having inspired the motion picture “Rudy.”  In 2013, the SEC obtained a monetary judgment against Mulholland for more than $5.3 million in disgorgement, prejudgment interest, and penalties that remains unpaid.

The SEC’s complaint charges Mulholland with violating Sections 5(a) and 5(c) of the Securities Act of 1933.  

The SEC’s continuing investigation is being conducted in coordination with the Microcap Fraud Task Force by John P. Lucas and Andrew R. McFall.  The case is being supervised by J. Lee Buck II, and will be litigated by Derek Bentsen and Michael J. Roessner.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of New York, Federal Bureau of Investigation, Internal Revenue Service, Department of Homeland Security, and Financial Industry Regulatory Authority.

SEC CHARGES THAT CEO ISSUED "FALSE AND MISLEADING PRESS RELEASES"

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission charged a San Francisco-based penny stock company CEO with defrauding investors by issuing false and misleading press releases portraying his purported marketing and infomercial company as a successful venture in order to drive the stock price up while he covertly sold millions of shares into the public market for more than $300,000 in illicit profits.

According to the SEC’s complaint filed against Joseph A. Noel in federal district court in San Francisco, the deceptive press releases about his company YesDTC Holdings touted exclusive distribution rights, licensing agreements, and certain products purportedly certified by the government.  Noel’s promotional campaigns based on such false information caused a spike in YesDTC’s thinly-traded stock and enabled him to dump millions of his own shares for a profit.  To conceal his sales, Noel sold the shares through a company he created in his teenage daughter’s name without disclosing as required that he was actually selling the shares.

The SEC also suspended trading in YesDTC stock today, and instituted an administrative proceeding to revoke its registration.

“Noel issued false press releases to pump up the price of the stock and set up a nominee company to dump the shares into the market to unwitting investors,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office.  “We’re always on the lookout for penny stock company CEOs who manipulate the market to line their own pockets.”    

The SEC’s complaint charges Noel with violating antifraud and registration provisions of the federal securities laws.  The SEC seeks disgorgement of ill-gotten gains plus prejudgment interest and a financial penalty as well as a permanent injunction.  The SEC also is seeking an officer-and-director bar and a penny stock bar against Noel.

The SEC’s investigation was conducted by Heather E. Marlow and David Berman of the San Francisco Regional Office, and the case is supervised by Tracy Davis.  The SEC’s litigation will be led by Aaron Arnzen and Ms. Marlow.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Northern District of California and the Federal Bureau of Investigation.

SEC, FINRA ISSUE ALERT TO INVESTORS REGARDING SHELL COMPANIES BEING SOLD AS PENNY STOCKS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission’s Office of Investor Education and Advocacy and the Financial Industry Regulatory Authority (FINRA) issued an alert warning investors that some penny stocks being aggressively promoted as great investment opportunities may in fact be stocks of dormant shell companies with little to no business operations.

The investor alert provides tips to avoid pump-and-dump schemes in which fraudsters deliberately buy shares of very low-priced, thinly traded stocks and then spread false or misleading information to pump up the price.  The fraudsters then dump their shares, causing the prices to drop and leaving investors with worthless or nearly worthless shares of stock.

“Fraudsters continue to try to use dormant shell company scams to manipulate stock prices to the detriment of everyday investors,” said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy.  “Before investing in any company, investors should always remember to check out the company thoroughly.”

Gerri Walsh, FINRA’s Senior Vice President for Investor Education, said, “Investors should be on the lookout for press releases, tweets or posts aggressively promoting companies poised for explosive growth because of their ‘hot’ new product.  In reality, the company may be a shell, and the people behind the touts may be pump-and-dump scammers looking to lighten your wallet.”

The investor alert highlights five tips to help investors avoid scams involving dormant shell companies:

Research whether the company has been dormant – and brought back to life.  You can search the company name or trading symbol in the SEC’s EDGAR database to see when the company may have last filed periodic reports.
Know where the stock trades.  Most stock pump-and-dump schemes involve stocks that do not trade on The NASDAQ Stock Market, the New York Stock Exchange or other registered national securities exchanges.
Be wary of frequent changes to a company's name or business focus.  Name changes and the potential for manipulation often go hand in hand.
Check for mammoth reverse splits. A dormant shell company might carry out a 1-for-20,000 or even 1-for-50,000 reverse split.
Know that "Q" is for caution.  A stock symbol with a fifth letter "Q" at the end denotes that the company has filed for bankruptcy.

SEC CHARGES 8 INDIVIDUALS FOR ROLES IN PUMP-AND-DUMP SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today charged a ring of eight individuals for their roles in an alleged pump-and-dump scheme involving a penny stock company based in California that has repeatedly changed its name and purported line of business over the past several years.

The SEC alleges that the scheme was orchestrated by Izak Zirk de Maison, who was named Izak Zirk Engelbrecht before taking the surname of his wife Angelique de Maison.  Both de Maisons are charged by the SEC in the case along with others enlisted to buy, sell, or promote stock in the company now called Gepco Ltd.  Zirk de Maison installed some of these associates as officers and directors of Gepco while he secretly ran the company behind the scenes.  Collectively, they amassed large blocks of shares of Gepco common stock while the de Maisons manipulated the market to create the appearance of genuine investor demand, allowing an associate to sell his stock at inflated prices to make hundreds of thousands of dollars in illicit profits.

In a parallel action, the U.S. Attorney’s Office for the Northern District of Ohio and the Cleveland Division of the Federal Bureau of Investigation today announced criminal charges against Zirk de Maison.

The SEC has obtained an emergency court order to freeze the assets of the de Maisons and others who profited illegally through the alleged scheme.

“Microcap fraud is a scourge on our markets, and we are aggressively pursuing scurrilous penny stock schemers who make their living by preying upon innocent investors,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Zirk de Maison has secretly controlled the shell company now known as Gepco since its incorporation in 2008 under a different name.  During the next five years, he caused the company to enter into a number of reverse mergers and its reported business evolved from equipment leasing to prepaid stored value cards related to electronic devices until the company eventually became known as WikiFamilies and claimed to own and operate a social media website.  The company name changed to Gepco in 2013, and after a failed attempt to merge it into a private mixed martial arts company, de Maison created his own private company purportedly in the high-end diamond business and merged Gepco into it.

“Zirk de Maison concocted an array of reverse mergers and company name changes on his way to gaining control of the vast majority of Gepco stock in order to conduct a multi-faceted manipulation scheme,” said Amelia A. Cottrell, an Associate Director in the SEC’s New York Regional Office.  “To help avoid the pitfalls of microcap fraud, it’s important to check the histories of companies and determine their legitimacy before deciding whether to invest in them.”

The SEC alleges that the de Maisons, who reside in Redlands, Calif., brought at least six others into the fold to coordinate various components of the scheme.  They each are charged in the SEC’s complaint:

Jason Cope of Gates Mills, Ohio, is a longtime associate of Zirk de Maison and has a past record of securities fraud with a court judgment against him in a previous SEC enforcement action.  On Cope’s behalf, Louis Mastromatteo of Bay Village, Ohio, allegedly dumped more than 2.5 million shares of Gepco stock through a nominee into the public market for hundreds of thousands of dollars in illicit profits that were kicked back to Cope.

Trish Malone, who lives in Santee, Calif., serves as Gepco’s president, CFO, and secretary.  She allegedly used Gepco to issue stock to Zirk de Maison and others so that they could conduct two unregistered and illegal distributions of the securities.

Peter Voutsas, who lives in Santa Monica, Calif., and owns a jewelry store in Beverly Hills, serves as Gepco’s CEO and chief investment officer even though Zirk de Maison runs the company behind the scenes.  Along with Angelique de Maison, Voutsas allegedly made a materially misleading statement about Gepco to the public while the de Maisons manipulated the market for Gepco’s stock.
Ronald Loshin of San Anselmo, Calif., served as Gepco’s chief creative officer and allegedly failed to make required regulatory filings to report his transactions in Gepco stock as an insider.  Furthermore, Loshin enabled de Maison to deceptively hide his own trading by allowing him to use a brokerage account held in Loshin’s name.

Kieran Kuhn of Port Washington, N.Y., allegedly promoted Gepco stock through his firm Small Cap Resource Corp. and inflated the stock value to help the scheme succeed.  He then conducted one of the unregistered and illegal distributions of Gepco-related securities for Zirk de Maison’s benefit.
According to the SEC’s complaint, Zirk de Maison exchanged e-mails and text messages with many of his co-conspirators as they openly discussed coordinating their promotional activities and manipulative trading in Gepco’s stock in order to create a false impression of market activity.  They stood to earn exponentially more illicit profits given that they continue to beneficially own tens of millions of shares of Gepco stock, so the SEC today suspended trading in Gepco securities in order to prevent any further manipulation or dumping of the stock.

The SEC’s complaint, which additionally charges several companies connected to the scheme, alleges violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Sections 9 and 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The complaint seeks a permanent injunction and disgorgement of ill-gotten gains along with prejudgment interest, financial penalties, and penny stock bars.  The SEC also seeks officer-and-director bars against the de Maisons and Malone.

The SEC’s investigation, which is continuing, has been conducted by John O. Enright, James E. Burt IV, Thomas Feretic, and Leslie Kazon.  The case was supervised by Amelia A. Cottrell, and the litigation will be led by Howard Fischer and Mr. Enright.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Northern District of Ohio, the Cleveland Division of the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority.

FINAL JUDGEMENT ENTERED IN MICROCAP STOCK SCALPING CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Court Enters Final Judgment Against Promoter in Settlement of Microcap Stock Scalping Case and Orders $3.73 Million in Sanctions

The Securities and Exchange Commission announced today that the Honorable Paul A. Crotty of the United States District Court for the Southern District of New York entered a final judgment on July 8, 2014, against defendant John Babikian in the Commission action styled, SEC v. John Babikian, Civil Action No. 14-CV-1740 (S.D.N.Y.). The Court entered the final judgment, to which Babikian consented without admitting or denying the allegations in the Commission's Complaint. The final judgment orders Babikian to pay a total of $3,730,000, comprised of $1,915,670 in disgorgement, together with prejudgment interest in the amount of $128,073, and a civil penalty in the amount of $1,686,257. The final judgment also imposes a bar from participating in any offering of penny stock and enjoins Babikian from recommending, directly or indirectly, the purchase of any U.S. publicly traded or quoted stock without simultaneously disclosing any plans or intentions to sell such stock within 14 days of the recommendation. Finally, the final judgment permanently enjoins Babikian from violating Section 17(a) of the Securities Act of 1933 (15 U.S.C. § 77q(a)), Section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 78j(b)) and Rule 10b-5 promulgated thereunder (17 C.F.R. § 240.10b-5).

The Commission's complaint, filed on March 13, 2014, alleged that 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.

The Commission wishes to acknowledge the assistance of the Quebec Autorité des Marchés Financiers and the Financial Industry Regulatory Authority.

SEC ALERTS INVESTORS TO RISKS INVOLVING MARIJUANA-RELATED COMPANIES

FROM:  SECURITIES AND EXCHANGE COMMISSION

The SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to warn investors about potential risks involving investments in marijuana-related companies. 

The SEC has seen an increase in the number of investor complaints regarding marijuana-related investments.  The SEC recently issued temporary trading suspensions for the common stock of five different companies that claim their operations relate to the marijuana industry:

• FusionPharm, Inc.
• Cannabusiness Group, Inc.
• GrowLife, Inc.
• Advanced Cannabis Solutions, Inc.
• Petrotech Oil and Gas, Inc.

The SEC suspended trading in these companies because of questions regarding the accuracy of publicly-available information about these companies’ operations.  For two of the companies, the trading suspensions were also based on potential illegal activity (unlawful sales of securities and marketmanipulation).

Fraudsters often exploit the latest innovation, technology, product, or growth industry – in this case, marijuana – to lure investors with the promise of high returns.  Also, for marijuana-related companies that are not required to report with the SEC, investors may have limited information about the company’s management, products, services, and finances.  When publicly-available information is scarce, fraudsters can more easily spread false information about a company, making profits for themselves while creating losses for unsuspecting investors.

Risk of Prosecution for Marijuana-Related Companies.  If you are considering investing in a company that is connected to the marijuana industry, be aware that marijuana-related companies may be at risk of federal, and perhaps state, criminal prosecution.  The Department of Treasury recently issued guidance noting: “[T]he Controlled Substances Act (“CSA”) makes it illegal under federal law to manufacture, distribute, or dispense marijuana.  Many states impose and enforce similar prohibitions.  Notwithstanding the federal ban, as of the date of this guidance, 20 states and the District of Columbia have legalized certain marijuana-related activity.”

Marijuana-related investments may be sold in unregistered offerings and may take many forms, including microcap stocks (low-priced stocks issued by the smallest of companies) such as penny stocks (the very lowest priced stocks). 

Microcap Stocks

When you buy low-priced shares of a small company (e.g., you buy a stock that trades in the “over-the-counter” (also called OTC) market), you likely are investing in penny stocks or microcap stocks.  Microcap stocks are particularly vulnerable to fraudulent investment schemes because there is often limited publicly-available information about microcap companies.  Be cautious if you see red flags of potential microcap fraud such as:

• SEC trading suspensions (the SEC has suspended public trading of the security)
• E-mail and fax spam recommending a stock
• Insiders own large amounts of stock
• False or exaggerated press releases

Even in the absence of fraud, microcap stocks are among the most risky:

• Information about microcap companies can be extremely difficult to find, making it less likely that quoted prices in the market reflect full and complete information about the company.
• Many microcap companies are new and have no proven track record.  Some microcap companies have no assets, operations, or revenues.  Others have products and services that are still in development or have yet to be tested in the market.
• The stock prices of microcap companies historically have been more volatile than the stock prices of larger companies.  Since low-priced stocks trade in low volumes, any size trade can have a large percentage impact.
• The stock of microcap companies are often quoted on the OTC Bulletin Board (also called OTCBB) or OTC Link LLC (also called OTC Link).  OTCBB and OTC Link do not require companies to apply for listing or to meet any minimum financial standards.  Most of these companies do not meet the minimum listing requirements for trading on a national securities exchange, such as the New York Stock Exchange or the Nasdaq Stock Market.  

Unregistered Offerings

Check the SEC’s EDGAR database and contact your state securities regulator to find out whether the marijuana-related company has registered its securities offering with the SEC or a state securities regulator.  If the offering is not registered, exercise extreme caution if you spot any of these red flags of potential investment fraud:

• “Guaranteed” high investment returns.  If someone promises you a high rate of return on your investment, it likely is a fraudulent investment scheme.
• Unsolicited offers, including through social media.  A new post on your wall, a tweet mentioning you, a direct message, an e-mail, a text, a phone call, or any other unsolicited – meaning you didn’t ask for it and don’t know the sender – communication regarding an investment “opportunity” may be part of a scam.
• Pressure to buy RIGHT NOW.  Fraudsters may try to create a false sense of urgency or pitch the investment as a “limited time only” opportunity.
• No net worth or income requirements.  To comply with federal securities laws, many unregistered offerings are limited to accredited investors and the seller should ask you about your net worth or income. 

When investing in unregistered offerings, also consider these risks:

• You may lose your entire investment.
• You may not be able to sell the stock easily, and you may have to hold your investment indefinitely.
• The company may not make information about its business or financial condition publicly available.

Research the Company

As with any investment, make sure you understand the marijuana-related company’s business and its products or services.  Carefully review all materials you are given and verify the truth of every statement you are told about the investment. 

Pay attention to the company’s financial statements, particularly if they are not audited by a certified public accountant (also called a CPA). 

If the company files reports with the SEC, review the most recent reports. 

If the marijuana-related company is a microcap company that does not file reports with the SEC, ask your broker for the “Rule 15c2-11” file (the federal securities laws may require your broker to have certain information about the company). 

If the marijuana-related company is offering securities in an unregistered offering, read the offering memorandum or private placement memorandum (also called PPM), and pay particular attention to any risk factors noted.  Review the terms of any subscription agreement or other agreements for the investment.

Search SEC.gov to see whether the SEC has taken any action against the company or anyone associated with the company.

For more information about how to research an investment, read our publication Ask Questions.

Research your Broker or Investment Adviser

Research the background of the individuals and firms offering and selling you these investments, including their registration/license status and disciplinary history:

1. Search the SEC’s Investment Adviser Public Disclosure (IAPD) database.
2. Search the Financial Industry Regulatory Authority (FINRA)’s BrokerCheck database.
3. Contact your state securities regulator. 

EMERGENCY ASSET FREEZE ACTION FILED AGAINST MICROCAP STOCK SCALPING PROMOTER

FROM:  SECURITIES AND EXCHANGE COMMISSION 
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.

TWO FORMER OFFICERS OF DEFUNCT COMPANY CHARGED FOR PARTICIPATING IN FRAUDULENT PENNY STOCK SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

SEC Charges Former Officers and Investor in Houston Company in Fraudulent Penny Stock Scheme

The Securities and Exchange Commission today charged two former officers of now-defunct PGI Energy, Inc., as well as an investor in the company, for their roles in a fraudulent penny stock scheme to issue purportedly unrestricted PGI Energy shares in the public markets.

The SEC's complaint, filed in U.S. District Court for the Southern District of Texas, alleges that starting in 2011, PGI Energy's former Chief Investment Officer Robert Gandy and former CEO and Chairman Marcellous McZeal engaged in a scheme that included creating false promissory notes, signing misleading certifications, and altering the company's balance sheet to cause its transfer agent to issue millions of PGI Energy common stock shares without restrictive legends. The SEC also charged investor Alvin Ausbon for his role in the scheme, which included signing false promissory notes and diverting proceeds from the sale of PGI Energy stock back to the company and Gandy.

Gandy is also the CEO of Houston-based Pythagoras Group, which purports to be an "investment banking firm." McZeal is an attorney licensed in Texas. The complaint alleges that Gandy and McZeal made material misstatements and provided false documents to attorneys and a transfer agent who relied on them to conclude that PGI Energy shares could be issued without restrictive legends. The SEC alleges that Gandy and McZeal backdated promissory notes that purported to memorialize debt supposedly owed by PGI Energy and a prior business venture. They also are alleged to have added false debt to PGI Energy's balance sheet, and signed bogus "gift" letters and certifications of non-shell status, all in an effort to get unrestricted, free-trading PGI Energy shares unlawfully released into the market. Ausbon is charged with furthering the scheme by signing bogus promissory notes and remitting proceeds from the sale of PGI Energy shares back to the company and Gandy.

According to the complaint, the scheme collapsed in February 2012 when the SEC ordered a temporary suspension of trading in PGI Energy's securities, due to questions regarding the accuracy and adequacy of the company's representations in press releases and other public statements.

The SEC's complaint charges all defendants with violating Sections 5 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 complaint seeks permanent injunctions, disgorgement plus prejudgment interest, a financial penalty, and penny stock bars against all three defendants and officer and director bars against Gandy and McZeal.

Without admitting or denying the allegations in the SEC's complaint, McZeal has consented to the entry of a final judgment enjoining him from future violations of Sections 5 and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. He has also agreed to pay disgorgement plus prejudgment interest thereon of $19,919.37 and a civil penalty of $70,000. In addition, McZeal has agreed to permanent officer and director and penny stock bars. This settlement is subject to court approval. Subject to final settlement of the district court proceeding, McZeal has also agreed to the institution of a settled administrative proceeding pursuant to Rule 102(e) of the SEC's Rules of Practice, pursuant to which he would be barred from appearing before the SEC as an attorney.

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.

SEC CHARGES CANADIAN STOCK PROMOTER WITH DISSEMINATING FALSE AND MISLEADING INFORMATION

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
On March 4, 2013, the Securities and Exchange Commission filed a civil action in the United States District Court for the District of Utah charging Canadian stock promoter Colin McCabe with disseminating false and misleading information to investors when recommending penny stocks to them.

In its complaint, the Commission alleges that, from at least early 2008 through 2011, McCabe, among other things: made false and misleading claims about how he selected recommended stocks; failed to disclose to his newsletter subscribers that he was being paid substantial sums to recommend some of the same stocks in his other publications; and made false and misleading statements about the assets of one of the issuers he recommended.

According to the complaint, McCabe falsely claimed that his publications were the result of extensive research conducted by researchers with relevant expertise and contacts, when, in fact, McCabe’s research was limited to reviewing issuers’ filings with the Commission, press releases, and issuer websites, and he did not have any assistance in researching stocks or writing his publications. The complaint alleges that while touting the quality of his stock picking research, McCabe failed to disclose to his newsletter subscribers that he was being paid substantial sums, a total of more than $16 million between early 2008 and 2011, to promote some of the same stocks he recommended to them in his other publications.

The complaint further alleges that McCabe falsely represented that Guinness Exploration Inc. ("Guinness") had acquired a mining property well before discoveries in May 2009 turned the region into "a red-hot area play," when, in fact, the property was not acquired until months later in November 2009. According to the complaint, McCabe’s claims that Guinness’ property held "an estimated recoverable resource in excess of 1 million ounces of gold" were also false and misleading.

The complaint alleges that McCabe, doing business as Elite Stock Report, The Stock Profiteer and Resource Stock Advisor, violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission seeks a final judgment permanently enjoining McCabe from future violations of the federal securities laws and ordering him to pay civil penalties and disgorgement of ill-gotten gains plus prejudgment interest.

ALLEGED ILLEGAL SALE OF STOCK SHARES IN THE PUBLIC MARKET

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

　

Washington, D.C., Aug. 22, 2012 – The Securities and Exchange Commission today charged a New York-based firm and its owner with conducting a penny stock scheme in which they bought billions of stock shares from small companies and illegally resold those shares in the public market.

　

The SEC alleges that Edward Bronson and E-Lionheart Associates LLC reaped more than $10 million in unlawful profits from selling shares they bought at deep discounts from approximately 100 penny stock companies. On average, Bronson and E-Lionheart were able to generate sales proceeds that were approximately double the price at which they had acquired the shares. No registration statement was filed or in effect for any of the securities that Bronson and E-Lionheart resold to the investing public, and no valid exemption from the registration requirements of the federal securities laws was available.

　

"By violating the registration provisions of the securities laws and dumping billions of unregistered shares into the over-the-counter market, Bronson deprived investors of important information about the companies in which they were investing," said Andrew M. Calamari, Acting Director of the SEC’s New York Regional Office.

　

According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Bronson lives in Ossining, N.Y. E-Lionheart, which also does business under the name Fairhills Capital, is located in White Plains. Acting at Bronson’s direction, E-Lionheart personnel systematically "cold called" penny stock companies quoted on the OTC Link to ask if they were interested in obtaining capital. If the company was interested, E-Lionheart personnel would offer to buy stock in the company at a rate that was deeply discounted from the trading price of the company’s stock at that time. Typically, Bronson and E-Lionheart immediately began reselling the shares to the investing public through a broker within days of receiving the shares from the company.

　

Bronson and E-Lionheart purported to rely on an exemption from registration under Rule 504(b)(1)(iii) of Regulation D, which exempts transactions that are in compliance with certain types of state law exemptions. However, no such state law exemptions were applicable to these transactions. Bronson and E-Lionheart claimed to rely on a Delaware state law registration exemption, but the transactions in fact had little or no connection to the state of Delaware. The particular Delaware state law exemption claimed by Bronson and E-Lionheart is not an exemption that meets the specific requirements of Rule 504(b)(1)(iii). As a result, investors purchasing these shares did not have access to all of the information that a registration statement would have provided, including in many instances important information concerning the issuance of millions of new shares by the company to Bronson and E-Lionheart.

　

The SEC’s complaint charges E-Lionheart and Bronson with violations of the registration provisions of the federal securities laws, and seeks disgorgement of more than $10 million in ill-gotten gains, penalties. The SEC also seeks penny stock bars against E-Lionheart and Bronson. The complaint also names another entity owned and controlled by Bronson – Fairhills Capital Inc. – as a relief defendant for the purpose of recovering the illegal proceeds it received.

　

The SEC’s investigation was conducted in the SEC’s New York Regional Office by Senior Attorney William Edwards and Assistant Regional Director Wendy B. Tepperman. The SEC’s litigation will be led by Senior Trial Counsel Kevin McGrath.

MAN SETTLES CHARGES OF MARKET MANIPULATION WITH SEC

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Defendant Matthew Brown Settles Penny Stock Manipulation ChargesThe Securities and Exchange Commission announced today that Chief Judge Gregory M. Sleet of the United States District Court for the District of Delaware entered a final judgment against Defendant Matthew W. Brown on July 2, 2012 in SEC v. Dynkowski, et al., Civil Action No. 1:09-361, a stock manipulation case the SEC filed on May 20, 2009, and amended on March 25, 2010 and December 22, 2011, to charge additional individuals. The SEC’s complaint alleges that Brown participated in market manipulation schemes involving the stock of GH3 International, Inc. and Asia Global Holdings, Inc.

As alleged in the complaint, the schemes generally followed the same pattern: Defendant Pawel P. Dynkowski and his accomplices agreed to sell large blocks of shares for penny stock companies in exchange for a portion of the proceeds. The shares were put in nominee accounts that Dynkowski and his accomplices controlled. The defendants artificially inflated the market price of the stocks through wash sales, matched orders and other manipulative trading, often timed to coincide with false or misleading press releases, and then sold shares obtained from the issuers and divided the illicit proceeds.

As alleged in the complaint, Dynkowski orchestrated the manipulation scheme involving GH3 International, Inc. stock in 2006 with Brown, who operated a penny stock website called InvestorsHub.com. The complaint alleges that in this scheme Dynkowski and Brown engaged in manipulative trading and that Brown helped coordinate this manipulative trading with issuance of false press releases. The complaint alleges that this scheme generated approximately $747,609 in illicit profits.

The complaint further alleges that in 2006, Brown planned the manipulation scheme involving the stock of Asia Global Holdings, Inc., with two defendants who were registered representatives at a small broker-dealer in California. As alleged in the complaint, Dynkowski and another defendant manipulated the price of Asia Global stock using wash sales, matched orders, and other manipulative trading, coordinated with false press releases. After manipulating the price of the stock, the complaint alleges, Dynkowski, Brown, and others in this scheme sold 54 million shares that had been improperly registered on SEC Form S-8 and held in nominee accounts, generating over $4 million in illicit profits.

To settle the SEC’s charges, Brown consented to a final judgment that permanently enjoins him from violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Sections 10(b) and 13(d) of the Securities Exchange Act of 1934, and Rules 10b-5, 13d-1 and 13d-2 thereunder; orders disgorgement of $86,745 and prejudgment interest of $24,081; and bars Brown from participating in any offering of a penny stock. In a related criminal case, Brown previously pled guilty to conspiracy to commit securities fraud and conspiracy to engage in money laundering. He was sentenced to four years in prison and ordered to pay criminal forfeiture of $4,798,138. U.S. v. Brown, Criminal Action No. 09-46-SLR (D. Del.).

The SEC thanks the following agencies for their cooperation and assistance in connection with this matter: the U.S. Attorney’s Office for the District of Delaware; the Delaware State Police; United States Immigration and Customs Enforcement, Department of Homeland Security, Homeland Security Investigations; and the Department of the Treasury, Internal Revenue Service, Criminal Investigation.

SEC ALLEGES THREE INDIVIDUALS MANIPULATED MARKET OF A STOCK

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
June 1, 2012
SEC Files Action Against Three Penny-Stock Fraudsters
The Securities and Exchange Commission ("SEC") today charged three individuals for their roles in a $3.9 million scheme to manipulate the market and to profit from the issuance and sale of Grifco International, Inc. (“Grifco”) stock. The SEC's complaint alleges that the stock manipulation scheme was orchestrated and devised by James Roland Dial, Grifco’s former president, chief executive officer, and sole director, Evan Nicolas Jarvis, a stock promoter and de facto Grifco officer, and Alex W. Ellerman, another stock promoter.

The complaint alleges that between December 2004 through November 2006, Dial and Jarvis caused Grifco, a publicly-traded corporation that claimed to be an international provider of oil and gas services equipment, to issue over 13 million purportedly unrestricted Grifco securities to Ellerman, themselves or their nominees. The complaint alleges that Dial, Jarvis and Ellerman sold the Grifco securities to the investing public shortly after receiving their shares, often times selling those shares into a rising, artificial market they created by disseminating false and material misleading information about Grifco to prospective investors and shareholders. None of the securities transactions were registered with the SEC and the transactions did not satisfy any exemption from registration according to the complaint. The SEC alleges that, as a result of this conduct, Dial, Jarvis, and Ellerman collectively received nearly $3.3 million in ill-gotten gains from the sale of newly-issued Grifco stock. The complaint also alleges that Dial misappropriated at least $600,000 by looting Grifco’s cash account from September 2005 through December 2006.

The SEC’s complaint also alleges that Dial, Jarvis, and Ellerman engaged in a pump-and-dump scheme designed to defraud and deceive existing and potential investors into purchasing Grifco shares while they sold Grifco shares at inflated prices into an artificially active market that they created. The complaint alleges that Dial made false and misleading information about Grifco through press releases, investor conference calls, and other statements to Grifco shareholders that Jarvis and Ellerman, at times, disseminated. Dial, Jarvis, and Ellerman sold many of their own Grifco shares at or near the release of this information, even though they knew that the press releases and other statements contained false and misleading information regarding Grifco’s financial position and projected sales, its products and product development, and the company’s total outstanding shares.

The complaint charges that Dial, Ellerman, and Jarvis violated 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 SEC seeks permanent injunctions, disgorgement with prejudgment interest, officer and director bars, and penny stock bars against each.

Dial, Jarvis, and Ellerman have consented to the entry of a final judgment that: (i) enjoins them from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; (ii) and bars them from serving as an officer or director of a public company or participating in an offering of any penny stock. Dial, Jarvis, and Ellerman also consented to entry of a final judgment that orders them to pay disgorgement and prejudgment interest in the amount of $1,600,628, $2,095,524, and $939,650, respectively, which will be deemed satisfied upon entry of a restitution order in an equal or greater amount in a related enforcement action brought by the United States Attorney’s Office for the Southern District of Texas (Houston); United States v. Alex Ellerman et al., Cr. NO. H-10-56-S (S.D. Tex.) (U.S. v. Ellerman).

On May 22, 2012, the Honorable David Hittner, United States District Court Judge for the Southern District of Texas, sentenced Dial to a five-year prison sentence for conspiring to commit wire fraud. Today, Judge Hittner also sentenced Jarvis to a five-year term of imprisonment for conspiring to commit wire fraud while Ellerman received a reduced prison sentence of 40 months because he cooperated with the prosecution and provided evidence against his co-defendants. The sentencings followed March 2011 pleas of guilty by Dial, Jarvis and Ellerman for conspiracy to commit wire fraud.

The SEC acknowledges the assistance of the United States Attorney's Office for the Southern District of Texas, the Federal Bureau of Investigation, and the Harris County (Houston, Texas) District Attorney's Office.

SEC OBTAINS $4.8 MILLION JUDGMENT AGAINST MARCO GLISSON, WHO WAS CHARGED WITH MAKING A MARKET IN DEREGISTERED SECURITIES OF CMKM DIAMONDS, INC.

FROM:  SECURITIES AND EXCHANGE COMMISSION
April 23, 2012
The Securities and Exchange Commission ("Commission") announced that a judgment was entered on April 11, 2012 in its civil injunctive action against Marco Glisson, filed in the United States District Court of Nevada. Without admitting or denying the allegations in the complaint, Glisson consented to entry of a permanent injunction against violations of the registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933, and the broker dealer registration provisions of Section 15(a) of the Securities Exchange Act of 1934. Glisson was ordered to pay $2,765,650.65 in disgorgement, which represented profits gained as a result of the conduct alleged in the complaint, together with prejudgment interest in the amount of $670,574.79. In addition, Glisson was ordered to pay a civil penalty in the amount of $1,400,000, and was permanently barred from participating in the offering of penny stock.

The Commission’s complaint alleged that from December 2005 through April 2007, Glisson acted as an unregistered broker or dealer and illegally sold deregistered securities of CMKM Diamonds, Inc. CMKM's registration with the Commission was revoked and the stock delisted on October 28, 2005. According to the complaint, Glisson, a retired auto worker and part-time restaurant worker who used the name “Deli Dog” or “Deli” in Internet chat rooms, identified potential buyers and sellers by frequenting CMKM related internet chat rooms and through referrals from past buyers and sellers. Glisson then negotiated the terms of the transaction and consummated it by exchanging money for the pertinent CMKM stock certificate. Through these practices, Glisson made a market in deregistered CMKM securities at a time when legitimate broker-dealers refused to execute such purchases or sales because of the Commission's deregistration of CMKM.

See Litigation Release No. 20855/January 15, 2009, for information on the filing of the original action and a link to the Commission’s Complaint.

PENNY STOCK PROMOTERS ENJOINED AND BARRED

FROM:  SEC

The United States Securities and Exchange Commission (Commission) announced that on April 10, 2012, the Honorable Sidney A. Fitzwater of the United States District Court for the Northern District of Texas enjoined Ryan M. Reynolds of Dallas, TX, Timothy T. Page of Malibu, CA, Steven Fischer of Bonita Springs, FL, Phillip W. Offill, Jr., a Dallas attorney, RSMR Capital Group Inc. (RSMR), Page Properties LP, and ATN Enterprises LLC from violating Section 5 of the Securities Act of 1933. 

The Commission’s complaint alleged that these individuals and entities violated the securities laws by acting as underwriters engaged in a scheme to evade the securities registration requirements by offering and selling the securities of one or more of six companies when no registration statements were filed or in effect to provide information to public investors. The six companies issued penny stocks, which are defined as equity securities trading at a price of less than five dollars per share, and the defendants initiated public trading in the over-the-counter market under the following trading symbols: American Television & Film Company (ATFT), Ecogate, Inc. (ECGT), Media International Concepts, Inc. (MEIC), Vanquish Productions, Inc. (VQPI), Auction Mills, Inc. (AUML), and Custom Designed Compressor Systems, Inc. (CUPY). The court also barred Reynolds, Page, Fischer, RSMR, Page, and Page Properties for seven years, and Offill permanently, from participating in the offer or sale of penny stocks. In addition, the court enjoined Reynolds, RSMR, Page, and Page Properties from violating Section 15(a) of the Securities Exchange Act of 1934 by engaging in the securities transaction without registering as brokers or dealers with the Commission.

 The court also ordered the defendants to pay disgorgement totaling $12,219,468 of profits from their unregistered securities sales plus prejudgment interest, and civil penalties of $120,000 each. In addition, the court ordered relief defendants Timothy Barham and his company Ballad Enterprises, Inc. of Henderson, Tennessee, and Bellatalia LP, a company owned by Reynolds, to disgorge funds they received from the defendants’ illegal stock sales. The Commission’s claims for remedies against Shane Mullholand and his company Dissemination Services LLC remain to be resolved. The court previously enjoined Arizona attorney, David Stocker and his company Curtis-Case Inc. for their violations of Section 5 of the Securities Act, and barred them from participating in penny stock sales.

FINAL JUDGEMENTS ENTERED IN STOCK MANIPULATION CASE

The following excerpt is from the SEC website:

February 10, 2012
“The Securities and Exchange Commission announced today that Chief Judge Gregory M. Sleet of the United States District Court for the District of Delaware entered final judgments against Defendants Nathan M. Michaud and Gerard J. D’Amaro on January 24, 2012, and Defendant Marc J. Riviello on February 3, 2012, in SEC v. Dynkowski, et al., Civil Action No. 1:09-361, a stock manipulation case the SEC filed on May 20, 2009, and amended on March 25, 2010 to charge additional individuals. The SEC’s complaint alleges that Michaud, D’Amaro, and Riviello each participated in market manipulation schemes with Defendant Pawel P. Dynkowski.

As alleged in the complaint, the schemes generally followed the same pattern: Dynkowski and his accomplices agreed to sell large blocks of shares for penny stock companies in exchange for a portion of the proceeds. The shares were put in nominee accounts that Dynkowski and his accomplices controlled. The defendants artificially inflated the market price of the stocks through manipulative trading, often timed to coincide with false or misleading press releases, and then sold shares obtained from the issuers and divided the illicit proceeds.

The complaint alleges that in 2006, Dynkowski, Riviello, Michaud and others participated in a manipulation scheme involving the stock of Asia Global Holdings, Inc., which generated over $4 million in illicit profits. As alleged in the complaint, Dynkowski and Michaud manipulated the price of Asia Global Holdings, Inc. stock using wash sales, matched orders, and other manipulative trading, while Riviello used his position as a registered representative at a broker-dealer to open a series of nominee accounts and execute sell orders for shares obtained from the issuer. The complaint further alleges that Riviello helped launder proceeds from a separate manipulation scheme involving the stock of GH3 International, Inc.

That same year, the complaint alleges, Dynkowski, D’Amaro and others participated in a manipulation scheme involving the stock of Playstar Corp., which generated over $1 million in illicit profits. As alleged in the complaint, D’Amaro arranged for the company to issue misleading press releases that coincided with Dynkowski’s manipulative trading. The complaint further alleges that D’Amaro provided the nominee accounts that were used to sell the shares received from the issuer.

To settle the SEC’s charges, D’Amaro consented to a final judgment that permanently enjoins him from violating 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, orders disgorgement of $177,044 and prejudgment interest of $40,859, and bars D’Amaro from participating in any offering of a penny stock. In a related criminal case, D’Amaro previously pled guilty to conspiracy to commit securities fraud and engage in money laundering and was sentenced to three years in prison and ordered to pay criminal forfeiture of $1.49 million. U.S. v. D’Amaro, Criminal Action No. 09-54-SLR (D. Del.).
Riviello consented to a final judgment that permanently enjoins him from violating Sections 5(a), 5(c), and 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and orders disgorgement of $248,190 and prejudgment interest of $35,078, which was waived based upon his inability to pay. In related administrative proceedings, Riviello consented to a Commission Order barring him from association with any broker or dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and barring him from participating in any offering of a penny stock. In a related criminal case, Riviello previously pled guilty to conspiracy to engage in money laundering and was sentenced to 8 months in prison and ordered to pay criminal forfeiture of $107,000. U.S. v. Riviello, Criminal Action No. 09-23-SLR (D. Del.).

Michaud consented to a final judgment that permanently enjoins him from violating Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and orders him to pay disgorgement of $40,600, prejudgment interest of $3,314, and a civil penalty of $50,000.

Additionally, on December 22, 2011, the SEC filed a second amended complaint charging James Meagher as an additional defendant in this case. The complaint alleges that, in 2007, Dynkowski and Meagher carried out a manipulation scheme involving the stock of Xtreme Motorsports of California, Inc. As alleged in the complaint, Dynkowski and Meagher manipulated the price of Xtreme Motorsports stock using wash sales, matched orders and other manipulative trading, in a scheme that generated over $250,000 in illicit profits. The complaint alleges that Meagher violated Sections 5(a), 5(c) and 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.  The complaint seeks against Meagher permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, civil monetary penalties, and an order barring him from participating in any penny stock offerings.

The SEC thanks the following agencies for their cooperation and assistance in connection with this matter: the U.S. Attorney’s Office for the District of Delaware; the Delaware State Police; United States Immigration and Customs Enforcement, Department of Homeland Security, Homeland Security Investigations; and the Department of the Treasury, Internal Revenue Service, Criminal Investigation.”

LOS VEGAS STOCK PROMOTER CONVICTED OF SECURITIES FRAUD

The following excerpt is from the Department of Justice website:

February 1, 2012
“WASHINGTON – The principal of a Costa Rican brokerage firm and a Las Vegas stock promoter were each convicted yesterday in the Southern District of Florida of all charges for their roles in a stock manipulation scheme that defrauded investors, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division, U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida, Chief Postal Inspector Guy Cottrell of the U.S. Postal Inspection Service (USPIS) and James W. McJunkin, Assistant Director in Charge of the FBI’s Washington Field Office.

Jonathan Curshen, 47, the principal of Red Sea Management and Sentry Global Securities, two companies located in San Jose, Costa Rica, that provided offshore accounts and facilitated trading in penny stocks, was found guilty of conspiracy to commit securities fraud, wire fraud and mail fraud; two counts of mail fraud; and conspiracy to commit international money laundering.  Nathan Montgomery, 30, a Las Vegas stock promoter, was found guilty of conspiring to commit securities fraud and wire fraud.

The evidence at trial showed that in January and February 2007, Curshen, of Costa Rica and Sarasota, Fla., and Montgomery, of Las Vegas, were involved in a scheme to illegally manipulate the stock price of a company called CO2 Tech (ticker CTTD), which traded on the Pink Sheets, an inter-dealer electronic quotation and trading system.

Evidence at trial showed that Curshen’s and Montgomery’s co-conspirators controlled the outstanding shares of CO2 Tech, which were used in the stock manipulation scheme.  Montgomery and his conspirators engaged in coordinated trades in conjunction with the issuance of false and misleading press releases that were designed to artificially inflate the price of CO2 Tech shares to make it appear that it had significant business prospects.   According to these press releases, CO2 Tech purported to have a business relationship with Boeing to reduce polluting gases emitted from airplanes, when in fact CO2 Tech never had any business or relationship with Boeing.

According to the evidence at trial, Montgomery and his co-conspirators, Robert Weidenbaum, Timothy Barham Jr., Ryan Reynolds and others fraudulently “pumped” the market price and demand for CO2 Tech stock through these press releases and coordinated trades of shares of CO2 Tech stock in order to create the appearance of legitimate buying interest by legitimate investors.  The evidence showed that as Montgomery and his conspirators pumped the price of the stock, Curshen and his conspirators facilitated the “dumping” of shares through the trading desk at Red Sea and Sentry Global Securities by selling the shares at the direction of their conspirators to the general investing public.  The evidence showed that these shares, which became virtually worthless, were purchased by unsuspecting investors, including investors in the Southern District of Florida.  The evidence showed that Montgomery, Weidenbaum, Reynolds and Barham were paid approximately $1 million in cash by their conspirators to participate in sham stock trades of CO2 Tech.  The cash was delivered to Miami via a private jet from an airport outside New York.

The evidence further showed that, from approximately 2003 through 2008, Curshen operated Red Sea as a money laundering hub in Costa Rica that established bank accounts and brokerage accounts in the United States and Canada under false pretenses and through nominee owners.  The evidence further showed that Curshen and his co-conspirators laundered the proceeds of the stock fraud from accounts in the United States to an account in Canada, all in an effort to conceal and disguise the nature and source of the proceeds.
At sentencing, Curshen faces a sentence of up to five years in prison on the conspiracy to defraud count, and up to 20 years on each count of mail fraud and money laundering conspiracy.  Montgomery faces a sentence of up to five years for the conspiracy to defraud count.  The defendants are scheduled to be sentenced by Judge Richard W. Goldberg on May 11, 2012.      
         
Stock promoters Weidenbaum, Barham and Reynolds, who were also charged in this case, previously pleaded guilty to conspiring to commit securities fraud, wire fraud and mail fraud.  They also will be sentenced by Judge Goldberg on May 9, 2012.  Michael Simon Krome, a securities attorney from New York, who participated in the conspiracy and evaded federal securities registration requirements in order to provide co-conspirators with millions of unregistered and “free trading” shares of CO2 Tech that were used to execute the stock manipulation, also pleaded guilty to conspiring to commit securities fraud, mail fraud and wire fraud.

The case was investigated by the FBI’s Washington Field Office and the USPIS.  The case is being prosecuted by Trial Attorneys N. Nathan Dimock and Rina Tucker Harris of the Fraud Section in the Justice Department’s Criminal Division.  The U.S. Attorney’s Office for the Southern District of Florida provided significant assistance in this case.  The Department of Justice acknowledges the significant assistance of the Financial Industry Regulatory Authority (FINRA) and the U.S. Securities and Exchange Commission (SEC) in its investigation.  The SEC has a pending parallel civil case.  The Criminal Division’s Office of International Affairs and Costa Rican authorities also provided assistance.
This prosecution is part of efforts under way by the Financial Fraud Enforcement Task Force.  President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.”

SEC ALLEGES HYPING STOCK PRICE SCHEME IN FLORIDA

The following excerpt is from the SEC website:

Washington, D.C., Jan. 26, 2012 – The Securities and Exchange Commission today charged a Fort Lauderdale-based firm and its founder with conducting a fraudulent boiler room scheme in which they hyped stock in two thinly-traded penny stock companies while behind the scenes they sold the same stock themselves for illegal profits.

The SEC alleges that First Resource Group LLC and its principal David H. Stern employed telemarketers who fraudulently solicited brokers to purchase stock in TrinityCare Senior Living Inc. and Cytta Corporation. While recommending the securities in these two microcap companies, Stern sold First Resource’s shares of TrinityCare and Cytta stock unbeknownst to investors who were purchasing them – a practice known as scalping. As Stern was selling the stocks, he also purchased small amounts in order to create the false appearance of legitimate trading activity and induce investors to purchase shares in both companies.
“First Resource and Stern used a telephone sales boiler room to make inflated claims and defraud investors while simultaneously manipulating the price of the stocks and making profits for themselves,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “The SEC will continue to aggressively pursue perpetrators of microcap stock fraud schemes that hound potential investors to buy stock.”
Since the beginning of fiscal year 2011, the SEC has filed more than 50 enforcement actions for misconduct related to microcap stocks, and issued 63 orders suspending the trading of suspicious microcap issuers. Microcap stocks are issued by the smallest of companies and tend to be low priced and trade in low volumes. Many microcap companies do not file financial reports with the SEC, so investing in microcap stocks entails many risks.

According to the SEC’s complaint filed against Stern and First Resource in U.S. District Court for the Southern District of Florida, they violated federal securities laws by acting as unregistered broker-dealers. Stern hired and trained First Resource’s salespeople and gave them information about TrinityCare to prepare sales scripts and pitch the stock to potential investors. Stern reviewed the draft scripts, made edits, and approved the scripts before the salespeople were allowed to use them.
The SEC alleges that Stern gave the salespeople a list of potential investors to cold call and pitch the stocks. First Resource’s salespeople falsely claimed TrinityCare stock “is going to be $5-7 in 6-12 months” and the company “is going to be a half-a-billion dollar company in five years or roughly a $40 stock.” Stern also disseminated a research report on Cytta to investors and falsely touted: “Sales projections for 2010-2014 should exceed $500 million with a pre-tax net of over $400 million.”
The SEC’s complaint alleges that First Resource Group and Stern violated Section 17(a) of the Securities Act of 1933, and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5. The SEC is seeking permanent injunctions, disgorgement plus prejudgment interest, and financial penalties as well as a penny stock bar against Stern.

The SEC’s investigation was conducted by Jorge L. Riera under the supervision of Elisha L. Frank in the SEC’s Miami Regional Office in coordination with an examination of First Resource conducted by Anson Kwong, Michael J. Nakis, George Franceschini, and Nicholas A. Monaco of the SEC’s Miami office. Edward D. McCutcheon will lead the SEC’s litigation efforts.
The SEC’s investigation is continuing."