UNREGISTERED STOCK SALES NETS OVER $1.3 MILLION IN DISGORGEMENT, INTEREST AND CIVIL PEALTY

The following excerpt is from the Securities and Exchange Commission website:

“The United States Securities and Exchange Commission announced that on December 19, 2011, the Honorable Dora L. Irizarry, United States District Court Judge for the Eastern District of New York, entered a judgment against Myron Weiner. The judgment permanently enjoins Weiner from violating the registration provisions of Section 5 of the Securities Act of 1933 (“Securities Act”) and imposes a one-year penny stock bar against Weiner. The judgment also ordered Weiner to pay $1,215,057 in disgorgement, $80,135 in prejudgment interest, and a $50,000 civil penalty. Weiner consented to the entry of the judgment, without admitting or denying the allegations of the Commission’s complaint. Weiner also settled a related forfeiture action brought by the Civil Division of the U.S. Attorney’s Office for the Eastern District of New York.
The Commission’s civil action against Myron Weiner, filed on November 22, 2011, relates to his unregistered sales of shares of Spongetech Delivery Systems, Inc. (“Spongetech”) in 2009. In its complaint, the Commission alleges that Weiner purchased the shares from a Spongetech affiliate at a discounted price of 5 cents, and then sold the shares into the public market less than three months later for 20 cents, for a profit of $1,215,057. The Commission alleges that Weiner’s conduct violated the registration provisions of Section 5 of the Securities Act, since his sales were not registered with the Commission, and no exemption from the registration requirements of the federal securities laws applied.
The Commission wishes to thank the U.S. Attorney’s Office, the Federal Bureau of Investigation and the Internal Revenue Service for their assistance and cooperation in connection with this matter.”

SEC ALLEGES PENNY STOCK PUBLICATION MADE MATERIAL MISREPRESENTATIONS AND OMISSIONS

The following excerpt is from the SEC website: December 12, 2011 Securities and Exchange Commission v. Geoffrey J. Eiten and National Financial Communications Corp., 1:11-CV-12185 (District of Massachusetts, Complaint filed December 12, 2011) SEC CHARGES MASSACHUSETTS-BASED PENNY STOCK PROMOTER WITH MAKING FRAUDULENT STATEMENTS The Securities and Exchange Commission, in an action filed today in federal court in Boston, charged Massachusetts resident Geoffrey J. Eiten and his company National Financial Communications Corp. (“NFC”) for making material misrepresentations and omissions in a penny stock publication they issued. The Commission’s complaint alleges that Eiten and NFC publish a penny stock promotion piece called the “OTC Special Situations Reports.” According to the complaint, Eiten, self-proclaimed “America’s Leading Micro-Cap Stock Picker,” promotes penny stocks in this publication on behalf of clients in order to increase the price per share and/or volume of trading in the market for the securities of penny stock companies. The complaint alleges that Eiten and NFC have made misrepresentations in these reports about the penny stock companies they are promoting. For example, the Commission’s complaint alleges that during 2010, Eiten and NFC issued reports promoting four penny stock companies: (1) Clean Power Concepts, Inc., based in Regina, Saskatchewan, Canada, a purported manufacturer and distributor of various fuel additives and lubrication products made from crushed seed oil; (2) Endeavor Power Corp., based in Robesonia, Pennsylvania, a purported recycler of value metals from electronic waste; (3) Gold Standard Mining, based in Agoura Hills, California, a purported owner of Russia gold mining operations; and (4) Nexaira Wireless Corp., based in Vancouver, British Columbia, Canada, a purported developer and seller of wireless routers. The Commission’s complaint alleges that in these four reports, Eiten and NFC made material misrepresentations and omissions, concerning, among other things, the companies’ financial condition, future revenue projections, intellectual property rights, and Eiten’s interaction with company management as a basis for his statements. According to the complaint, Eiten and NFC were hired to issue the above reports. Eiten and NFC used false information provided by their clients, without checking the accuracy of the information with the companies in question or otherwise ensuring that the statements they were making in the OTC Special Situations Report were true. The Commission’s complaint charges Eiten and NFC with violating the antifraud provisions of the federal securities laws (Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder). In its complaint, the Commission seeks permanent injunctions, disgorgement plus prejudgment interest, civil penalties, and penny stock bars pursuant to Section 21(d)(6) of the Exchange Act against the defendants."

UNREGISTERED SECURITIES FRAUD NETS GOVERNMENT MILLIONS FROM FINES AND DISGOGEMENTS

The following is an excerpt from the SEC web site: November 15, 2011 “The Securities and Exchange Commission announced today that on November 8, 2011, the U.S. District Court for the Northern District of Texas ruled that Timothy Page, of Malibu, California, and his company Testre LP are liable for violating the registration provisions of the federal securities laws. The Court ordered Page to pay $2.49 million in disgorgement and $400,284 in prejudgment interest. The Court also ordered three relief defendants - Reagan Rowland and Rodney Rowland, of Los Angeles, California, and John Coutris, of Irving, Texas - to pay back their ill-gotten gains. The Commission's complaint alleged that Page and Testre violated the registration provisions of the federal securities laws when they engaged in an unregistered public offering of ConnectAJet.com, Inc., a reverse-merger company that claimed it would "revolutionize the aviation industry" by creating a real-time, online booking system for private jet travel. The Commission alleged that Page and his collaborators purchased tens of millions of shares directly from ConnectAJet.com, Inc. for pennies per share, under a purported registration exemption under the Securities Exchange Act of 1933, Regulation D, Rule 504. The Commission alleged that Page then touted the stock to investors through a national marketing campaign and dumped his shares into the public market when no registration statement was filed or in effect. The Court ruled that Page and Testre violated Section 5 of the Securities Act of 1933. In addition to the monetary relief granted by the Court, the Commission continues to seek the following additional relief against Page and Testre: civil penalties, penny stock bars, and injunctions from future violations of Section 5 of the Securities Act of 1933. Reagan Rowland and Rodney Rowland were ordered to pay $138,219 and John Coutris was ordered to pay $281,840 in ill-gotten gains they received from Ryan Reynolds, one of Page's collaborators. The Commission acknowledges the assistance of the Financial Industry Regulatory Authority (FINRA) in this matter.”

SEC FILES INJUNCTIVE ACTION AGAINST PENNY STOCK DEALER

The following is an excerpt from the SEC website: “On October 14, 2011, the Securities and Exchange Commission (“Commission”) filed a Complaint for Injunctive and Other Relief (“Complaint”) in the United States District Court for the Middle District of Florida in Tampa against Joseph P. Cillo (“Cillo”). This matter involves repeated violations of a penny stock bar by Cillo over a three year period from December 2007 through December 2010. The Complaint alleges that in November 2007, through a reverse merger with a penny-stock shell company, Cillo became the CEO and controlling shareholder of eFUEL EFN Corp. (“eFUEL”), a purported web development company then based in Tampa, Florida and listed on the OTC Market Group’s “OTC Pink” market tier (formerly the “Pink Sheets”) under the symbol “EFUL.” It further alleges that in connection with an ongoing market manipulation investigation involving eFUEL and other related entities and individuals, the SEC determined that Cillo engaged in various activities related to, and for the purpose of, issuing, trading, and inducing the purchase of eFUEL’s stock. Specifically, Cillo (1) offered and/or issued hundreds of millions of shares of eFUEL stock to third-parties as purported payment for debts and services, (2) drafted and approved multiple press releases touting the company’s business plan and development prospects, and (3) prepared, signed, and submitted periodic reports to the OTC Markets Group in order to comply with the Pink Sheets’ minimal requirements for “adequate current information.” These activities constituted violations of a 1995 Commission order barring Cillo from participating in the offering of any penny stock. The Complaint alleges that the defendant has violated Sections 21(d)(1) and (e) of the Securities Exchange Act of 1934 (“Exchange Act”) based on his violations of the previous Commission order and Section 15(b)(6)(B)(i) of the Exchange Act. The Commission seeks permanent injunctive relief, an order commanding future compliance with the Commission’s bar, disgorgement plus prejudgment interest, and civil penalties.”

INSIDE TRADER TO PAY FINE, PAY BACK MONEY ON PENNY STOCK DEAL

The following is from the SEC website:

"June 29, 2011
SEC v. Richard Verdiramo, Vincent L. Verdiramo, Edward Meyer, Jr., and Victoria Chen, Civil Action No. 10-CIV-1888 (S.D.N.Y.)
COURT ENTERS FINAL JUDGMENT AGAINST EDWARD MEYER, JR.
The U.S. Securities and Exchange Commission announced today that on June 27, 2011, the United States District Court for the Southern District of New York entered a Final Judgment that enjoins Edward Meyer, Jr. from violating the registration and antifraud provisions of the federal securities laws, orders him to disgorge $62,050 in ill-gotten gains, and requires him to pay civil penalties of $62,000. In addition, the Court barred Meyer from participating in any penny stock offering and from serving as an officer or director of any reporting company. Meyer consented to the entry of the Final Judgment without admitting or denying any of the allegations of the Commission’s Complaint.

In its Complaint, the SEC charged that Meyer violated the registration provisions of the federal securities laws when he sold shares of RECOV Energy Corporation between April and November 2005. According to the Complaint, RECOV issued these shares to Meyer after he and defendant Victoria Chen entered into a contract to buy a controlling interest in RECOV from RECOV’s principal, defendant Richard Verdiramo, and his father, defendant Vincent L. Verdiramo. The Complaint alleges that shortly after receiving the RECOV shares, Meyer began selling them on the open market. The SEC charged that Meyer violated Section 5(a) of the Securities Act of 1933 because his sales of RECOV shares were not registered with the SEC or subject to any exemptions from the registration provisions. The Final Judgment orders Meyer to disgorge his ill-gotten gains from these violations, which totaled approximately $48,000, and to pay a $48,000 penalty for these claims.

The SEC also charged Meyer with insider trading based on his sales of RECOV stock in August 2005. According to the Complaint, in October 2004, Meyer began working as a consultant for a private company that subsequently engaged in merger negotiations with RECOV. Meyer signed a confidentiality agreement in connection with his engagement as the private company’s consultant. The Complaint alleges that in July 2005, the private company’s principal told Meyer that he intended to terminate merger negotiations with RECOV. The Complaint alleges that Meyer sold RECOV shares after he learned of the principal’s intention to terminate merger negotiations and before the August 2005 public announcement that the parties had terminated merger negotiations. As a consequence of these trades, the Complaint alleges that Meyer avoided losses of $14,000. The SEC charged that the private company’s intention to terminate merger negotiations was material, non-public information, and that Meyer violated Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5 when he sold RECOV stock while in possession of that information without disclosing his intention to trade. The Final Judgment orders Meyer to disgorge the $14,000 of ill-gotten gains from these violations and to pay a $14,000 penalty for these claims.

The Commission’s pending litigation against the other defendants in this matter is ongoing."

SEC GOES AFER CEOS FOR MICROCAP STOCK PRICE MANIPULATION

The following is an excerpt from the SEC website:

"The Securities and Exchange Commission today charged three CEOs, their companies, and two penny stock promoters with securities fraud for their roles in various schemes to manipulate the volume and price of microcap stocks and illegally generate stock sales. The schemes featured illicit kickbacks, a bribe to a purported corrupt broker, and the creation of a website to deliver e-mail blasts to potential investors.

The SEC worked closely with the U.S. Attorney's Office for the Southern District of Florida and the Federal Bureau of Investigation as the separate schemes were uncovered through an FBI undercover operation. The operation was conducted in such a way that no investors suffered harm. The U.S. Attorney's Office today announced criminal charges against the same individuals facing SEC civil charges.

According to the SEC's complaints filed in U.S. District Court for the Southern District of Florida, most of the schemes involved the payment of kickbacks to a purportedly corrupt pension fund manager, in exchange for the fund's purchase of restricted shares of stock in the various microcap companies. Another scheme involved a bribe that was to be paid to a purported corrupt stockbroker who agreed to use his ability to buy stock in his customers' discretionary accounts to purchase a microcap company's stock in the open market. What the insiders and promoters did not know was that the people with whom they arranged these illegal transactions were actually undercover FBI agents or confidential sources participating in an undercover operation. A final scheme involved a stock promoter who created a website to tout a penny stock company through a volley of e-mail blasts and who posted phony testimonials from fake investors. The defendants reside or are based in South Florida, California, Texas, and Nevada.

These charges follow a series of cases filed in October and December 2010, in which the SEC charged more than fourteen penny stock promoters and their companies with similar stock manipulation schemes.

The SEC alleges that the company officers and a promoter in most of the schemes understood they needed to disguise the kickbacks as payments to phony consulting companies, which they knew would perform no actual work. They also knew the purported corrupt fund trustee would be violating his fiduciary duties to his clients by taking part in the kickbacks. In other instances, they knew that their illegal activities were meant to artificially inflate the companies' stock price.

The SEC's complaints allege the defendants violated Section 17(a) of the Securities Act of 1933, and/or Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. The SEC is seeking permanent injunctions and financial penalties against all the defendants; disgorgement plus prejudgment interest against the defendants who received ill-gotten gains; and penny stock bars against all the individual defendants.

The SEC acknowledges the assistance and cooperation of the United States Attorney's Office for the Southern District of Florida and the Federal Bureau of Investigation, Miami Division in investigating these matters.

SEC Complaint in this matter against Brian Gibson
SEC Complaint in this matter against Douglas Newton and Real American Brands, Inc. n/k/a Real American Capital Corp.
SEC Complaint in this matter against Donald W. Klein and KCM Holdings Corp.
SEC Complaint in this matter against Thomas Schroepfer"

JUDGE ENTERS FINAL JUDGEMENT AGAINST TWO PENNY STOCK PROMOTERS

The following is an excerpt from the SEC website:

"The SEC announced today that on June 24, 2011, the Honorable Judge Richard A. Lazzara, United States District Judge for the Middle District of Florida, entered final judgments against two penny stock promoters, Robert M. Esposito and Gregory A. King, ordering them to pay $19,515,598 and $943,166, respectively, in disgorgement and civil penalties, in a fraudulent touting case the Commission filed on March 17, 2008. SEC v. Esposito, et al., No. 08 CV 494 T26 (M.D. Fla.). See Lit. Rel. No. 20499. The Court had previously entered judgments against Esposito and King permanently enjoining them from violating the anti-fraud and other provisions of the federal securities laws, and barring them from participating in any future penny stock offering. See Lit. Rel. No. 21449 (March 11, 2010).

In this action, the Commission charged that Esposito, King, and others participated in a fraudulent touting scheme of the stock of Anscott Industries, Inc. The complaint alleged that in April 2003, Esposito, a penny stock promoter, orchestrated a reverse merger between Anscott (then a private company) and Liquidix, Inc., a public shell company which, after the merger, changed its name to Anscott. According to the complaint, Esposito received 4 million shares of Anscott stock from the company as compensation for arranging the reverse merger and for future stock promotion work. The complaint further alleged that a fraudulent Form S-8 registration statement was filed with the Commission for the 4 million shares of Anscott issued to Esposito, which improperly enabled Esposito to sell these shares to the public during the fraudulent touting scheme.

As alleged in the complaint, after the reverse merger and the issuance of shares to Esposito, Esposito paid King, another penny stock promoter with whom Esposito had worked previously, to prepare and disseminate materially false and misleading tout sheets promoting Anscott stock. The Commission alleged that these tout sheets -- crafted to appear like independent investment newsletters and entitled the Wall Street Bulletin -- recommended Anscott as a "strong buy," and were disseminated to the public through fax spamming from late May 2003 through July 2003.

According to the complaint, these tout sheets, which King prepared, contained materially false and misleading representations about Anscott's products, business affiliations, and projected revenues. The complaint further alleged that these tout sheets failed to disclose, among other information, that Esposito, who was paid by the company to promote Anscott stock, was paying King to prepare and disseminate these "newsletters," and that Esposito was selling his Anscott stock during the touting scheme contrary to the Wall Street Bulletin's "strong buy" recommendation and price targets.

During the touting campaign, the price of Anscott's stock rose from around $1.40 a share in mid-May 2003, to a high of $4.59 a share on July 11, 2003. The complaint alleged that Esposito sold most of his Anscott stock to the public, realizing millions of dollars in illicit profits.

The Court's final judgment against Esposito orders him to pay disgorgement of $7,691,135, prejudgment interest of $4,133,326, and third tier civil penalty of $7,691,135. The judgment against Esposito also (a) permanently enjoins him from future violations of Sections 17(a), 5(a) and 5(c) of the Securities Act of 1933, Sections 10(b) and 13(d) of the Securities Exchange Act of 1934 and Exchange Act Rules 10b-5, 13d-1 and 13d-2; and (b) permanently bars him from participating in any future penny stock offerings.

The Court's final judgment against King orders him to pay disgorgement of $358,000, prejudgment interest of $227,166, and a third tier civil penalty of $358,000. The judgment against King also (a) permanently enjoins him from future violations of Sections 17(b) of the Securities Act, Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5; and (b) permanently bars him from participating in any future penny stock offerings.

The Court previously entered final judgment against other defendants in this case, Anscott and its CEO, Jack R. Belluscio, on October 27, 2008: (1) permanently enjoining them from future violations of Sections 5(a) and 5(c) of the Securities Act, Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5; (2) permanently barring Belluscio from acting as an officer or director of a public company; (3) ordering Belluscio to pay third tier civil penalties of $240,000; and (4) ordering Anscott to pay third tier civil penalties of $1,200,000. In a related administrative proceeding, on May 7, 2008, the Commission issued an Order revoking the registration of Anscott securities pursuant to Section 12(j) of the Exchange Act. See In the Matter of Anscott Industries, Inc., Release No. 34-57791."

TWO SEATTLE ATTORNEYS CAUGHT UP IN PUMP AND DUMP SECURITIES SCHEME

Selling products that don’t exist is certainly a very creative way to avoid both fixed and variable overhead costs. Of course selling stock in a company that makes products that don’t exist can be incredibly lucrative. The following is an excerpt from the SEC web site which harkens back to the days of the dot.com bubble. Many dot.com companies had soaring stock prices and never developed any kind of revenue stream because there was never any viable product or service to sell.

“The United States Securities and Exchange Commission (“Commission”) announced that on April 11, 2011, the Honorable Richard A. Jones, United States District Court Judge for the Western District of Washington, entered judgments of permanent injunction and other relief against Defendants David M. Otto, Todd Van Siclen, Charles Bingham and Wall Street PR, Inc.
The final judgment against Otto enjoins the Seattle attorney from violating Sections 5 and 17(a) of the Securities Act of 1933 (“Securities Act”), and Sections 10(b) and 16(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5 and 16a-13 promulgated thereunder. In addition to the injunctive relief, the final judgment against Otto orders him to pay $180,000 in civil penalties, $38,610.18 in disgorgement together with $6,751.15 in prejudgment interest and bars him from participating in an offering of penny stock for five years. Otto consented to the entry of the judgment without admitting or denying the allegations in the complaint.
The final judgment against Seattle attorney Van Siclen enjoins him from violating Sections 5 and 17(a)(3) of the Securities Act. In addition to the injunctive relief, the final judgment against Van Siclen orders him to pay $10,000 in civil penalties and bars him from participating in an offering of penny stock for three years. Van Siclen consented to the entry of the judgment without admitting or denying the allegations in the complaint.
The final judgment against Texas stock promoter Bingham and his company Wall Street PR enjoins them from violating Sections 5 and 17(a)(2) and 17(a)(3) of the Securities Act. In addition to the injunctive relief, the final judgment against Bingham orders him to pay $50,000 in civil penalties, $80,153 in disgorgement together with $15,608.43 in prejudgment interest. Bingham and Wall Street PR consented to the entry of the judgments without admitting or denying the allegations in the complaint.
On July 13, 2009, the Commission filed its complaint against the Defendants alleging that they violated the anti-fraud and registration provisions of the federal securities laws by, among other things, conducting a “pump-and-dump” scheme in which the defendants used a false and misleading public relations campaign to tout their client MitoPharm Corporation’s products. In reality, the products did not exist. Otto sold MitoPharm stock at a profit before its stock price plunged after the close of the promotional campaign.
In addition to the relief described above, Otto and Van Siclen each consented to the entry of an order in separate Commission administrative proceedings suspending them, pursuant to Rule 102(e) of the Commission's Rules of Practice, from appearing or practicing as attorneys before the Commission with the right to apply for reinstatement after three years and one year, respectively.”

This case describes some pretty incredible actions taken by officers of the court. Based upon this case and other similar cases, I question what law schools are teaching now days.

SEC SAYS COMPANY DIRECTLY BOUGHT DISCOUNTED SECUITES AND DUMPED THEM ON THE PUBLIC

A few people in the media have been claiming that the securities market is rigged in favor of a few investors who have an inside track with exchanges and companies for the purpose of manipulating markets and swindling the public. If the following alleged crimes took place then this case is one that certainly proves that investing in securities based upon price moves and company information can be very dangerous for small investors. The following details are from the SEC web site:

Washington, D.C., Jan. 6, 2011 — The Securities and Exchange Commission today charged Gendarme Capital Corporation and its two executives with engaging in an illegal stock distribution scheme.

The SEC alleges that Gendarme repeatedly acquired deeply discounted shares from penny stock issuers under the pretense of a long-term investment and then dumped the shares into the market, essentially effecting public stock distributions without complying with the disclosure requirements of the federal securities laws. Through its two principals — CEO Ezat Rahimi of Elk Grove, Calif., and vice president Ian Lamphere of Lawrenceville, Vt. — Gendarme sold more than 15 billion shares of at least a dozen companies, netting illicit profits of more than $1.6 million.

"The federal securities laws are designed to ensure that buyers of stock in the open market have access to information about the companies in which they are investing," said Marc Fagel, Director of the SEC's San Francisco Regional Office. "Gendarme and its executives created a novel, but illegal, business plan to make an end-run around these investor protection laws, supposedly buying billions of shares of penny stock for investment purposes but instead turning around and dumping those shares into the market."
According to the SEC's complaint, filed today in federal district court in Sacramento, Gendarme began entering into agreements with penny stock issuers in early 2008. The agreements gave Gendarme the right to purchase stock at 30 to 50 percent discounts to the market price. The SEC alleges that, in an effort to avoid the registration and disclosure obligations of the federal securities laws, Gendarme falsely represented to issuers that it was purchasing shares for "investment purposes only." Contrary to those representations, Gendarme quickly dumped most of these shares on the public markets, profiting by more than $1.6 million from its unregistered stock distributions.

The SEC also alleges that Gendarme's outside attorney — Cassandra Armento of Greenwich, N.Y. — violated the securities laws by issuing more than 50 false legal opinion letters in support of Gendarme's activities. Armento repeatedly informed stock transfer agents that Gendarme was not an "underwriter" and thus had no intent to sell the stock. Thus, shares could be obtained by Gendarme without trading restrictions. However, the SEC alleges Armento made no inquiry into whether Gendarme intended to resell the stock, and was aware of information showing that it was likely that Gendarme was dumping the stock into the market.

The SEC's complaint charges Gendarme, Rahimi, Lamphere and Armento with violating the registration provisions of the federal securities laws. Against Gendarme, Rahimi, and Lamphere, the SEC seeks injunctive relief, disgorgement of ill-gotten gains, monetary penalties, and an order barring them from participating in an offering of penny stock. The SEC seeks injunctive relief and monetary penalties against Armento.”

The above case concerns low priced stocks however; the same types of shenanigans outlined by the SEC in the above case can happen in the case of any investment. Buying discounted to market priced shares of stock and then directly dumping them in the public market is certainly a reason some people are very rich and others are not.

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.

BROKERS ACCUSED OF HELPING TO SELL PENNY STOCKS UNLAWFULLY

The sale of penny stocks are often looked upon as controversial way to raise capital. Many investors will not purchase stocks that sell for under $10.00 for fear the company may not have the financial ability to survive. However, sometimes a stock may be undervalued by the market and becomes a really good value at really low prices.

Of course anyone with a copy machine can print off stock certificates and anyone with a computer can set up bogus securities to sell to the public. Most people remember all the anecdotal stories of Internet companies being formed and then raising capital on the basis of just an idea with no real business behind the issued securities. This type of behaviour is something the SEC is mandated to investigate.

Because companies who engage in security sales are required to make sure that bogus the securities they sell are legitimate; the SEC brought the following action against Leeb Brokerage Services:


"Washington, D.C., April 27, 2010 — The Securities and Exchange Commission today announced administrative proceedings against five securities professionals accused of facilitating unlawful sales of penny stocks to investors and failing to act as "gatekeepers" as required under the federal securities laws.

The SEC's Division of Enforcement alleges that three registered representatives and two supervisors at Leeb Brokerage Services allowed customers to routinely deliver large blocks of privately obtained shares of penny stocks into their accounts at the firm. The customers would then sell them to the public in transactions that were not registered with the SEC under the securities laws. The accused securities professionals allowed these sales without sufficiently investigating whether they were facilitating illegal underwriting, and they also caused the firm's failure to file Suspicious Activity Reports (SARs) as required under the Bank Secrecy Act to report potential misconduct by their customers.

-"Firms whose customers repeatedly bring in large blocks of microcap securities for sale to the public have an obligation to ensure they are not facilitating wrongdoing," said George S. Canellos, Director of the SEC's New York Regional Office. "Securities professionals who turn a blind eye to suspicious customer conduct are not fulfilling their duties as gatekeepers and risk violating the securities laws themselves."

The SEC's Division of Enforcement alleges that Leeb registered representatives Ronald Bloomfield, John Earl Martin, Sr., and Victor Labi failed to conduct a reasonable inquiry before allowing the public sales of the large blocks of penny stocks in violation of the registration provisions of the federal securities laws. The Enforcement Division further alleges that the firm's president Eugene Miller and its chief compliance officer Robert Gorgia failed to reasonably supervise the conduct of these representatives. All five individuals are accused of aiding and abetting the firm's failure to file SARs. These events occurred between 2005 and 2007. Leeb is no longer in business.

According to the Commission's order instituting administrative proceedings, the Leeb representatives ignored obvious red flags indicating that their customers were violating securities laws by engaging in illegal distributions of securities through their Leeb accounts. One group of customer accounts was affiliated with an individual who had previously been involved in a pump-and-dump scheme, and with a stock promoter who routinely received shares in compensation for promotional services for penny stock companies. The accounts earned more than $20 million in proceeds while repeatedly depositing privately obtained shares and then selling them to the public, raising the constant specter that Leeb was facilitating "scalping." Another Leeb customer wired more than $30 million in penny stock proceeds to a bank in Liechtenstein, a tax haven.

The SEC's Division of Enforcement alleges that despite these and other suspicious activities of their customers, the accused Leeb representatives and supervisors ignored their obligation to report the possible misconduct to authorities. Such disregard of the firm's reporting requirements under the Bank Secrecy Act enabled Leeb's customer activity, and the commissions it generated, to continue unfettered. And the public was exposed to repeated risk of unlawful distributions of penny stocks.

A hearing will be scheduled before an administrative law judge to determine whether the accused individuals committed the alleged violations and provide them an opportunity to defend the allegations. The hearing also will determine what sanctions, if any, are appropriate in the public interest."

The above was quoted from the SEC official web page. The possibility of fraud is great in an unregulated industry and it is good that there are regulations to help protect the public from being victims of heinous crimes. The unfortunate thing is that too many politicians believe that it is alright that people loose their life savings to fraudsters. These politicians believe that stealing from people is just one very legitimate form of capitalism that should be protected from governmental intervention. This form of capitalism only works if the public is allowed to exact vengeance upon fraudsters the same way vengeance was enacted upon horse thieves in the old west. "Horse Thief Capitalism" only works if you have a "Horse Thief Justice System" otherwise, it is important to have strong aggressive governmental institutions to protect the public from fraud and the fraudsters from "Horse Thief Justice".