Washington, DC, June 30, 2011 – The Securities and Exchange Commission today filed securities fraud charges against several CEOs, their companies, and two penny stock promoters alleging they used kickbacks, a bribe and blast e-mails to manipulate trading in microcap stocks.
The schemes were brought to light by an undercover operation by the Federal Bureau of Investigation, conducted in a way so that investors were not harmed. The SEC worked closely with the U.S. Attorney’s Office for the Southern District of Florida and the FBI on the investigation, and the U.S. Attorney’s Office announced parallel criminal charges Thursday against the same individuals named in the SEC’s civil lawsuits.
According to the SEC’s complaints, filed in U.S. District Court for the Southern District of Florida, most of the schemes involved kickbacks to a purportedly corrupt pension fund trustee in exchange for having the fund buy stock in microcap companies. Another scheme involved a bribe that was to be paid to a purportedly corrupt broker who agreed to buy microcap shares on behalf of investors with discretionary accounts. 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.
What the insiders and promoters did not know was that the people who were counterparties to the illegal transactions were actually undercover FBI agents or confidential sources participating in an undercover operation. The latest charges follow a series of cases filed in October and December 2010, in which the SEC sued more than a dozen companies and penny stock promoters with similar stock manipulation schemes.
“Investors deserve better than secret investment strategies based on kickbacks and bribes,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “As our charges make clear, these CEOs got more than they bargained for but exactly what they deserved for making illicit payments to manipulate microcap stocks.”
Eric I. Bustillo, Director of the SEC’s Miami Regional Office, added, “The defendants charged today were intent on making profits for themselves while defrauding others. The SEC will continue to aggressively pursue those who engage in microcap stock fraud schemes.”
Named in the SEC’s complaints are:
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. The SEC alleges the individuals also knew that the purportedly corrupt fund trustee would be violating his fiduciary duty to his client by taking a kickback. 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 fines against all the defendants; disgorgement plus interest against the defendants who received ill-gotten gains; and penny stock bars against all the individual defendants.
Trisha D. Sindler, Michelle I. Bougdanos, and Chedly C. Dumornay investigated the case, and James M. Carlson is litigating the actions; all are with the SEC’s Miami Regional Office The SEC acknowledges the assistance and cooperation of the U.S. Attorney’s Office for the Southern District of Florida and the Federal Bureau of Investigation, Miami Division, in investigating these matters.
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For more information on microcap stock fraud, visit http://www.sec.gov/investor/pubs/microcapstock.htm
For more information about this enforcement action, contact:
Eric I. Bustillo, Regional Director
Glenn S. Gordon, Associate Regional Director
James M. Carlson, Senior Trial Counsel
SEC’s Miami Regional Office