On March 23, 2016, the Securities and Exchange Commission (SEC) charged Guy Gentile, a resident of Putnam Valley, New York, with perpetrating penny stock manipulation schemes.

The SEC alleges that Gentile, who at the time operated as a registered broker-dealer, engaged in manipulative trading, provided illegal kick-backs, and distributed promotional mailings of glossy “newsletters” with fake publication names like “Stock Trend Report” and “Global Investor Watch,” in order to tout the stocks of purported gold and silver exploration company Raven Gold Corporation (RVNG) and natural gas production company Kentucky USA Energy. The newsletters misled investors with purportedly positive – but fake – price and volume trends for these stocks and other false information about the promoters’ identity, compensation, and control of the stock. Read More

On March 23, 2016, the Securities and Exchange Commission (SEC) announced that the federal court in Boston, Massachusetts entered judgments by consent against Andrew Affa, Michael Affa, Mitchell Brown, Christopher Putnam, and Christopher Nix in a fraud action that was filed in July 2014. The fraud involved an attempt to manipulate shares of Boston, Massachusetts-based Amogear Inc. formerly Kitcher Resources Inc., a custodianship shell controlled by the FBI.

All five defendants were permanently enjoined from violating the securities antifraud statutes and barred from participating in offerings of penny stock.

The SEC’s complaint alleged that defendants knew that Amogear was a shell company without any real operations, but schemed from at least August 2012 to February 2014 to boost the price of its securities and profit by selling their own shares. The planned scheme involved artificially inflating the price of Amogear stock by, among other things:

•  issuing news releases and/or promotional materials containing false or exaggerated information,
• generating mass emails containing false or exaggerated information; and
• engaging in undisclosed coordinated trading of the stock, all designed to generate the appearance of demand for the stock and to increase the price of the stock.

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The Securities and Exchange Commission (SEC) announced on March 23, 2016 that a federal court has ordered a nearly $2 million judgment from an attorney who admitted to defrauding investors in two fraudulent schemes. The Honorable John McBryde, District Judge of the United States District Court for the Northern District of Texas, entered a final judgment on March 22, 2016 against Southlake, Texas attorney Gregory Jones. The final judgment orders Jones to disgorge $1,125,000, plus prejudgment interest of $51,534, and to pay a civil penalty of $600,000.

Jones admitted in 2015 to raising approximately $645,000 by selling securities issued by Aquaphex Total Water Solutions, LLC, a company he controlled that purported to recycle fracking water through a filtration process. Jones provided investors with fraudulent offering documents stating that Aquaphex’s principals had invested $2 million in the company when they had not put any cash into the company. Jones’s offering documents also misrepresented that Aquaphex was expected “to be acquired by an oil services company within five years at a projected value of $21B,” that projected investment returns would exceed 115 percent per year, and that investors were guaranteed to at least double their investment within five years. Read More

The Securities and Exchange Commission (SEC) announced on March 21, 2016 that on March 15, 2016, the Honorable Leigh Martin May of the United States District Court for the Northern District of Georgia entered a final judgment against defendant Bruce Strebinger. The final judgment imposes on Strebinger a permanent injunction against future violations of certain antifraud and reporting provisions of the federal securities laws, imposes a penny stock bar and orders that he pay disgorgement in the amount of $1,515,640.

In its Complaint, the SEC alleged that after Strebinger facilitated a reverse merger between shell company Americas Energy Company and a private start-up company in Knoxville, Tennessee, he and Brent Chapman each acquired substantial positions of over 5% of the common stock without publicly disclosing their beneficial ownership stake as required under the federal securities laws. Read More

The Securities and Exchange Commission (SEC) announced on March 18, 2016 that former Microsoft Corporation senior manager, John Hardy III has agreed to pay nearly $380,000 to settle charges that he traded on material nonpublic information about Microsoft’s acquisition of Nokia Corporation’s mobile phone business and Microsoft’s year-end 2013 earnings release.

In its insider trading complaint filed in federal district court in Seattle, the SEC alleges that Hardy, who worked in Microsoft’s corporate financial planning and analysis group, purchased Microsoft put options after learning from highly confidential internal Microsoft documents, including a draft presentation to Microsoft’s board of directors, that the company’s fiscal-year 2013 financial results would not meet Wall Street analysts’ expectations. Read More

On March 16, 2016, the Court for the Southern District of New York entered a final judgment against defendant Yue Han, based on insider trading charges filed by the Securities and Exchange Commission (SEC) against Han on November 24, 2015.

The SEC’s Complaint alleges that Han, who worked as an associate in Goldman Sachs’ compliance department, traded on confidential information contained in e-mails sent and received by Goldman Sachs’ employees who advised investment banking clients on impending merger and acquisition transactions. According to the SEC’s Complaint, Han gained access to the e-mails as part of his work developing surveillance software to monitor other employees for potential misconduct, including insider trading, and used this access to generate over $460,000 in illicit earnings. Read More

On March 15, 2016, the Securities and Exchange Commission (SEC) charged former Boston resident Mark Jones with operating a $10 million Ponzi scheme that claimed to generate profits from “bridge loans” to businesses in Jamaica.

The SEC complaint charges Jones, who now lives in Miami and has a second home in Jamaica. Jones was arrested by the FBI and the U.S. Attorney for the District of Massachusetts filed related criminal charges against him. Read More

The Securities and Exchange Commission (SEC) charged a microcap company CEO for falsely claiming to have a lucrative relationship with the United Nations and billions of dollars in clean energy contracts with foreign governments.

The SEC alleges that RVPlus Inc. CEO Cary Lee Peterson made bogus claims in the company’s public filings and in statements to private investors, and that he and RVPlus participated in an unlawful distribution of RVPlus’s stock. The SEC temporarily suspended trading in RVPlus securities in July 2013, citing “material deficiencies” in the company’s financial statements. Read More

On March 14, 2016 the Securities and Exchange Commission (SEC) announced that on March 3, 2016, Daniel Thibeault, the President/CEO of a group of Massachusetts-based investment advisory companies, pled guilty to criminal charges in connection with the misappropriation of more than $15 million from an investment fund. The criminal charges against Thibeault arose out of the same fraudulent conduct alleged by the SEC in a civil securities fraud action filed against Thibeault and others in January 2015. Thibeault plead guilty to charges of securities fraud for the scheme to use fund money to issue fictitious loans, and obstruction of justice for Thibeault’s numerous false statements to SEC staff during the SEC’s investigation of this fraud. Read More

On March 11, 2016 the Securities and Exchange Commission (SEC) announced fraud charges against California businessman Daniel Nase, accusing him of stealing investor assets and then trying to cover it up once the SEC caught onto his scheme.

The SEC alleges that Nase, through his real estate company BIC Real Estate Development Corporation, stole money from investors in an unregistered offering of BIC common stock, using funds for such personal expenses as student loans, clothes, and vacations. Read More

The U.S. Securities and Exchange Commission (SEC) announced on March 11, 2016 that a federal grand jury in Manhattan has indicted Bulgarian resident Nedko Nedev for fraud relating to the stocks of Avon Products, Inc., Tower Group International, Ltd., and Rocky Mountain Chocolate Factory, Inc. Nedev was arrested yesterday in Bulgaria in connection with the criminal charges.

According to the SEC’s complaint, Nedev devised and carried out a scheme to manipulate the public market for the stocks of Avon and Rocky Mountain Chocolate Factory, to enrich himself, and to mitigate trading losses. The indictment also alleges that Nedev carried out a fraudulent scheme to profit from trading in Tower Group stock. Read More

On March 11, 2016 the Securities and Exchange Commission (SEC) charged an Oregon-based investment group and three top executives with hiding the rapidly deteriorating financial condition of its enterprise while raising more than $350 million from investors. Aequitas Management LLC and four affiliates allegedly defrauded more than 1,500 investors nationwide into believing they were making health care, education, and transportation-related investments when their money was really being used in a last-ditch effort to save the firm. Some money from new investors was allegedly used to pay earlier investors in Ponzi-like fashion.

The SEC’s complaint, filed in federal district court in Oregon, alleges that CEO Robert Jesenik and executive vice president Brian Oliver were well aware of Aequitas’s calamitous financial condition yet continued to solicit millions of dollars from investors to pay the firm’s ever-increasing expenses and attempt to stave off the impending collapse. Former CFO and chief operating officer Scott Gillis allegedly concealed the firm’s insolvency from investors and was aware that Jesenik and Oliver continued soliciting investors so that Aequitas could pay operating expenses and repay earlier investors with money from new investors. Read More

Issuers are sometimes unaware of the state laws that apply to offerings that are exempt under the federal securities laws. The purchase or sale of a security be subject to a registration statement under the Securities Act of 1933 (the “Securities Act”) or exempt from registration. An exemption at the federal level does not eliminate the obligation to comply with state blue sky laws in all circumstances. Federal preemption depends upon the exemption relied upon.

The most common exemptions from registration under the Securities Act are found in Regulation D which provides three separate exemptions: Rules 504, 505, and 506. The exemption relied upon by an issuer will depend on several factors including the amount of capital the issuer wishes to raise and whether it can raise from accredited investors, which is defined in Rule 501 of Regulation D. Generally, an accredited investor is an investor with a net worth of at least $1 million, not including their primary residence, or an investor with income of at least $200,000 in annual income for the two prior years or $300,000 with their spouse.  Securities sold pursuant to Regulation D are restricted and thus cannot be resold by the investor without registration or a resale exemption from registration such as the “safe harbor” of Rule 144.  Read More

The Securities and Exchange Commission (SEC) announced that Uni-Pixel Inc., developer of technologies for touchscreen devices, has agreed to pay $750,000 to settle charges that it misled investors about the production status and sales agreements for a key product.

Two former company executives face related charges in an SEC complaint filed today in U.S. District Court for the Southern District of Texas. The SEC entered into a deferred prosecution agreement with the company’s former chairman of the board, who has agreed to cooperate and be barred from serving as an officer and director for five years.

The SEC alleges that Uni-Pixel began publicly touting sales of a touchscreen sensor product supposedly in speedy high-volume commercial production when in fact only a few samples had been manually completed. Read More

On March 9, 2016 the Securities and Exchange Commission (SEC) announced that a Florida man trading on inside information ahead of a pharmaceutical company merger and a friend who tipped him have agreed to settle enforcement actions against them.

Jay Fung, of Delray Beach, Florida, has agreed to pay back more than $700,000 in illegal profits plus more than $60,000 in interest earned after allegedly purchasing stock and call options in Pharmasset Inc. based on his friend’s tip that it was about to be acquired. The SEC alleges that Fung cashed in when Pharmasset’s stock rose 84% after its acquisition by Gilead Sciences was publicly announced, and he paid kickbacks to his friend who provided the nonpublic information. Read More

On March 4, 2016, the Honorable James C. Mahan, United States District Judge for the District of Nevada, entered an order denying a motion for reconsideration of the final judgment filed by relief defendants June Fujinaga and her trust, The Yunju Trust. In so ruling, the court rejected Mrs. Fujinaga’s and the trust’s argument that they have a legitimate claim to $2,333,382 in illicit earnings, and found that reconsideration would unduly frustrate and delay investors’ ability to recoup lost money. While the court’s ruling allowed for a $50,000 clerical adjustment to the disgorgement obligation in the final judgment against Mrs. Fujinaga and her trust to correct an undisputed calculation error, it affirmed their liability for disgorgement. Read More

The SEC filed a complaint in 2013 against Banc de Binary Ltd, its founder Oren Shabat Laurent, and three affiliates that operate an Internet-based based trading platform for “binary options.” One of these websites is www.bbinary.com.

The SEC’s complaint, filed on June 5, 2013 alleges that Banc de Binary Ltd and its co-defendants offered and sold binary options to investors across the U.S. without first registering the securities as required under the federal securities laws. The SEC’s second amended complaint also alleges that the defendants broadly solicited U.S. customers by advertising through YouTube videos, spam e-mails, and other Internet-based advertising; and their representatives communicated with investors directly by phone, e-mail, and instant messenger chats. Read More

On March 7, 2016 the Securities and Exchange Commission (SEC) charged a Rhode Island agency and its bond underwriter Wells Fargo Securities with defrauding investors in a municipal bond offering to finance startup video game company 38 Studios.

The Rhode Island Economic Development Corporation (RIEDC, now called the Rhode Island Commerce Corporation) issued $75 million in bonds for the 38 Studios project as part of a state government program intended to spur economic development and increase employment opportunities by loaning bond proceeds to private companies. Read More

The Securities and Exchange Commission (SEC) has obtained a jury verdict in its favor in a federal district court trial in Manhattan against Daryl Payton and Benjamin Durant, III, who the agency charged with trading on inside information ahead of a $1.2 billion acquisition of SPSS Inc. in 2009 by IBM Corporation.

In its complaint, filed in federal court in the Southern District of New York, the SEC alleged that Payton and Durant illegally traded on a tip about the acquisition from Thomas Conradt, a friend and fellow broker in the New York office of a Connecticut-based brokerage firm, who had received the information from his roommate and friend, Trent Martin. Read More

The Securities and Exchange Commission (SEC) announced that on March 1, 2016, the Honorable Richard J. Sullivan of the United States District Court for the Southern District of New York entered final judgments on consent against defendants Zachary Zwerko and David Post. The final judgment entered against Zwerko imposes a permanent injunction against future violations of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder, and orders that Zwerko’s obligation to pay disgorgement of $57,000 be offset by the criminal forfeiture judgment imposed against him. The final judgment against Post imposes a permanent injunction against future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and orders that Post’s obligation to pay disgorgement of $683,967 be offset by the criminal forfeiture judgment imposed against him.

In its Amended Complaint filed on October 24, 2014, the SEC alleged that Zwerko and Post orchestrated an insider trading scheme that generated over $683,000 by purchasing securities in Post’s trading accounts based upon confidential information Zwerko tipped about his employer’s pharmaceutical acquisition targets. According to the Amended Complaint, Post and his friend, Zachary Zwerko, used prepaid “burner” cell phones to exchange coded text messages in advance of Post’s trading. Read More

On February 26, 2016 the U.S. District Court for the Eastern District of Pennsylvania issued a memorandum opinion and final judgment against Nan Huang, who a jury found liable last month for insider trading on information he improperly obtained from his employer Capital One Financial Corporation.

The court imposed on Huang permanent injunctive relief and ordered payment of $4,403,545 in disgorgement, $288,965 in prejudgment interest, and an $8,807,090 penalty for a total of $13.5 million.

According to court documents, Huang worked as a data analyst in Capital One’s fraud department when he searched a nonpublic company database that recorded the credit card activity for millions of customers at numerous, predominantly consumer retail corporations. Read More

The Securities and Exchange Commission (SEC) announced that on February 24, 2016, the Honorable Valerie E. Caproni of the United States District Court for the Southern District of New York entered a judgment against defendant Francis Canellas. The judgment resolves all issues of liability against Canellas arising from the SEC’s filing of a civil complaint against him on March 6, 2014. The judgment imposes on Canellas a permanent injunction against future violations of certain antifraud provisions of the federal securities laws.

In its Complaint, the SEC alleged that in 2008 and 2009, Canellas, the Finance Director of Dewey & LeBoeuf, LLP, an international law firm, in conjunction with other employees and officers of the firm, devised a scheme, and directed his staff, to materially falsify the firm’s financial statements in order to meet certain covenants with its lenders. Read More

The Honorable Michael A. Shipp, United States District Judge for the District of New Jersey, has entered a partial final consent judgment against defendant Paul Petrello, one of four individuals charged with engaging in an elaborate insider trading scheme involving the misappropriation of confidential information about secondary stock offerings and also illegally trading ahead of the announcement of a licensing agreement between two large pharmaceutical companies. The SEC’s complaint alleges that the scheme involved at least 15 stocks and generated a total of more than $4.4 million in illegal trading profits for the group.

The SEC’s complaint was filed on June 3, 2015 and charges California resident Steven Fishoff, his brother-in-law Steven Costantin of New Jersey, Fishoff’s friend and California neighbor Ronald Chernin, and Florida resident Paul Petrello, a friend and former day trading associate of Fishoff, as well as various entities they used to perpetrate the scheme. According to the SEC’s complaint, Fishoff, Chernin and Costantin posed as legitimate portfolio managers in order to induce investment bankers to bring them “over the wall” and share confidential information about upcoming secondary stock offerings. After agreeing with the bankers that they would neither disclose the confidential offering information nor trade in the issuers’ stock before the offerings were announced, they violated those agreements by tipping each other about the upcoming offerings and shorting the stocks before the offerings were announced. Read More

The Securities and Exchange Commission (SEC) charged Nathan Halsey and TexStar Oil, Ltd. in the United States District Court for the Northern District of Texas, with fraudulently offering securities through misleading investment materials and keeping funds from investors who believed they were investing in an entirely separate company.

The SEC’s complaint, filed in the U.S. District Court for the Northern District of Texan on February 17, 2016, alleges:

• TexStar and its founder and CEO Halsey raised at least $1.1 million from investors in China and Southeast Asia in fraudulent securities transactions and distributed false promotional materials in an effort to raise more funds.
• These false promotional materials described a successful, asset-rich company that held no profitable oil-and-gas assets, never drilled or produced any wells, and never generated investor returns.
• Halsey invited Chinese investors to Texas, showed them an operating oil well owned by another company, raised funds for an alleged investment in that well, and then kept that money for TexStar, without telling investors.

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The Securities and Exchange Commission (SEC) announced that on February 17, 2016, Judge Vincent L. Briccetti of the United States District Court for the Southern District of New York entered final judgments against Defendants Scott Valente and his company, The ELIV Group, LLC. The final judgments enjoin defendants from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. Valente’s judgment further finds Valente liable for disgorgement of $8,200,579.69, and deems that amount satisfied by the criminal restitution order entered against Valente in the United States of America v. Scott Valente, No. 1:15-CR-124 (GLS) (N.D.N.Y.) (“Criminal Proceeding”).

In its complaint filed on June 3, 2014, the SEC alleged that Valente and The ELIV Group fraudulently raised more than $8 million from approximately 80 clients by falsely claiming they achieved consistent and outsized positive returns, among other misrepresentations. Read More

On February 18, 2016 the Securities and Exchange Commission (SEC) filed fraud charges against nine defendants for taking part in an international scheme to execute profitable securities trades based on nonpublic information that computer hackers stole from at least two newswire services. In August 2015, the SEC charged 34 defendants in connection with this same scheme. The SEC alleges that hackers hacked into newswire services to obtain the highly-valuable corporate information and then passed it to others who used the information to execute trades and generated more than $100 million in illegal profits. The nine defendants charged include five Russian nationals and four entities they controlled that engaged in the illegal trading.

The SEC’s fraud complaint was filed in U.S. District Court in Newark, New Jersey, and the court entered an asset freeze and other preliminary relief against the nine new defendants. Read More

The Securities and Exchange Commission (SEC) announced that, on February 17, 2016, Judge Nancy Edmunds of the U.S. District Court for the Eastern District of Michigan entered final judgments, on the consents of defendants Randy Hamdan and Oracle Consultants, LLC, which permanently enjoin them from violating the antifraud provisions of the federal securities laws and order them to jointly and severally pay $185,181 in disgorgement with prejudgment interest and civil penalties. These final judgments fully resolve the enforcement action before Judge Edmunds. Read More

On February 16, 2016, the Securities and Exchange Commission (SEC) charged PV Enterprises, Inc. (“PVEC”) and Panagiotis Villiotis (“Villiotis”) with violations of the registration and antifraud provisions of the federal securities laws. The SEC also charged Virtual Sourcing, Inc. (“Virtual”), Norman Birmingham (“Birmingham”), Mario Faraone (“Faraone”) and Sweet Challenge LLC (“Sweet Challenge”) with violations of the registration provisions of the federal securities laws.

PVEC and Virtual are both microcap stock companies who entered into business transactions with a specific Financing Company in Miami, which resulted in the companies issuing millions of shares of their companies’ stock to the Financing Company in purported reliance on an exemption from registration which exempts securities issued in court-approved exchanges for “bona fide outstanding securities, claims or property interests.” Read More

On February 12, 2016, a federal court in Boston, Massachusetts sentenced Michael Affa, of Toms Rivers, New Jersey, to 33 months in prison and ordered him to pay a fine of $1 million in a criminal case prosecuted by the Massachusetts U.S. Attorney’s Office. Affa previously pleaded guilty to conspiracy, securities fraud and wire fraud in September 2015.

The SEC previously charged Michael Affa, Andrew Affa, Mitchell Brown, Christopher Putnam, and Christopher Nix with fraud in an action filed in July 2014. The alleged fraud involved an attempt to manipulate shares of Boston, Massachusetts-based Amogear Inc. that was caught by an FBI undercover operation. In that action, the SEC alleged that defendants knew that Amogear was a shell company without any real operations, but schemed from at least August 2012 to February 2014 to boost the price of its securities and profit by selling their own shares. Read More

The Securities and Exchange Commission (“SEC”) says it doesn’t like over-the-counter shell companies, and would like to see them gone from the marketplace.  To that end, its Enforcement Division cooked up an initiative it called  “Operation Shell-Expel”.  It began with a bang on May 14, 2012, when the agency coupled an announcement of Shell-Expel with the suspension of trading in the stock of 379 dormant penny companies.  It was, the SEC said, the largest such action in agency history.  What danger did these sorry companies present and if they are so dangerous why are there so many dormant shell companies still out there being fraudulently taken over?

The existence of empty shell companies can be a financial boon to stock manipulators who will pay as much as $750,000 to assume control of the company in order to pump and dump the stock for illegal proceeds to the detriment of investors. But with this trading suspension’s obligation to provide updated financial information, these shell companies have been rendered essentially worthless and useless to scam artists.

The shells were “rendered essentially worthless” because the suspension meant they’d be delisted to the Grey Market, the graveyard of bad pennies, in which market makers are forbidden to publish quotes.

Critics of rampant abuse in the OTC market cheered the SEC on, hoping Operation Shell-Expel signaled a new, and far less tolerant, attitude toward dormant shells that were often serially pumped and dumped.  The following June, the agency suspended trading in another 61 issuers, and in February 2014, it followed up by shutting down another 255 shells.  The hammer came down on 128 more in March 2015.  There’s been no similar action in 2016.  At the time of the 2015 suspensions, Enforcement director Andrew J. Ceresney remarked, “We are getting increasingly aggressive and adept at ridding the microcap marketplace of dormant shells within a year of the companies becoming inactive.”  Many market participants see the SEC’s failure to pursue corporate hijackers of dormant shells as one of the greatest enforcement failures of the penny stock markets in the last decade. We have identified hundreds of hijacked tickers and/or companies involving penny stocks with minimal effort yet these companies are illegally acquired and have been used in schemes robbing investors of millions of dollars and eliminating existing stockholders of their holdings.
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