Securities Fraud and Mismanagement Litigation, and FINRA Arbitration Lawyer, Russell L. Forkey, Esq.
SEC v. Brian Gibson, Civil Action No. 0:11-cv-61458-WPD (U.S. District Court for the Southern District of Florida)
SEC v. Douglas Newton and Real American Brands, Inc., n/k/a Real American Capital Corp., Civil Action No. 0:11-cv-61455-WJZ (U.S. District Court for the Southern District of Florida)
SEC v. Donald W. Klein and KCM Holdings Corp. Civil Action No. 0:11-cv-61457 (U.S. District Court for the Southern District of Florida)
SEC v. Thomas Schroepfer a/k/a Thomas Schroepfer Baetsen, Charles Fuentes, and Smokefree Innotec, Inc., Civil Action No. 0:11-cv-61454 (U.S. District Court for the Southern District of Florida)
The Securities and Exchange Commission recently announced that it 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 followed 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.
If you would like to review copies of any of the complaints filed by the SEC, please follow the appropriated highlighted link.