South Florida Microcap and Penny Stock Fraud and Investment Loss FINRA Arbitration and Litigation Attorney:

The Securities and Exchange Commission (“Commission”) recently announced that it charged two microcap companies, their CEOs, and one penny stock promoter for spearheading illegal kickback schemes. The Commission also charged two other microcap companies, their CEOs, and four other promoters with arranging the payment of bribes to hype the companies in which they had a stake in order to create a false sense of market activity and illegally generate stock sales.

The Commission’s complaints recently filed in U.S. District Court for the Southern District of Florida charged the following penny stock companies and officers:

  • Health Sciences Group (HESG) formerly based in Indian Harbour, Fla., and now based in Newport Beach, Calif.
    • President and CEO Thomas Gaffney of Satellite Beach, Fla.
  • Nationwide Pharmassist Corp. based in Boca Raton, Fla.
    • CEO and Chairman Stephen F. Molinari of Boca Raton, Fla.
  • Redfin Network (RFNN) based in Fort Lauderdale, Fla.
    • President and CEO Jeffrey L. Schultz of Fort Lauderdale, Fla.
  • VHGI Holdings (VHGI) based in Fort Worth, Texas
    • CEO Douglas P. Martin of Wellington, Fla.

The SEC’s complaints charge the following penny stock promoters:

  • Mark Balbirer of Pompano Beach, Fla.
  • Jack Freedman of Fort Lauderdale, Fla.
  • Richard P. Greene of Davie, Fla.
  • Peter Santamaria of Coconut Creek, Fla.
  • Sheldon R. Simon of Palm Beach Gardens, Fla.

According to the Commission’s complaints, one of the schemes (Health Sciences Group/Gaffney) involved an arrangement to pay an undisclosed kickback to a pension fund manager in exchange for the fund’s purchase of restricted shares of stock in the company. Two other schemes (Nationwide PharmAssist/Molinari and Balbirer) involved agreements to pay undisclosed kickbacks to hedge fund principals in return for their funds’ purchase of restricted shares.

The Commission’s complaints allege that other schemes involved the arrangement of inducement payments by officers or promoters of penny stock companies to coordinate the manipulation of their stock. Those who arranged the payment of bribes to create fictitious market movement were Redfin Network/Schultz, VHGI/Martin, and promoters Greene, Santamaria, and Simon. In his scheme, Freedman arranged to pay an undisclosed bribe to a stockbroker who agreed to purchase a microcap company’s stock in the open market for his customers’ discretionary accounts.

The SEC’s complaints allege that the companies, officers, and promoters violated Section 17(a)(1) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and/or 10b-5(c). The SEC seeks financial penalties, disgorgement of ill-gotten gains plus prejudgment interest, and permanent injunctions. The SEC also seeks penny stock bars against each of the officers and promoters, and officer-and-director bars against Gaffney, Martin, Molinari, and Schultz.

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At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.