SEC Announces Latest Charges in Joint Law Enforcement Effort Uncovering Penny Stock Schemes
The Securities and Exchange Commission today announced the latest in a series of cases against microcap companies, officers, and promoters arising out of a joint law enforcement investigation to unearth penny stock schemes with roots in South Florida.
In complaints filed in federal court in Miami, the SEC charged five penny stock promoters with conducting various manipulation schemes involving undisclosed payments to induce purchases of a microcap stock to generate the false appearance of market interest. The SEC also charged a Massachusetts-based microcap company and the CEO with orchestrating a pair of illicit kickback schemes and an insider trading scheme involving the company’s stock. A stock promoter in Texas is charged for his role in the insider trading scheme.
“These stock promoters employed a menu of schemes, tricks, and deceits in their pursuit of unearned money at the expense of other investors,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office. “Their bold misconduct highlights the continuing need for law enforcement action to aggressively root out microcap fraud.”
The SEC has now charged 48 individuals and 25 companies in this series of penny stock investigations out of the agency’s Miami Regional Office, which has worked closely with the U.S. Attorney’s Office for the Southern District of Florida and the Federal Bureau of Investigation. The first of the joint enforcement actions was announced in October 2010.
The U.S. Attorney’s Office for the Southern District of Florida today announced criminal charges against many of the same individuals charged today by the SEC.
According to the SEC’s complaint against Boca Raton, Fla.-based stock promoters Kevin McKnight and Stephen C. Bauer, they engaged in market manipulation fraud involving the penny stock of Environmental Infrastructure Holdings Corp. (EIHC). They generated the appearance of market interest in EIHC to induce investors to purchase the stock and artificially increase the trading price and volume. In a separate complaint against Jeffrey M. Berkowitz of Jupiter, Fla., the SEC alleges that he participated in a market manipulation scheme involving the stock of Face Up Entertainment Group (FUEG) and similarly worked to falsely generate the appearance of market interest in that stock. The SEC’s complaint against Eric S. Brown of Brooklyn, N.Y., alleges that he engaged in a pair of market manipulation schemes involving the stock of International Development & Environmental Holdings Corp. (IDEH) and DAM Holdings Inc. (DAMH), the latter of which is now known as Premier Beverage Group Corp. (PBGC). And according to an SEC complaint against Boca Raton, Fla.-based stock promoter Richard A. Altomare, he engaged in market manipulation scheme involving the stock of Sunset Brands Inc. (SSBN).
The SEC alleges in a separate complaint that North Andover, Mass.-based Urban AG Corp. (AQUM) and its president and CEO Billy V. Ray Jr. of Cumming, Ga., schemed to make an undisclosed kickback payment to a hedge fund manager in exchange for the fund’s purchase of restricted shares of stock in the company. In a separate kickback scheme, Ray made an inducement payment to a stock promoter who would purchase shares of Urban on the open market ahead of planned press releases to help him manipulate the stock. Meanwhile, stock promoter Wade Clark participated in Ray’s insider trading scheme involving Urban stock by providing the hedge fund fiduciary with an advance copy of a press release containing material nonpublic information about the company so the hedge fund manager would purchase stock prior to the news being issued.
The SEC’s complaints allege that Altomare, Bauer, Berkowitz, Brown, Clark, McKnight, Ray, and Urban AG Corp. violated Section 17(a)(1) of the Securities Act of 1933 and/or Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and 10b-5(c). The SEC is seeking financial penalties, disgorgement of ill-gotten gains plus prejudgment interest, and permanent injunctions. The SEC also seeks penny stock bars against all of the individuals charged in these cases as well as an officer-and-director bar against Ray.
The SEC’s investigations have been conducted by Michelle I. Bougdanos, Trisha D. Sindler, and Amy L. Weber under the supervision of Chedly C. Dumornay in the Miami Regional Office. The SEC’s litigation of these complaints will be led by James Carlson, Patrick R. Costello, Russell Koonin, and Andrew Schiff. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of Florida and the Miami division of the Federal Bureau of Investigation.