SEC Charges Stock-Based Lender With Selling Billions of Penny Stock Shares as Unregistered Broker-Dealer
The Securities and Exchange Commission today charged a Chicago-area company that provides stock loans using equities as collateral, its two co-founders, and its former chief operating officer with selling more than nine billion shares of penny stocks through purported stock-based loans, block trades, and other transactions without registering with the SEC as a broker-dealer as required under the federal securities laws.
International Capital Group (ICG) and the executives agreed to collectively pay more than $4.3 million to settle the SEC’s charges.
“By selling billions of shares of penny stock without registering with the SEC, ICG and its principals subverted core protections provided to investors by the broker-dealer registration provisions,” said David Glockner, Director of the SEC’s Chicago Regional Office.
According to the SEC’s order instituting a settled administrative proceeding against ICG, its co-founders Brian R. Nord and Larry Russell Jr., and its former COO Todd J. Bergeron, ICG presented itself as a stock-based lender. ICG systematically sold stock obtained as collateral for at least 149 stock-based loans, but failed to register with the SEC as a broker-dealer. On average, ICG began selling the collateral shares it received through each loan three days before closing and funding the loan, and completed the sale of all remaining shares within two weeks of receiving the stock. In many instances, ICG did not provide money to the customer until the stock had been sold in an amount sufficient to fund the loan. On several occasions, ICG also violated the securities registration provisions by distributing unregistered stock that it acquired from issuers or their affiliates. Nord, Russell, and Bergeron directed, authorized, or participated in these transactions.
The SEC’s order finds that ICG violated Section 5 of the Securities Act of 1933 and Section 15(a) of the Securities Exchange Act of 1934. The order finds that Nord, Russell, and Bergeron violated Section 5 of the Securities Act and aided and abetted and caused ICG’s violations of Section 5 of the Securities Act and Section 15(a) of the Exchange Act. Without admitting or denying the findings, they agreed to cease and desist from committing or causing violations of these provisions. ICG, Nord, and Russell must pay $1,670,054 in disgorgement and prejudgment interest as well as penalties of $1.5 million, $300,000, and $250,000 respectively. They are barred from the securities industry and penny stock offerings for five years. Bergeron must pay $417,514 in disgorgement and prejudgment interest and a penalty of $150,000, and he is barred from the securities industry and penny stock offerings for three years.
The SEC’s investigation was conducted by Paul M. G. Helms and Jonathan I. Katz and supervised by Kathryn A. Pyszka in the Chicago Regional Office.