U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23656 / September 27, 2016
Securities and Exchange Commission v. Jason A. Wallace, Civil Action No. 8:16-cv-01788 (C.D. Cal.)
SEC Charges Former Boiler Room Operator Jason A. Wallace with Participating in a Fraudulent Pump-And-Dump Scheme
The Securities and Exchange Commission today filed a civil injunctive action in the U.S. District Court for the Central District of California against Jason A. Wallace alleging that he violated the antifraud and registration requirements of the federal securities laws as a result of his participating in a fraudulent scheme to artificially inflate the per share price of penny stocks.
The Commission's complaint alleges that in 2010, an owner of penny stocks, James Price, proposed to a stock promoter, Brian Kingsfield, that they engage others to help Price sell his shares. According to the complaint, Kingsfield recruited Wallace, who operated a boiler room through his wholly-owned company, JAW & Associates, Inc., to act as seller's agent on behalf of Price and, subsequently, on behalf of another seller, William Alverson. From September 2010 through January 2012, Wallace, directly and through the JAW cold callers whom he controlled, allegedly solicited buyers to purchase shares of four penny stock companies: Systems America, Inc., PEI Worldwide Holdings, Inc., Sycamore Ventures, Inc., and Healthient, Inc. According to the complaint, Wallace and the JAW cold callers whom he controlled fraudulently induced buyers to buy Price's and Alverson's shares by, among other things, making fantastic per share price predictions and not disclosing that Price and Alverson paid up to a 40% - 50% commission on each sale that JAW coordinated. Wallace also allegedly manipulated the per share price of each security by buying shares through his personal brokerage account. All told, Wallace allegedly induced buyers to purchase a cumulative total of at least 8.3 million shares, generating at least $2.4 million in gross proceeds from which Price and Alverson allegedly paid commissions.
In addition to the foregoing, the complaint also alleges that Wallace engaged in unregistered offers and sales of securities. The complaint further alleges that Wallace acted as an unregistered broker-dealer.
Based on the facts alleged, the Commission charged Wallace with violating Sections 5(a) and (c) and 17(a) of the Securities Act of 1933 and Sections 9(a)(2), 10(b), and 15(a)(1) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint further alleges that Wallace is liable as a control person for JAW's violations of Exchange Act Sections 10(b) and 15(a) and Rule 10b-5. Lastly, the complaint also alleges that Wallace aided and abetted JAW's violations of Securities Act Section 17(a) and Exchange Act Sections 10(b) and 15(a) and Rule 10b-5 and Kingsfield's violations of Securities Act Sections 17(a)(2) and (3) and Exchange Act Section 10(b) and Rules 10b-5(b) and (c). The Commission is seeking to have Wallace permanently enjoined, ordered to pay disgorgement with prejudgment interest and a civil money penalty, and barred from participating in any penny stock offering.
On November 5, 2012, Wallace pleaded guilty in a parallel criminal matter to one count of conspiracy to commit securities fraud in violation of 18 U.S.C. § 371. On April 22, 2016, a judgment of conviction was entered against Wallace. U.S. v. Jason Wallace, SA CR-12-211-JVS (C.D. Cal.).