U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23953 / September 29, 2017
Securities and Exchange Commission v. Jason McDiarmid, et al., No.17-civ-07201 (C.D. Cal. filed Sept. 29, 2017)
SEC Charges Microcap Company and its Promoters in Pump-and-Dump Market Manipulation Scheme
The Securities and Exchange Commission today announced fraud charges against Jason McDiarmid, Kenneth George Cedric Telford, and Stop Sleep Go, Inc. (formerly known as Interactive Multi-Media Auction Corp) (IMMA), for their involvement in a pump-and-dump scheme affecting IMMA's stock.
According to the complaint, McDiarmid and Telford incorporated IMMA and took it public through a 2013 Form S-1 registration statement, registering a public offering of the company's common stock by selling shareholders, including two of McDiarmid's and Telford's nominees. IMMA's Form S-1 and its amendments allegedly falsely claimed that IMMA's chief executive officer, McDiarmid's friend who had no corporate experience, ran the company, when in fact it was secretly run by McDiarmid and Telford. The complaint also alleges that the S-1s also included lies that certain selling stockholders purchased their shares in IMMA through private placements, which were sham transactions. The complaint also alleges that, after learning that the SEC had subpoenaed testimony from the sister of IMMA's CEO, who was one of the parties in the sham transactions, McDiarmid suggested a "script" for her testimony, which included false information about her relationship with Telford.
The complaint further alleges that once the Form S-1 went effective, McDiarmid repeated these lies, along with others, to a market maker for IMMA's stock, who included them in its successful application to obtain clearance from FINRA to quote IMMA's stock, which was needed for the company to be publicly traded.
According to the complaint, McDiarmid and Telford opened brokerage accounts in the names of nominees in order to sell their stock and, when they deposited IMMA shares into the accounts, they lied about how much stock they owned, how they obtained it, and the relationship of the nominees to them. McDiarmid and Telford also prepared IMMA's periodic filings made with the SEC, which largely repeated the same lies in the Forms S-1. The complaint further alleges that McDiarmid and Telford organized and implemented a promotional campaign, including email blasts and a boiler room that targeted senior citizens. IMMA's stock price increased, from $0.93 per share on September 30, 2014 to $1.62 per share on May 1, 2015, during which time McDiarmid and Telford dumped their shares through the nominees, earning them net illegal profits of about $3.1 million.
The SEC's complaint charges McDiarmid and Telford with violating Section 5(a) and 5(c) and Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities and Exchange Act of 1934. The complaint also seeks to hold McDiarmid and Telford liable as control persons under Section 20(a) of the Exchange Act. The complaint also charges IMMA with violating Section 17(a)(1) and (a)(3) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5(a)-(c) thereunder.
The SEC seeks permanent injunctions, disgorgement, interest, penalties, and officer-and-director bars and penny stock bars for McDiarmid and Telford.
The SEC has issued an Investor Alert warning investors that fraudsters may promote a stock to make profits for themselves at investors' expense. The alert notes that stock promotions may be conducted through email, and that email spam may indicate an email scam.
The SEC's investigation was conducted by Roberto Tercero and supervised by Spencer Bendell. The SEC's litigation will be handled by Amy Longo. The SEC appreciates the assistance of the Financial Industry Regulatory Authority.