SEC Charges Microcap Executives With Defrauding Retail Investors
Litigation Release No. 24151 / May 25, 2018
Securities and Exchange Commission v. Niel Martin Nielson, No. 18-cv-1217 (D.D.C. May 24, 2018);
Securities and Exchange Commission v. Carolyne Susan Johnson, No. 18-cv-364 (S.D. Ohio May 24, 2018)
The Securities and Exchange Commission yesterday charged two executives of a microcap company with defrauding retail investors in a penny stock scheme involving an Ohio-based electronic-waste recycling company.
The SEC's complaint, filed in federal court in the District of Columbia, charges Niel Martin Nielson, the CEO of E-Waste Systems, Inc., with defrauding investors by orchestrating a scheme to artificially increase the company's share price and volume. The SEC alleges that Nielson entered into a series of sham contracts, made materially false and misleading statements, and booked false revenue to create the impression that E-Waste was rapidly expanding across the United States, Europe, and Asia. The complaint alleges that E-Waste in fact had virtually no operations. The SEC's complaint alleges that Nielson carried out this scheme with the aid of Carolyne Susan Johnson, the Secretary and Treasurer of E-Waste, who consented to entry of a final judgment in the Southern District of Ohio on these and charges related to other issuers.
The SEC's complaint charges Nielson with violating Section 17(a) of the Securities Act of 1933, and Sections 10(b), 13(b)(5), and 16(a) of the Securities Exchange Act of 1934 and Rules 10b-5 13a-14, 13b2-1, 13b2-2, and 16a-3 thereunder, and aiding and abetting E-Waste's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. The SEC's complaint against Johnson charges her with violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, aiding and abetting Nielson's violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and aiding and abetting E-Waste's violations of Section 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. Without admitting or denying the SEC's allegations, Johnson consented to entry of a final judgment imposing permanent injunctions. Johnson also agreed to be barred from serving as an officer and director of a public company and a penny stock bar, and to other conduct-based injunctions. The settlement is pending approval by the court.
In a separate order, the SEC found that Arthur Kaplan, the executive assistant to Edward Panos, whom the SEC previously charged with defrauding investors, also participated in a related fraudulent scheme by recruiting participants for sham private offerings and facilitating the transfer of shares to accounts that Panos controlled. Kaplan, who cooperated with the SEC's investigation, agreed to cease-and-desist from violating the antifraud provisions of the federal securities laws. Kaplan agreed to the settlement without admitting or denying the findings.
The SEC's investigation was conducted by Virginia Rosado Desilets, Sonia Torrico, Michael Hoess, and Jennifer Clark, with assistance from trial counsel Suzanne J. Romajas and supervisory trial counsel Jan M. Folena, and supervised by David A. Becker. The SEC's investigation is ongoing. The SEC's litigation against Mr. Nielson will be led by Ms. Romajas and supervised by Ms. Folena.
The SEC appreciates the assistance of the Financial Industry Regulatory Authority in this matter.