SEC Charges Five Individuals with Running a Pump-and-Dump Scheme

Litigation Release No. 24470 / May 17, 2019

Securities and Exchange Commission v. Andrew I. Farmer, Scott R. Sieck, Eddie D. Austin, Jr., Carolyn P. Austin, and John D. Brotherton, No. 4:19-cv-1774, (S.D.T.X.) filed May 15, 2019

The U.S. Securities and Exchange Commission filed settled charges against five individuals for orchestrating a fraudulent pump-and-dump scheme involving multiple penny stocks.

The SEC alleges that between May 2011 and May 2017, Andrew I. Farmer of Katy, Texas, Scott R. Sieck of Winter Park, Florida, Eddie D. Austin, Jr. of Houston, Texas, Carolyn P. Austin of Houston, Texas, and John D. Brotherton of Conroe, Texas ran a series of pump-and-dump frauds. According to the SEC's complaint, the Defendants engaged in a pattern of obtaining control of all the freely trading stock of a penny stock and then allocating the stock to foreign and domestic front companies they controlled. To create the false appearance of market interest in the penny stock and to set artificially elevated share prices, Defendants allegedly conducted coordinated trading between these front companies. Additionally, Defendants allegedly orchestrated materially misleading promotional campaigns via email blasts and internet advertising, which they timed to coincide with press releases they allegedly caused each issuer to disseminate. The SEC further alleges that Defendants took advantage of the resulting stock price and trading volume rises by unloading their worthless stock on unsuspecting investors. In 2017, the SEC suspended trading in Valmie Resources, Inc., which is one of the issuers allegedly involved in the Defendants' scheme.

The SEC's complaint, filed in the U.S. District Court for the Southern District of Texas, charges each of the Defendants with violating the registration and antifraud provisions of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Defendants have consented to the entry of final judgments which enjoin them from violating the charged provisions of the federal securities laws, enjoin them from future solicitation of the purchase or sale of securities, impose officer-and-director bars, impose penny stock bars, and order the Defendants to pay disgorgement of ill-gotten gains totaling $10.25 million and prejudgment interest totaling $895,487. The settlement is subject to Court approval.

The Defendants have also pleaded guilty in a parallel criminal action.

The SEC's investigation, which is continuing, has been led by Kelly V. Silverman and Christopher R. Mathews, supervised by Assistant Director J. Lee Buck, II, and assisted by Senior Trial Counsel Joshua E. Braunstein. The SEC appreciates the assistance of the United States Attorney's Office for the Southern District of Texas, the Federal Bureau of Investigation, the Financial Industry Regulatory Authority, the Cyprus Securities and Exchange Commission, the Swiss Financial Market Supervisory Authority, the Ukrainian National Securities and Stock Market Commission, and the United Kingdom Financial Conduct Authority.