SEC Charges Eight Unregistered Brokers for Their Participation in Fraudulent Offerings of Microcap Securities
Litigation Release No. 24718 / January 16, 2020
Securities and Exchange Commission v. Drake et al., No. 2:20-cv-00405 (C.D. Cal. filed January 15, 2020)
Securities and Exchange Commission v. Brooks, No. 1:20-cv-20176 (S.D. Fla. filed January 15, 2020)
The Securities and Exchange Commission charged Gregory Drake, Scott Messier, Jay Scoratow, Jason St. Amour, and David Wolfson with fraud for their participation in a matched-trading scheme involving dozens of microcap securities. The SEC also charged Thomas Brooks, Stephen Grossman, and Stephen Moleski for acting as unregistered brokers in connection with the matched-trading scheme.
According to the SEC's complaints, between at least December 2014 and March 2018, Drake, Messier, Scoratow, St. Amour, and Wolfson ran boiler-room operations to carry out a matched-trading scheme to enable shareholders of microcap companies sell their shares. Solicitors working for the boiler rooms, such as Brooks, Grossman, and Moleski, allegedly cold called prospective investors and convinced them to purchase shares of microcap companies in the investors' own brokerage accounts at prices and volumes that were coordinated by the boiler-room operators and the selling shareholders. The complaint alleges that selling shareholders simultaneously entered sell orders at the coordinated prices and volumes, making it highly likely that the selling shareholders' sell orders and the solicited investors' buy orders would match. Through this matched trading, the selling shareholders were able to offload their shares into a ready market.
The SEC's complaints, filed in federal district courts in California and Florida charge Drake, St. Amour, Wolfson, Messier, and Scoratow with violating the antifraud provisions of Sections 17(a)(1) and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaints also charge Drake, Grossman, Moleski, St. Amour, Wolfson, Brooks, and Messier with violating the broker-dealer registration provisions of Section 15(a)(1) of the Exchange Act, and charge Scoratow with aiding and abetting Messier's violation of Section 15(a)(1).
Drake, St. Amour, Brooks, Messier, and Scoratow have consented to the entry of final judgments that impose permanent injunctions, conduct-based injunctions from soliciting purchases or sales of securities, disgorgement of ill-gotten gains, and civil monetary penalties. Wolfson has consented to the entry of a permanent injunction and an injunction from soliciting purchases or sales of securities and reserves the issues of disgorgement and a civil penalty for determination by the court. The settlements are subject to court approval. The SEC seeks injunctions, disgorgement, and civil penalties against Grossman and Moleski.
The SEC's investigation was conducted by James Thibodeau and Laurie Abbott, was assisted by David Whipple, and was supervised by Daniel Wadley, Regional Director of the Salt Lake Regional Office.
The SEC's Office of Investor Education and Advocacy has issued an Investor Alert to encourage investors to check the background of anyone selling or offering them an investment using the free and simple search tool on Investor.gov.