SEC Charges Eight Participants in Cross-Border Penny Stock Fraud Scheme
Litigation Release No. 25366 / April 14, 2022
Securities and Exchange Commission v. Ronald Bauer et al., No. 1:22-cv-03089 (S.D.N.Y. filed April 14, 2022)
The Securities and Exchange Commission today announced charges against eight individuals for participating in a long-running fraudulent scheme that generated over $145 million from unlawful sales of penny stocks and caused significant harm to retail investors in the United States and around the world.
According to the SEC's complaint, UK-resident Ronald Bauer and various combinations of his associates, Craig James Auringer, Adam Christopher Kambeitz, Alon Friedlander, Massimiliano ("Max") Pozzoni, Daniel Mark Ferris, Petar Dmitrov Mihaylov, and David Sidoo - all of whom reside outside the U.S. - engaged in all or part of a complex scheme spanning at least 2006 to 2020 to fraudulently unload on unsuspecting retail investors the respective defendants' significant shareholdings of at least 17 microcap stocks quoted on U.S. markets. Prior to engaging in the scheme, Bauer and Mihaylov had each, by consent, been permanently enjoined from such conduct in Commission penny stock fraud enforcement actions against them.
The defendants allegedly coordinated and funded misleading promotional campaigns, surreptitiously unloaded massive quantities of each stock into the very price and demand rises triggered by those campaigns, and directed their illicit proceeds from those illegal sales through multiple networks of offshore shell companies and financial accounts.
According to the complaint, the defendants over time operated in various combinations and played varying roles. For example, Monaco-resident Ferris and Spain-resident Pozzoni initially served as figurehead CEOs of issuers whose stocks were fraudulently unloaded by their accomplices, and later assumed more senior roles in the scheme. Further, Cayman Islands-resident Kambeitz coordinated materially misleading promotional campaigns urging investors to buy the stocks that London-based Bauer, Auringer, and Friedlander, among others (including Sidoo, as to one such stock), simultaneously and massively sold, all while concealing both their ownership and the fact they were acting in concert.
The SEC's complaint, filed in federal district court in New York, charges Bauer, Auringer, Kambeitz, Friedlander, Pozzoni, Ferris, Mihaylov, and Sidoo with violating the registration provisions of Section 5(a) and 5(c) of the Securities Act of 1933 ("Securities Act") and the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC is seeking permanent injunctions, conduct-based injunctions, disgorgement of allegedly ill-gotten gains plus prejudgment interest, civil penalties, penny stock bars, and officer and director bars as to each defendant.
The U.S. Attorney's Office for the Southern District of New York announced parallel criminal charges against Bauer, Auringer, Ferris, and Mihaylov.
The SEC's investigation was conducted by Benjamin D. Brutlag, Shipra G. Wells, and Karaz S. Zaki, under the supervision of J. Lee Buck II and Melissa R. Hodgman, with the assistance of Andrew Lewczyk and Marlee Miller of the Office of International Affairs and Yongping Zheng of the Enforcement Division's Office of Investigative & Market Analytics. Kenneth W. Donnelly and David Nasse are leading the SEC's litigation under the supervision of Frederick L. Block. The SEC appreciates the assistance of the U.S. Attorney's Office for the Southern District of New York, the Federal Bureau of Investigation, the Financial Industry Regulatory Authority, the Alberta Securities Commission, the British Columbia Securities Commission, the Cayman Islands Monetary Authority, the Cyprus Securities and Exchange Commission, the Financial Supervisory Authority of Denmark, the Guernsey Financial Services Commission, the Hong Kong Securities and Futures Commission, the Italian Commissione Nazionale per le Società e la Borsa, the Japan Financial Services Agency, the Jersey Financial Services Commission, the Latvia Financial and Capital Market Commission, the Liechtenstein Financial Market Authority, the Malta Financial Services Authority, the Mauritius Financial Services Commission, the Mexican Comisión Nacional Bancaria y de Valores, the New Zealand Financial Markets Authority, the Panamanian Superintendencia del Mercado de Valores, the Québec Autorité des Marchés Financiers, the Royal Canadian Mounted Police, the Swiss Financial Market Supervisory Authority, the United Arab Emirates Securities and Commodities Authority, the Dubai Financial Services Authority, and the United Kingdom Financial Conduct Authority.