Litigation Release No. 23666 / September 30, 2016

Securities and Exchange Commission v. Marcus A. Luna, et al., Civil Action No. 2:16-cv-07333 (C.D. Cal., filed September 29, 2016)

SEC Charges Alleged Penny Stock Manipulators

The Securities and Exchange Commission yesterday charged an attorney and three others in California with defrauding investors out of $13.6 million in a penny stock pump-and-dump scheme.

The SEC alleges that Marcus Luna and Norell Walker orchestrated the scam, which entailed setting up boiler rooms of telemarketers to tout a pair of companies that Luna and Walker secretly controlled. Walker's business associates, Paul Gomez and Dustin Smith, ran boiler rooms in Beverly Hills and Costa Mesa, respectively. Telemarketers trained and supervised by Walker, Gomez, and Smith cold-called investors and urged them to purchase penny stocks they claimed would soar as high as $11 per share. As investors entered orders to purchase the stock out of their personal brokerage accounts, Walker would contact Luna so he could contact an offshore brokerage to fill the orders with Luna's own shares. Luna, a California attorney, split the proceeds with Walker.

According to the SEC's complaint filed in federal district court in Santa Ana, Calif.:

  • From February 2013 to February 2014, Walker operated boiler rooms through his firm NL Walker & Associates to tout penny stock companies Umax Group Corp. and Azure Holding Group Corp.
  • Luna and Walker gained control of the majority of Umax and Azure shares through a series of stock transfers among international third parties. Luna sold his shares through a complex web of offshore brokerages in an attempt to mask his stock ownership.
  • While Luna orchestrated the flow of Umax and Azure stock, Walker headed up the sales efforts.
  • Telemarketers were paid commissions as high as 10 to 20 percent of their sales despite representations made to investors that NL Walker & Associates did not pay commissions to its salespeople. The total amount of undisclosed commissions paid by NL Walker & Associates was at least $2.8 million.
  • Salespeople including Walker falsely told several investors that Umax was going to be a leading nutraceutical company when it actually had scant revenue and no real legitimate business prospects.
  • Salespeople including Walker and Gomez told investors that there would be an e-mail or marketing "campaign" to help promote the stocks. No such campaign ever occurred.
  • The boiler room efforts artificially inflated the price of Umax and Azure. Once Walker and his sales force stopped publicly touting Umax and Azure stock, the share price and volume subsequently plummeted for both companies.

The SEC's complaint alleges that Walker and Gomez violated Section 17(a) of the Securities Act of 1933, as well as Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and charges Luna with violations of Section 17(a)(1) and (3) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5(a) and (c) thereunder. The complaint further charges all the defendants with violating Sections 5(a) and 5(c) of the Securities Act and Walker, Gomez, and Smith with violating Section 15(a) of the Exchange Act. The complaint seeks permanent injunctions, disgorgement, and financial penalties. The complaint also seeks penny stock bars against Walker, Gomez, and Smith.

The SEC's investigation was conducted by Lucee Kirka, Roger Boudreau, and Marc Blau of the Los Angeles office, and the litigation will be led by David VanHavermaat. The SEC appreciates the assistance of the Financial Industry Regulatory Authority and Cayman Islands Monetary Authority.