U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 25853/ September 26, 2023
Securities and Exchange Commission v. Philip Verges, James D. Tilton, Jr., Robert F. Malin, Linda Malin, and Blue Citi, LLC, Defendants, and SMEA2Z, LLC, 143 Partners LLC, West Cucharras, LLC, and JDT Trading, LLC, Relief Defendants, >No. 3:23:cv-02146 (N.D. Tex. filed Sept. 26, 2023)
SEC Charges Five Defendants in Penny Stock Fraud Scheme
The Securities and Exchange Commission filed charges against Texas resident Philip Verges, James D. Tilton, Jr., Robert F. Malin, Linda Malin, Esq., and Blue Citi, LLC for their roles in an alleged scheme to pump-and-dump more than $112 million of stock in five penny stock companies (the “PSCs”). The SEC also named four relief defendants, including three companies owned and controlled by Verges (SMEA2Z, LLC, 143 Partners LLC, and West Cucharras, LLC) and one entity owned and controlled by Tilton (JDT Trading, LLC).
The SEC’s complaint alleges that, between at least June 2017 and June 2022, Verges orchestrated the scheme so that Blue Citi (owned by Robert and Linda Malin), JDT Trading, and others received at least 5.2 billion shares of stock in the PSCs at a significant discount. According to the complaint, Verges artificially inflated trading volume in the PSC stocks by publishing more than 1,400 press releases, some of which were false and misleading, in an effort to ensure that the fraud participants and Verges’s other nominees sustained a market in which to sell their stock. The complaint alleges that the inflated trading volume allowed Verges’s nominees to dump their discounted stock into the market for proceeds of more than $52 million. Those nominees then kicked back a portion of their trading proceeds to Verges and his companies. According to the complaint, over the course of the fraud, the Verges and his companies received more than $19 million from the stock sales, while Blue Citi and JDT received more than $35 million and $16 million, respectively. The complaint alleges that Robert and Linda Malin knowingly participated in the fraud, directed Blue Citi’s sales of stock, and paid kickbacks to Verges-owned companies. The complaint further alleges that Tilton participated in the fraud by preparing, at Verges’s direction, false and misleading public disclosures about the PSCs and directing JDT’s payment of kickbacks to Verges-owned companies.
The SEC’s complaint, filed in the U.S. District Court for the Northern District of Texas, charges Verges with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 (“Securities Act”) and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder. The complaint also charges Blue Citi, Robert Malin, Linda Malin, and Tilton with violating, directly or indirectly, the antifraud provisions of Sections 17(a)(1) and (3) of the Securities Act and Section 10(b) of the Exchange Act and Rules 10b-5(a) and (c) thereunder. The complaint also names SMEA2Z, 143 Partners, West Cucharras, and JDT as relief defendants. The SEC is seeking disgorgement with prejudgment interest against all defendants and relief defendants; permanent injunctions, civil penalties, and penny-stock bars against all defendants; and officer-and-director bars against Verges, Robert Malin, Linda Malin, and Tilton.
The SEC’s ongoing investigation is being conducted by Derek Kleinmann, Christopher Reynolds, and Carol Stumbaugh of the Fort Worth Regional Office, with assistance from Cristy Hart, Robert Nesbitt, Raymond Wolff, and Jason J. Lee. The investigation is supervised by Sarah S. Mallett and Eric R. Werner. The litigation will be led by Jason Reinsch and supervised by B. David Fraser.