SEC, U.S. Attorney, and FBI Announce Major Attack Against Microcap Fraud
FOR IMMEDIATE RELEASE
Those Charged Include Alleged Members of Organized Crime
New York, N.Y., June 14, 2000 The Securities and Exchange Commission today sued 63 individuals and entities in five enforcement actions as part of its continuing campaign to clean up fraud in the market for low-priced securities, i.e., the microcap market. The actions allege a wide array of illegal conduct including "pump and dump" manipulation schemes, private placement fraud and investment adviser pay-to-play violations. All told, those charged reaped millions of dollars in illicit profits. Also today, the Commission suspended trading in the securities of WAMEX Holdings, Inc. and E-Pawn.com, Inc.
Simultaneously, in related criminal prosecutions, the U.S. Attorney for the Southern District of New York and the Federal Bureau of Investigation announced the unsealing of indictments and the filing of criminal complaints naming more than 100 defendants in securities fraud schemes. The criminal indictments announced by the U.S. Attorney and the FBI name 11 members and associates of five different organized crime families in connection with several securities fraud scams. These individuals are charged with participating in numerous manipulations of microcap stocks, extortion, money laundering, bribery and kickbacks, witness tampering, and murder solicitation.
SEC Director of Enforcement Richard H. Walker said, "The securities fraud involved in today's actions is among the most egregious witnessed in recent years. These manipulations of numerous stocks were designed for the sole purpose of stealing investors' hard-earned dollars. The prosecutions announced today rid the vital market for low-priced securities of unscrupulous operators and reaffirm regulators' commitment to keeping this market safe and fair."
1. Microcap Fraud/Manipulation Schemes
The Division of Enforcement (Division) instituted two administrative proceedings charging a broad range of fraudulent activity affecting nine microcap stocks.
a. Piazza Proceeding
The Division charges that in 1995 and 1996, 32 individuals participated in a scheme to inflate the stock prices of Spaceplex Amusement Centers International, Ltd., Reclaim, Inc., Beachport Entertainment Group, Inc., and International Nursing Services, Inc. The Division alleges that each of these schemes involved payment of bribes to brokers in exchange for the brokers causing their retail customers to purchase the securities. The respondents sold shares at the artificially inflated prices. The respondents are charged with obtaining at least $8 million in illegal profits from these schemes.
b. Wolfson Proceeding
The Division charges that from January 1999 through at least March 2000, Allen Z. Wolfson fraudulently inflated the stock prices of BeautyMerchant.com (formerly known as ATR Industries, Inc.), Learner's World, Inc., Rollerball International, Inc., Healthwatch, Inc. and HYTK Industries, Inc. The Division alleges that in connection with these manipulations, Wolfson obtained control of large blocks of shares, caused sham trades to be made to give the appearance of an increasing demand for the shares in the market, paid bribes to six brokers to create demand, and sold into that demand. The six brokers are also being charged today for their roles in the manipulation. The Division contends that the respondents received at least $7 million in illicit profits from these manipulations.
2. Investment Adviser Pay-to-Play
The Division charges William M. Stephens with participating in a kickback and bribery scheme concerning the investment assets of certain labor union pension funds. Stephens is the Chief Investment Strategist of Husic Capital Management, a registered investment adviser in San Francisco. The Division alleges that in order to land the pension funds as advisory clients, Stephens agreed in advance to channel a portion of the funds' assets into rigged investment vehicles. The Division also contends that Stephens understood that a portion of the funds' assets would be then siphoned out of the rigged investments to be paid as bribes and kickbacks to trustees of the funds.
3. Private Placements
The Commission filed two civil injunctive actions charging 14 individuals and nine companies with fraudulent private placement offerings that raised approximately $3.5 million from investors. The Commission contends that in these actions, among other things, various unregistered salespeople working in "boiler rooms" cold-called investors making misrepresentations about the offerings using high pressure sales tactics. More than 300 investors fell victim to these schemes.
4. Trading Suspensions
The SEC also temporarily suspended trading in the securities of WAMEX Holdings, Inc. and E-Pawn.com, Inc., due to the lack of accurate public information available to investors concerning these issuers. The shares of both of these companies are quoted on the OTC Bulletin Board. The Commission contends that, contrary to the company's public claims, WAMEX is not lawfully authorized to operate an Alternative Trading System and that questions exist regarding the company's claims to have raised funding from private investors. The SEC also contends that inaccurate information existed as to the identity of the persons in control of E-Pawn.com.
For further information, please contact Wayne Carlin at (212) 748-8178 or Robert Knuts at (212) 748-8192.
Additional Materials Available on This Topic
Microcap Stock: A Guide for Investors (on-line brochure)
In re Salvatore Piazza et al. (Release No. 33-7864)
In re Allen Z. Wolfson et al. (Release No. 33-7865)
In re William M. Stephens (Release No. 33-7866)
SEC vs. Bruce M. Follick et al. (Litigation Release No. 16588)
SEC vs. Diagnostic Professional Imaging Services, Inc. (Litigation Release No. 16589)