The Securities and Exchange Commission has filed securities fraud charges against the promoter behind affiliated microcap stock promotion websites. The regulator us accusing John Babikian of using PennyStocksUniverse.com and AwesomePennyStocks.com to engage in “scalping” which is a type of securities fraud. The SEC has also obtained an emergency asset freeze.
According to the Commission, the websites, knowing collectively as “ABS,” sent out e-mails to about 700,000 people on February 23, 2012 and recommended that they invest in America West Resources Inc. (AWSRQ), which is a penny stock. However, the e-mails did not disclose that Babikian was the holder of over 1.4 million of the stock shares, which he had positioned and was going to sell right away via a Swiss bank.
Because of the emails, there was a huge increase in the share price of America West’s stock and trading value. Babikian used this to get rid of the stock during the last 90 minutes of the trading day and raked in over $1.9M.
Over 7.8 million in shares of America West stock were traded that day as the share price hit a record high. Prior to that the stock was thinly traded and low priced. The SEC says that without the emails, Babikian would have only been able to sell over a few thousands shares and at a much lower price.
Scalping is when a financial adviser or stockbroker recommends a security to an investor and then sells the security right after to make a profit. The financial gain occurs because so many investors have raised the price with the purchases they made.
SEC Obtains Asset Freeze Against Promoter Behind Microcap Stock Scalping Scheme, SEC, March 13, 2014
The SEC Complaint (PDF)