SEC Files Charges in Penny Stock Scams

The U.S. Securities and Exchange Commission has filed charges in a number of penny stock scams involving microcap companies, promoters, and officers. As of March 22, the regulator had charged 25 companies and 48 individuals in probes that originated out of its regional office in Miami. The agency has been working with the Federal Bureau of Investigation and the U.S. Attorney’s Office for the Southern District of Florida to expose the financial fraud. Many of those charged by the SEC are also contending with criminal charges.

Two of those facing SEC charges are stock promoters Stephen C. Bauer and Kevin McKnight of Boca Raton. They are accused of market manipulation fraud involving Environmental Infrastructure Holdings Corp.’s (EIHC) penny stock. According to the regulator, they made it seem as if there was market interest EIHC to get investors to buy the stock, which artificially raised trading volume and price.

Also named in an SEC complaint is Richard A. Altmare from Boca Raton for market manipulation involving Sunset Brands Inc. (SSBN) stock. In an unrelated penny stock case, the SEC is charging Jeffrey M. Berkowitz, who is from Jupiter, Florida with participating in a market manipulation scheme, this one over Face Up Entertainment Group (FUEG) stock.

Another man accused of market manipulation-related charges is New Yorker Eric S. Brown. The claims against him involve DAM Holdings Inc. (DAMH) and International Development & Environmental Holdings Corp. (IDEH) stock. Meantime, the SEC is accusing Urban AG Corp. (AQUM), a Massachusetts-based company, and its CEO and President, Billy V. Ray Jr. of Cumming, Ga., of scheming to make an undisclosed kickback payment to a hedge fund manger in return for the fund’s purchase of restricted shares in the company’s stock. Ray also is accused of taking part in another kickback scheme in which he made an inducement payment to stock promoter Wade Clark. The SEC says that Clark took part in an insider trading scam involving Ray.

Penny Stock Scams
Penny stock scams typically involve attempts to inflate share prices to make it seem as if the market demand for a stock is great. Once interest is generated and stock demand and the price goes up, scammers will dump their shares at the inflated price, which is also known as “pump and dump.” While penny stocks legitimately do have high potential for growth and profit, they have become a favorite for scammers.

Many fraudsters have started to promote their scheme via “pitch” spam emails. According to a report recently issued by security company Trustwave, spam messages promoting penny stocks made up 16% of unwanted email. That’s a significant rise from comprising less than 1% of unwanted email in 2012. Promoters send out emails promoting a stock as an amazing deal that is expected to garner astronomical profits and encourage people to buy in as soon as possible.

Shepherd Smith Edwards Kantas, LTD LLP is a securities law firm. We represent investors who have suffered losses where financial fraud was involved.

Huge surge in spam emails pitching penny stocks, Marketwatch, May 27, 2014

SEC Announces Latest Charges in Joint Law Enforcement Effort Uncovering Penny Stock Schemes, SEC, May 22, 2014

More Blog Posts:
SEC Investigates Merrill Lynch & Charles Schwab Over Allegations of Failures that Allowed Mexican Drug Cartels to Launder Money, Stockbroker Fraud Blog, May 22, 2014

SEC Judge Bans Money Manager For Misleading Morningstar and the Public, Institutional Investor Securities Blog, May 27, 2014

SEC Warns About Investment Scams Involving Marijuana, Stockbroker Fraud Blog, May 24, 2014