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SEC Announces Charges Against Florida-Based Penny Stock Schemes

On August 12, 2013, the SEC announced the latest charges in a joint law enforcement crackdown on penny stock schemes with ties to the Florida region.

The SEC charged two microcap companies, their CEOs, and one penny stock promoter for spearheading illegal kickback schemes.  Also charged were two other microcap companies, their CEOs, and four other promoters with arranging the payment of bribes to hype the companies in which they had a stake in order to create a false sense of market activity and illegally generate stock sales.

The SEC worked closely with the U.S. Attorney’s Office for the Southern District of Florida and the Federal Bureau of Investigation’s Miami Division to uncover the penny stock schemes.  Parallel criminal charges were also announced against the same nine individuals facing SEC charges.

According to the complaint, one of the schemes involved an arrangement to pay an undisclosed kickback to a pension fund manager in exchange for the fund’s purchase of restricted shares of stock in the company.  Two other schemes involved agreements to pay undisclosed kickbacks to hedge fund principals in return for their funds’ purchase of restricted shares.

The SEC’s complaints alleged that the companies, officers, and promoters violated Section 17(a)(1) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and/or 10b-5(c).  The SEC is seeking financial penalties, disgorgement of ill-gotten gains plus prejudgment interest, and permanent injunctions.  The SEC is also seeking penny stock bars against each of the officers and promoters, and certain officer-and-director bars.