A $194 million international 'pump-and-dump' - Charges against several individuals
The Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) each announced charges against several people who made more than $194 million in illegal profits by orchestrating an international stock manipulation scheme involving a number of U.S. companies.
The Securities and Exchange Commission (SEC) announced charges against 16 people on Monday for allegedly participating in a multi-year scheme to defraud investors by secretly dumping large amounts of stock onto the market.
The SEC's charges are linked to parallel criminal actions brought by the Department of Justice and the Federal Bureau of Investigation, which announced on April 14 that three indictments charging ten people with participating in the scheme had been unsealed.
Securities regulators and other law enforcement authorities from more than 20 countries assisted the SEC in its investigations, which led to the charges. Residents from Canada, the United Kingdom, Bulgaria, Spain, Monaco, Turkey, the Cayman Islands, the Bahamas, and the British Virgin Islands were all involved in the scheme.
The SEC's charges, which are contained in three separate complaints filed in the United States District Court for the Southern District of New York, allege that the defendants secretly held large, controlling positions in microcap companies' "penny stocks."
"From 2013 through at least 2018, defendants’ goal was to secretly gain control of thinly traded microcap companies, hire stock promoters to generate demand for their shares, and then profit by selling those shares illegally to unsuspecting investors," according to one SEC complaint.
The defendants concealed their identities from the public, brokers, and regulators as part of their scheme, "typically by holding the stock in corporate accounts that served as nominee stockholders," according to the complaint. According to the SEC, some of the defendants used encrypted text and phone applications to further avoid detection by regulators.
In a press release, Gurbir Grewal, director of the SEC's Division of Enforcement, said, "we allege that the defendants in these actions orchestrated some of the most complex microcap stock fraud schemes ever charged by the SEC. By locating their operations overseas, using encrypted messaging, and operating through a convoluted network of offshore accounts, the defendants hoped to avoid detection of the massive frauds we allege they perpetrated on U.S. markets and investors."
According to a second SEC complaint, eight of the individuals were involved in a fraudulent pump-and-dump scheme involving at least 17 U.S. issuers' stock.
According to the complaint, these individuals formed and acted in four rings "on a serial basis" from at least 2006 to at least 2020. The pump-and-dump scheme they employed followed the same pattern as the first complaint.
The defendants divided the majority of their profits after each scheme, while reinvesting a portion of the proceeds into their next pump-and-dump scheme, netting more than $145 million in illegal proceeds, according to the complaint.
Ronald Bauer, a "London-based recidivist," was the "primary strategist" for all but two of these pump-and-dump schemes, according to the SEC's complaint, and "oversaw nearly every aspect" of the schemes. He and his associates were dubbed the "Bauer Ring" by the SEC.
A third SEC complaint claims that four individuals participated in a pump-and-dump scheme involving "at least nine microcap issuers" from early 2016 to late 2018, which followed the same pattern of misconduct.
The SEC accuses all defendants of violating federal securities laws' antifraud and registration provisions, and is seeking permanent injunctions, disgorgement of allegedly ill-gotten gains plus interest, and civil penalties for all defendants, as well as penny stock bars for all individual defendants.
The SEC is also seeking injunctions based on conduct for 11 of the 15 individual defendants, as well as officer and director bars for eight of them. On April 12 and 15, the court issued orders freezing and directing repatriation of the assets of six defendants in response to the emergency applications.
By fLEXI tEAM