A Vancouver man has settled charges brought by the U.S. Securities and Exchange Commission (SEC), which alleged that he carried out a secret pump-and-dump scheme in a U.S. penny stock.
The SEC announced on Wednesday that Joe Yiu Cheung, who lives in Vancouver and Hong Kong, has agreed to pay almost US$800,000 and to be banned permanently from dealing with penny stocks in order to settle allegations he violated securities laws by secretly taking a significant stake in a small oil and gas company and then funding a promotional campaign to artificially boost the company’s stock price before he dumped his shares.
Cheung settled the case without admitting or denying the findings in the SEC’s order. To settle the case, he agreed to cease and desist from further violations, to disgorge US$542,498, plus US$94,131 in interest, and to pay a US$150,000 penalty. He also agreed to a penny stock ban and a 10-year officer-and-director ban.
According to the SEC, its investigators uncovered the fraud “by peeling back layer upon layer of shell companies and nominee owners to reveal that Joe Yiu Cheung controlled United American Petroleum Corp. (UAPC).”
The SEC’s order says that Cheung “utilized an elaborate network of overseas bank and brokerage accounts” to conceal his stake in the company, which reached as high as 33%.
According to the SEC, UAPC was originally a Vancouver-based firm, Milk Bottle Cards Inc., that was purportedly a greeting card company. In 2008, it ceased operations and participated in a reverse merger with a U.S.-based securities software company, Forgehouse Inc., which later carried out its own reverse acquisition of an oil and gas firm that became UAPC.
In 2012, the SEC says that Cheung secretly financed a promotional campaign targeting U.S. residents that “were filled with material misstatements about UAPC operations and unrealistic projections about its stock price in order to induce investors to purchase UAPC stock.” At the same time, he began dumping his UPAC stock as the price rose.
“Investors are often attracted to micro-cap companies and we are committed to protecting them from overseas manipulators and cross-border schemes,” says Andrew Calamari, director of the SEC’s New York office, in a statement. “In this case, we worked with numerous foreign authorities to get the evidence we needed to expose Cheung as the man behind false promotional materials and hidden stock transactions.”
The SEC indicates that its investigation involved co-operation from the British Columbia Securities Commission, the Ontario Securities Commission, the Autorité des Marchés Financiers, along with regulators in Switzerland, Hong Kong, Liechtenstein, Guernsey, Turks and Caicos and the Cayman Islands.
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