U.S. regulators brought market manipulation charges against four stock promoters today, alleging that they conducted wash trades in several microcap companies.
The U.S. Securities and Exchange Commission (SEC) announced that it has charged four promoters for allegedly manipulating the securities of several microcap companies, including a couple of marijuana-related stocks. It alleges that the promoters bought thinly traded penny stocks on the open market and then conducted manipulative matched orders and wash trades to create the illusion of an active market in these stocks; that they also pumped the stocks with aggressive promotional campaigns; before selling their own shares.
The SEC says that the promoters generated more than $2.5 million in illegal profits through their schemes. The allegations have not been proven.
The SEC’s complaint charges the four promoters with violating antifraud provisions of the federal securities laws. It is seeking temporary, preliminary, and permanent injunctions along with an emergency asset freeze, disgorgement, prejudgment interest, financial penalties, and orders barring them from participating in penny stock offerings.
In a parallel action, the U.S. attorney’s office for the Western District of Washington also announced criminal charges against three of the individuals charged today by the SEC.
The commission says that the case was uncovered by its new task force devoted to uncovering microcap fraud. “Our Microcap Fraud Task Force is taking direct aim at abusive practices and serial violators within the microcap markets like these four promoters seeking to exploit retail investors for personal gain,” said Michael Paley, co-chair of the task force. “In this case, we meticulously reviewed trading records and developed the evidence necessary to connect these four promoters and their coordinated trading efforts.”
The SEC notes that two of the companies that allegedly had their stocks manipulated claim to be related to the medical marijuana industry (GrowLife Inc. and Hemp Inc.). It recently issued an alert warning investors about possible scams involving marijuana-related investments; and says that “fraudsters often exploit the latest growth industries to lure investors into stock manipulation schemes.”