Home Articles SEC Enforcement Actions – Part X

SEC Enforcement Actions – Part X


SEC heading part X

34 Individuals, Companies Charged In Microcap Market Manipulation Schemes

The SEC has charged 15 individuals and 19 companies with manipulating the trading of microcap stocks. The 34 defendants include six firms alleged to have acted as unregistered broker-dealers, catering to customers who wanted to conceal their stock ownership and manipulate the market for microcap securities.

Defendants in the case include:

  • Owners and employees at the six firms
  • Several customers
  • A few stock promoters
  • Two microcap issuers — Warrior Girl Corp. and Nature's Peak, formerly Everock, Inc.

The SEC charged the defendants with fraud, manipulative trading, touting, and registration violations. Nine of the defendants were named in a criminal indictment based on their roles in the alleged stock manipulation scheme.

The SEC complaint alleges that Costa Rica-based Moneyline Brokers and its founder, Harold Bailey "B.J" Gallison II, unlawfully operated as a broker-dealer for U.S.-based customers who engaged in "pump and dump" schemes to artificially inflate a stock's price and then sell their own shares. According to the complaint, Moneyline and some of its employees routinely accepted transfers of microcap stocks from the U.S. customers, and had stock certificates reissued in Moneyline's name to conceal the true owners of the shares.

pump-dumpCarl H. Kruse Sr. and Carl H. Kruse Jr., both of Miami, allegedly conspired with Moneyline and others to manipulate trading in Warrior Girl, a former shell company that the Kruses controlled. Warrior Girl's purported business changed from hydroelectric power (in 2008) to extracting oil from tar sands (in 2009) to online education (in 2010), and the Kruses allegedly engaged in multiple manipulations to profit from promotions to inflate the stock's price. As a result of the various campaigns, the Kruses are alleged to have obtained illegal profits estimated at $2.3 million.

Another alleged scheme involved trading stock in Everock, Inc., a Canada-based mining company that relocated to Nevada and sold sandwich spreads after reorganizing itself with Nature's Peak in 2008. A concerted campaign promoting the company allegedly included videos and Facebook postings, and produced more than $2.5 million in profits for defendants Charles S. Moeller, of Sea Cliff, N.Y., Mark S. Dresner, of Dix Hills, N.Y. and Frank J. Zangara, of Locust Valley, N.Y.

In addition to Moneyline, the complaint alleges that two Costa Rica-based firms, Sandias Azucaradas CR, S.A. and Vanilla Sky, S.A., and three Nevada-based firms, Bastille Advisors, Inc., Club Consultants, Inc., and Jurojin, Inc., operated as unregistered broker-dealers. Employees of the firms who were charged are: Roger G. Coleman Sr., of Las Vegas, Ann M. Hiskey, of Costa Rica, Robin M. Rushing and David K. Rushing, both of Spokane, Wash., and Michael J. Randles, of Costa Rica. 
Promoters who were charged include: Dresner, Antonio J. Katz, of Red Bank, N.J., Moeller, Richard S. Roon, of Rumson, N.J., AKAT Global LLC, Digital Edge Marketing LLC, Oceanic Consulting LLC, and Spectrum Research Group Inc.

The other defendants charged are: Allan M. Migdall, of Fort Lauderdale, Florida, Robert S. Oppenheimer, of Belvedere Tiburon, Calif., Core Business One, Inc., Bermuda-based Fry Canyon Corp., L.F. Technology Group LLC, Starburst Innovations LLC, and Tachion Projects, Inc., along with B.H.I. Group, Inc. and U D F Consulting Inc., both of New York.

The SEC is seeking return of allegedly ill-gotten gains with interest from all defendants. It also is seeking civil monetary penalties from nearly all the defendants,s and seeks to bar most of them from the penny stock business, and bar some of them from serving as public company officers or directors.

Investment Adviser Charged With Fraudulently Funneling Client Assets

Hans Black copyThe SEC announced fraud charges against a Massachusetts-based investment advisory firm and its owner for funneling more than $17 million in client assets into four financially troubled Canadian penny stock companies in which the owner has undisclosed business and financial interests.

The SEC alleges that clients at Interinvest Corporation may have lost as much as $12 million of their $17 million investment based on the recent trading history of shares in the penny stock companies, some of which are purportedly in the business of exploring for gold or other minerals. Interinvest's owner and president, Hans Peter Black, has served on the board of directors of these companies, which have collectively paid an entity he controls approximately $1.7 million. Black's involvement with these companies and his receipt of payments from them created a conflict of interest that he and Interinvest failed to disclose to their advisory clients.

The alleged violations were first identified in an SEC examination of the firm. The SEC's complaint filed in federal court in Boston alleges that Interinvest and Black have stonewalled the SEC's investigation. The SEC is seeking a court order to freeze Interinvest's assets and prohibit the firm and Black from continuing to exercise investment authority over client assets under management. As of April 2015, Interinvest purported to manage almost $95 million.

The SEC's complaint alleges that Interinvest and Black violated the antifraud and related provisions of the federal securities laws. In addition to emergency relief, the SEC's complaint seeks to permanently enjoin Interinvest and Black from violating the securities laws, and require them to repay allegedly ill-gotten gains with interest and penalties.

Jury Convicts Defendant In Insider Trading Case Involving Group Of Amateur Golfers

The SEC announced that a federal jury has convicted Eric McPhail of conspiracy and securities eric mcphail copyfraud for his role in an insider trading ring that traded on inside information about Massachusetts-based American Superconductor Corporation.

The criminal charges against McPhail were based on the same fraud that spurred the Commission to institute a securities fraud action against him and others in 2014.

The U.S. Attorney's Office for the District of Massachusetts indicted McPhail and another defendant, Douglas Parigian, in July 2014. The indictment alleged that McPhail had a history, pattern and practice of sharing confidences with an individual who had material, nonpublic information concerning American Superconductor's quarterly earnings and other business activities. This individual provided McPhail with the Inside Information with the understanding that it would be kept confidential. Instead, McPhail provided the inside information to his friends, including Parigian, with the intent that they profit by buying and selling American Superconductor stock and options. Parigian pled guilty to criminal securities fraud and conspiracy charges in May.

In July 2014, the Commission filed a civil injunctive against Eric McPhail and six of his golfing buddies, including Parigian, alleging that McPhail repeatedly provided non-public information about American Superconductor. McPhail's source was an American Superconductor executive who belonged to the same country club as McPhail and was a close friend. According to the complaint, from July 2009 through April 2011, the executive told McPhail about American Superconducter's expected earnings, contracts, and other major pending corporate developments, trusting that McPhail would keep the information confidential. Instead, McPhail misappropriated the inside information and tipped his friends, who improperly traded on the information. Four defendants settled the SEC's charges, without admitting or denying the allegations, by consenting to the entry of judgments permanently enjoining them from violating the antifraud provisions of the Exchange Act, paying back ill-gotten gains  and civil penalties. The SEC's case against Parigian, McPhail and another individual, Jamie Meadows, is ongoing.

Oil Company CEO, Stock Promoter Charged With Defrauding Investors

The SEC has charged a Texas-based oil company and its CEO with defrauding investors, and norstracharged the author of a stock-picking newsletter for his role in a fraudulent promotional campaign encouraging readers to buy the oil company's penny stock shares.

The SEC alleges that shortly after becoming Norstra Energy's CEO in March 2013, Glen Landry began making false and misleading claims about business prospects on Norstra's website, as well as in press releases and SEC filings. Landry and Norstra Energy misled investors about the location of the company's property in order to make the wells appear more promising, and twice disclosed an inaccurate date to begin drilling operations to make the potential for oil riches appear imminent.

The SEC's complaint ― filed in federal court in Manhattan ― alleges that promotional materials issued by Eric Dany falsely claimed that "Norstra Energy could be sitting on top of as much as 8.5 billion barrels of oil!" and said the planned wells had a 99 percent chance of profitability. After the exaggerated statements about its property and prospects caused Norstra Energy's stock price to increase nearly 600 percent in a three-month period, the SEC suspended trading in June 2013.

The SEC's complaint charges Norstra Energy, Landry, and Dany with fraud, and seeks final judgments ordering permanent injunctions, return of allegedly ill-gotten gains with interest, and financial penalties. The SEC also seeks to bar Landry from serving as an officer or director of a public company or participating in a penny stock offering.

Court Enters Final Judgment Against South Florida Investment Adviser

The SEC announced that it has filed a civil action charging Phil Donnahue Williamson with siphoning money from his investment fund and defrauding investors.

The SEC alleges that Phil Donnahue Williamson conducted a Ponzi scheme with money he raised sterling investmentfor the Sterling Investment Fund, which purportedly invested in mortgages and properties in Florida and Georgia. Many of Williamson's investors were public sector retirees, such as teachers and law enforcement officers, who sought safe investments for their retirement savings.

Williamson assured investors there was no risk involved, and that they would receive annual returns of 8 to 12 percent. But rather than invest their money as promised, he used the majority of fund assets to pay his personal expenses and make “returns” to early investors. The SEC’s complaint alleges that Williamson created fictitious valuations that were sent to investors.

According to the SEC's complaint, one retired Miami-Dade County school teacher and church pastor invested $125,000 in the fund. That same day, Williamson transferred $10,000 to pay his credit card bill and make a car payment to BMW, among other personal expenditures. Williamson later paid $24,400 to other investors in the fund as purported distributions, and transferred another $24,000 to pay additional personal expenses.

In a related action, the U.S. Attorney's Office for the Southern District of Florida has announced criminal charges against Williamson.

Williamson agreed to settle the SEC's charges, and in June the court entered a final judgment against Williamson permanently restraining and enjoining Williamson from violating the Advisers Act, and ordering Williamson to pay back $748,050.

Asset Freeze Obtained Against California Firm, Founder Charged with Fraud

The SEC announced it has obtained an emergency court order freezing the assets of a California-based firm and its owner. Both are charged with taking money raised from investors.

Rashid K. Khalfani copyThe SEC alleges that Christopher M. Lee operated under an alias, Rashid K. Khalfani, and hid his past criminal convictions while raising nearly $2 million through his firm Capital Cove Bancorp LLC. The money was raised for purported investments in REO Opportunities Fund II LLC and Rittenhouse Square Trust LLC, two private funds that invested in distressed real estate. Lee lured investors by falsely stating that both funds were "vetted, qualified, and registered" with the SEC and several other government agencies.

The SEC also alleges that Lee misappropriated investor money from the funds, and in some instances used it to purchase his own real estate. The SEC further alleges that Lee and Capital Cove offered and sold membership interests in the REO fund without registering those transactions or securities with the SEC, and they filed materially false Forms ADV that did not disclose Lee's criminal record.

The SEC's complaint charges Capital Cove and Lee with securities fraud and conducting an unregistered securities offering. The SEC is seeking preliminary and permanent injunctions, the return of ill-gotten gains with prejudgment interest, and financial penalties.

The court order grants the SEC's request to temporarily freeze all assets of Lee and Capital Cove and prohibits them from soliciting, accepting, or depositing any money from investors in connection with any offering of securities.

SEC Charges Microcap Promoter With Illegally Selling Penny Stock Shares

The SEC has charged a microcap promoter with illegally selling more than 83 million penny stock shares that he secretly obtained through at least 10 different offshore front companies.

Vision PlasmaAccording to the SEC's complaint, Gregg R. Mulholland surreptitiously accumulated at least 84 percent of the issued and outstanding shares of Vision Plasma Systems Inc. Once he effectively controlled the company through this majority ownership, Mulholland liquidated his shares for proceeds of at least $21 million. No registration statement was filed or in effect covering Mulholland's sales, and no exemption from registration was available.

The SEC's complaint charges Mulholland with violating the Securities Act of 1933. In a parallel action, the U.S. Attorney's Office for the Eastern District of New York announced criminal charges against Mulholland.

According to the SEC's complaint, Mulholland was charged by the SEC in 2011 for the fraudulent pump-and-dump manipulation of a sports drink company founded by Daniel "Rudy" Ruettiger, known for having inspired the motion picture "Rudy." In 2013, the SEC obtained a monetary judgment against Mulholland for more than $5.3 million in ill-gotten gains, prejudgment interest, and penalties that remains unpaid.

SEC Charges Former Stockbroker With Conducting Ponzi Scheme

The SEC has charged a former stockbroker in Pennsylvania with conducting a Ponzi scheme and stealing investor money to purchase a condominium in Florida and other luxury items.

The SEC alleges that Malcolm Segal fraudulently sold so-called certificates of deposits (CDs) to his brokerage customers by falsely claiming that he could get them higher interest rates of return on FDIC-insured CDs than would otherwise be available to the general public. 

In some instances, Segal purchased CDs on behalf of investors but secretly redeemed them early and took the proceeds.  Other times, Segal did not purchase CDs at all, despite telling customers he had.  He raised approximately $15.5 million from at least 50 investors.  Besides spending investor money on himself, Segal used it in Ponzi scheme fashion for purported interest payments and principal repayments to earlier investors. 

The Commission further alleges that Segal eventually started stealing directly from his customers’ brokerage accounts in a last-ditch effort to keep funding the Ponzi payments.  He forged letters of authorization to facilitate the transfer of customer funds to accounts he controlled, notably forging the signature of one customer’s wife who had died before the date of the transfer. 

The scheme collapsed in July 2014. The SEC seeks return of ill-gotten gains plus prejudgment interest and penalties, as well as a permanent injunction.

In a parallel action, the U.S. Attorney’s Office for the Eastern District of Pennsylvania has announced criminal charges against Segal.

SEC Halts Pyramid/Ponzi Scheme Targeting Spanish, Portuguese-Speaking Communities

The SEC announced fraud charges and an asset freeze against the operators of a pyramid and DFRG Enterprises copyPonzi scheme that falsely promised a gold mine investment opportunity to investors in Spanish and Portuguese-speaking communities in Massachusetts, Florida, and elsewhere in the U.S.

The SEC alleges that DFRF Enterprises, named for its founder Daniel Fernandes Rojo Filho, claimed to operate more than 50 gold mines in Brazil and Africa, but the company's revenues came solely from selling membership interests to investors. With the help of several promoters, they lured investors with such false promises as:

  • Investors’ money would be fully insured,
  • DFRF has a line of credit with a Swiss private bank,
  • One-quarter of DFRF's profits are used for charitable work in Africa.

The scheme raised more than $15 million from at least 1,400 investors by recruiting new members in pyramid scheme fashion to keep the fraud afloat, and commissions were paid to earlier investors in Ponzi-like fashion for their recruitment efforts.

The SEC further alleges that Filho withdrew more than $6 million of investor funds to buy a fleet of luxury cars and other personal items.

According to the SEC's complaint, Filho is a Brazilian native who lives in Winter Garden, Fla., and he orchestrated the scheme with assistance from six promoters also charged in the case:

  • Wanderley M. Dalman of Revere, Mass.,
  • Gaspar C. Jesus of Malden, Mass.,
  • Eduardo N. Da Silva of Orlando, Fla.,
  • Heriberto C. Perez Valdes of Miami,
  • Jeffrey A. Feldman of Boca Raton,
  • Romildo Da Cunha of Brazil.

The SEC alleges that Filho and others began selling "memberships" in DFRF last year through meetings with prospective investors primarily in Massachusetts hotel conference rooms, private homes, and businesses. DFRF promoted the investment opportunity through online videos in which Filho falsely claimed that the company had registered with the SEC, and its stock would be publicly traded.

As DFRF's marketing reach widened, membership sales dramatically increased. For example, sales increased from under $100,000 in June 2014 to more than $4 million in March 2015.
The SEC's complaint alleges that all defendants violated the antifraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934, and registration provisions of the Securities Act.