On July 14, 2015, the Securities and Exchange Commission (“SEC”) charged 34 defendants for their alleged involvement in fraudulent schemes to manipulate microcap stock trading. The list of defendants includes six firms that allegedly acted as unregistered broker-dealers to investors whose goals were to keep their ownership of stock hidden and to manipulate the trading of microcap securities. Owners, employees, customers, stock promoters, and microcap issuers were among the defendants who were charged for fraud and manipulative trading, in addition to other violations of the law.
According to the SEC release, one alleged scheme involves Costa Rica-based Moneyline Brokers (“Moneyline”) and its founder, Harold Bailey “B.J.” Gallison II (“Gallison II”). The Complaint states that Gallison II acted as a broker for customers who performed “pump and dump” schemes, which artificially increased the price of a stock to allow customers to sell and make a profit. In addition, Moneyline and some of its employees accepted transfers of microcap stocks from these customers and reissued stock certificates under Moneyline’s name for the sole purpose of keeping the identities of the stock owners hidden. Other alleged schemes in the SEC lawsuit include those of Carl H. Kruse Sr. and Carl H. Kruse Jr. of Miami and Canada-based mining company, Everock, Inc., which involve the artificial inflation of stock prices. According to the SEC release, these two schemes obtained estimated profits of $2.3 million and over $2.5 million, respectively.
Andrew M. Calamari, Director of the SEC’s New York Regional Office, said, “This case demonstrates the Commission’s resolve to relentlessly pursue the villains behind these microcap fraud schemes wherever in the world they may be hiding.”
According to the SEC release, the SEC is working to recover the defendants’ illegally obtained profits along with interest. The agency will also seek civil monetary penalties, bar the majority of the defendants from the penny stock business, and prevent some defendants from serving as public company officers or directors.
The attorneys at Lax & Neville LLP have extensive experience in the financial services industry. If you are a victim of fraud or manipulative trading, please contact Lax & Neville LLP today at (212) 696-1999 to schedule a consultation.