The SEC charged a group of 10 individuals and 10 associated entities with fraud in three market manipulation "pump-and-dump" schemes. The alleged fraud substantially harmed retail investors who were left possessing worthless stocks.
According to the Complaint filed in the U.S. District Court of the Southern District of New York, the leader of the schemes arranged for others to (i) promote the stocks, (ii) engage in pre-release manipulated trading to generate a skewed picture of market interest, (iii) violate beneficial ownership reporting requirements by neglecting to divulge their group beneficial ownership of shares, and (iv) dump their shares into the inflated market. The defendants allegedly made a profit of approximately $27 million from the schemes.
The SEC is seeking disgorgement of all of the defendants' gains, payment of prejudgment interest and payment of additional civil penalties, and is asking that the defendants be barred from participating in future penny stock offerings.
Commentary
This is the most significant case to date brought by the SEC's Retail Strategy Task Force. The Task Force was formed last year as part of the Enforcement Division's increased focus on retail investors under Chairman Clayton. It is also noteworthy because of the SEC's allegations that billionaire Philip Frost participated in the fraud. Frost, the founder of OPKO Health and a well known philanthropist, released a statement saying that the SEC did not give Frost and OPKO advance notice of its intent to sue before filing the case and that the SEC's complaint contains "serious factual inaccuracies." This one will be worth watching as the litigation moves forward.
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