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How to Make $13 Million Before the New Year

The SEC announced on December 13 that they have brought charges against a New Jersey man and his company for allegedly committing fraud in a pump-and-dump scheme resulting in ill-gotten profits of $33 million, of which the New Jersey man pocketed $13 million. The SEC alleges that this individual and others obtained control of nearly all available stock in four microcap companies to create the appearance of liquidity and demand for the stocks.

The SEC release states that from 2008 through 2010, this individual, a penny stock promoter participated in an extensive "pump-and-dump" scheme in which he and others fraudulently inflated the prices of certain shares of four public microcap companies in order to sell them later an exaggerated inflated price. As part of the scheme, the defendants would obtain control over large amounts of shares of these companies and then engaged in manipulating trading of the stocks and disseminating promotional materials, such as email blasts and newsletters, to encourage others to purchase them. In order to get the stock price as high as possible, cash kickbacks were made to an investment adviser in Las Vegas to purchase the stock on behalf of his clients. Subsequently, the defendants would then "dump" the stocks, selling them in large volume to gain profits after "pumping", and, as a result, the stock price would drop dramatically, ending in losses for investors they unwittingly brought on board.

According to the SEC complaint, the charges in this particular case included violations of the antifraud provisions of the federal securities laws. The complaint seeks a permanent injunction, disgorgement of gains along with prejudgment interest, financial penalties, and a penny stock bar. Additionally, the Regional Director of the SEC's New York office said of the case, "The series of fraudulent schemes alleged in our complaint enticed unwitting investors to pay inflated prices for four companies secretly controlled and then left the investors holding the bag when the manipulative activity ceased and the stock price dropped,"

Our Perspective

Those wishing to commit fraud find "pump and dump" schemes as an easy way to dupe investors and line their pockets. Microcap companies, such as the ones involved in this case, are often used in these types of fraud because it is easier to manipulate a stock where the company is smaller.

It is important for advisers to exercise caution when taking advice from others relating to an investment opportunity. The old adage applies here, if it sounds too good to be true, it probably is. Advisers are also well advised to perform due diligence before purchasing an investment on behalf of their clients by conducting research on the stocks. This due diligence includes asking for, and reading, prospectuses and current financial statements, verifying any claims made by the company or its promoters and looking at the opportunity with a skeptical eye. Advisers have a fiduciary duty to protect their clients, and must recognize the red flags of nefarious action. We would ask CCOs, are you reviewing the firm's trade blotter and conducting forensic testing to identify trading patterns that raise red flags?

SEC3 can assist your firm in creating, implementing and maintaining your policies and procedures. For further information, please contact your SEC3 representative or contact us at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

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May 23, 2017 - Webcast: WannaCry Ransomware: Were You Really Protected or Just L…

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June 14, 2017 - Compliance Breakfast Briefing

8:30-9:00am - Networking and Continental Breakfast 9:00-10:30am - Program Location: Willkie Farr & Gallagher LLP | 600 Travis Street | Suite 2310 | Houston, TX Barry Barbash from Willkie Farr & Gallagher LLP,...

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May 15, 2017 (NYC Chief Compliance Officer Roundtable)

9:00-9:30am - Networking and Continental Breakfast 9:30-11:00am - Program Location: Blank Rome LLP | The Chrysler Building | 405 Lexington Avenue | New York, NY 10174 | 22nd Floor Boardroom | Phone:...

Webcast: The Most Insidious Cybersecurity Threat Is Also The Least Understood

When: Tuesday, April 25th | Schedule: 12pm - 1pm EST Who: Paul Caiazzo, CEO and Co-Founder, TruShield Security Solutions Michael Brice, Founder, BW Cyber Services John Lukan, Managing Director, SEC Compliance Consultants, Inc. Ransomware, the...

CCO Liability (Part III): Managing Liability Webinar

In this webinar, panelists discuss indemnifications and insurance as potential remedies to address the direct financial risks to a CCO. Attendees will learn: What terms and conditions should Chief Compliance Officers be...

Webinar: CCO Liability (Part III): Managing Liability: Navigating Indemnities an…

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Webcast: SEC 2017 Examination Focus Area – Cybersecurity Testing

Penetration Testing & Vulnerability Assessments - Examining the SEC & FINRA Requirements When: Wednesday, January 25th | Schedule: 12pm - 1pm EST Who: Paul Caiazzo, CEO and Co-Founder, TruShield Security Solutions Michael Brice, Founder,...

Chief Compliance Officer Roundtable: Breakfast Briefing

When: October 20, 2016 Where: Blank Rome LLP | The Chrysler Building | 405 Lexington Avenue | New York, NY 10174 | 22nd Floor Boardroom | Phone: 212.885.5000 Thomas Westle and Janaya...

Practicing Law Institute - Hedge Fund Management 2016

When: September 15, 2016 Where: New York & concurrent webcast | 1177 Avenue of the Americas | New York, NY 10036 Schedule: 9:00 am – 5:00 pm Janaya Moscony, President of SEC3 will...

CHIEF COMPLIANCE OFFICER ROUNDTABLE: BREAKFAST BRIEFING

When: April 13, 2016 Where: Blank Rome LLP | The Chrysler Building | 405 Lexington Avenue | New York, NY 10174 22nd Floor Boardroom Thomas Westle and Janaya Moscony, along with industry experts,...

COMPLIANCE SCIENCE SUMMIT 2015

When: November 17, 2015 Where: Convene Midtown East | 730 Third Avenue | New York, NY 10017 Janaya Moscony, President, SEC Compliance Consultants, Inc. will be moderating a...