FINRA NAC reaches decision against C.L. King & Associates for supervisory and AML failings related to penny stock sales

On April 18, 2016 FINRA Enforcement filed a complaint (pdf) against C.L. King & Associates, Inc (hereafter referred to as C.L. King) and Gregg Alan Miller (CRD #4163500). At the times relevant to the complaint, Miller was C.L. King’s compliance manager and AMLCO (anti-money laundering compliance officer). Miller is still listed as working at C.L. King according to FINRA BrokerCheck as I write this. On September 6, 2017 a FINRA OHO extended hearing panel reached a decision (pdf) in the matter. C.L. King appealed the hearing panel decision to the National Adjudicatory Council (NAC) of FINRA, which rendered its verdict (pdf) on October 2, 2019. On November 4, 2019 that decision became final (per the firm’s detailed Brokercheck report).

There were two separate issues that the OHO extended hearing panel cited C.L. King for: survivor bonds and penny stocks. The NAC overturned the OHO extended hearing panel decision relating to survivor bonds (and they are outside the purview of this blog) so I will only discuss the penny stock issues. The NAC summary of the OHO extended hearing panel decision is a good place to start:

Separate from the firm’s survivor bond business line, CLK also sold penny stocks on behalf of two customers. One of these customers was a bank based in Liechtenstein (“PL Bank”), which sold over 41 million shares of 40 penny stocks from June 2009 through April 2014, generating proceeds of $4.87 million. The second customer, (“ABC Corp.”), sold more than 11 billion shares in 138 penny stocks from December 2012 to November 2013 and generated more than $14 million in proceeds. The Hearing Panel determined that CLK and the firm’s anti-money laundering (“AML”) compliance officer, Miller, failed to develop and implement an AML program reasonably designed to detect and report suspicious activity indicative of potential money laundering in connection with the firm’s penny stock business, as required by the Bank Secrecy Act (“BSA”). Further, the Hearing Panel found that CLK and Miller failed to conduct adequate due diligence and respond to red flags regarding the trading activities of PL Bank.

For the foregoing misconduct, the Hearing Panel censured the firm and fined it a total of $750,000. The Hearing Panel also suspended Miller for six months as a principal, fined him a total of $20,000, and ordered that he requalify as a principal before again acting in that capacity.

After reviewing the record, we reverse the Hearing Panel’s findings that CLK negligently made material misrepresentations and omitted to disclose material information to the issuers of debt securities. We otherwise affirm the Hearing Panel’s findings of liability. We also modify the sanctions as set forth in detail below.

NAC decision page 2

The NAC ended up reducing the fines somewhat and reducing Miller’s suspension, but for the most part upheld the OHO extended hearing panel’s findings:

We affirm the Hearing Panel’s findings that CLK violated NASD Rule 3010 and FINRA Rules 3110 and 2010 by failing to establish and maintain a supervisory system, including WSPs, reasonably designed to ensure compliance with the federal securities laws and FINRA rules in connection with the firm’s survivor bonds business. Accordingly, for this violation, we censure the firm and impose a $50,000 fine.

We also affirm the Hearing Panel’s findings that CLK and Miller failed to establish and implement a reasonable AML program designed to detect, investigate, and report potentially suspicious activity, and failed to conduct adequate due diligence and respond to red flags, in violation of NASD Rule 3011 and FINRA Rules 3310 and 2010. For these violations, the firm is censured, fined $292,000, and required to retain an independent consultant. Miller is suspended in all principal and supervisory capacities for three months, fined $20,000, and ordered to requalify as a principal before acting in any principal or supervisory capacity. The respondents are also ordered to pay, jointly and severally, hearing costs of $20,175.20.

NAC decision pages 57-58

In addition to the fines and the suspension for Miller, the NAC ordered C.L. King to hire a consultant to help them fix their processes and then report back:

We also order that CLK retain an independent consultant to recommend changes to the firm’s policies, procedures, and supervisory systems related to AML obligations and to review the process by which the firm enters into new lines of business. We order CLK to comply with the following procedures related to the retention of an independent consultant: CLK shall retain, within 60 days of this decision becoming FINRA’s final disciplinary action, an independent consultant, acceptable to Enforcement. The independent consultant shall conduct a review of the firm’s policies, procedures, and supervisory systems related to AML obligations and a review of the firm’s process by which it enters into new lines of business, including adopting procedures for vetting and supervising that new business. The independent consultant shall make recommendations of ways to improve these processes, policies, procedures, and systems. Once retained, CLK shall not terminate its relationship with the independent consultant without Enforcement’s written approval.

CLK shall require the independent consultant to submit to CLK and FINRA staff its report, which includes: (1) a description of the review performed and the conclusions reached; and (2) recommended changes or additions to CLK’s policies, procedures, and systems related to the firm’s AML obligations and process for vetting and supervising new lines of business. CLK shall provide to FINRA staff, within 60 days after receiving the independent consultant’s report, a written implementation report, certified by an officer of the firm, attesting to the firm’s implementation of the independent consultant’s recommendations.

NAC decision pages 56-57

C.L. King’s failures were at times quite comical:

On March 6, 2013, a CLK trader received an email from another broker-dealer, Knight Capital Americas LLC, that suggested PL Bank might be placing matched orders in CLDS. Knight asked CLK to confirm the legitimacy of the sell order. CLK’s trader forwarded the email to Miller asking, “You guys ok with me responding . . . that it’s a legitimate order?” Miller responded promptly, “Yes.” Miller acknowledged, however, at the hearing that he had not heard of the term, “matched trading.” But Miller testified that he understood that PL Bank was looking for buyers for its CLDS sell orders. The firm took no action other than to tell Swiss BD this was inappropriate. On March 6 and 7, 2013, PL Bank’s sales of CLDS constituted over 90 percent of the market volume.

NAC decision, pages 24-25

And at other times just stupefying:

For four years, Miller was oblivious to the fact that PL Bank was liquidating penny stocks for undisclosed subaccounts.

NAC Decision, page 49

Disclaimer: No position in any company mentioned and no relationship with any person or entity mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

The Last effective email stock promoter keeps up the fight with Rivex Technology Promotion (RIVX)

On Monday November 4th, 2019, two websites associated with the ‘tier 1’ or ‘Panamanian’ stock promoter as that promoter is referred to as by OTC Market Research started promoting Rivex Technology Corp (OTC: RIVX). This promoter has connections to the now-defunct promoter AwesomePennyStocks. I have previously written about this promoter and how OTC Markets’ Caveat Emptor Designation has not stopped them from promoting and making the price of the stocks they promote go up.

The two websites promoting RIVX are BlueChipPennyStockAlerts.com and PennyStockMarketNews.com. Both websites have been heavily advertising on Google over the last month. Also, both websites have apparently fake address information in their promotional emails. Per the FTC, marketing emails require a correct physical address.

At the bottom of its emails, PennyStockMarketNews.com lists the address 205 Dexter Ave Derry, NH 03038. According to Google Maps there is no Dexter Avenue (there is a Dexter Street). There is no 205 Dexter Street. BlueChipPennyStockAlerts.com lists its address as 1701 Walker Town Rd Castroville, CA 95012. According to Google Maps there is no Walker Town Road in Castroville, though there is a Walker Valley Road. There is no 1701 Walker Valley Road. I also believe the names of the analyst or editor of both sites are also fake (“Michael Griffins” for PennyStockMarketNews.com and “Louis Dalton” of BlueChipPennyStockAlerts.com). I have no evidence for these names being fake but there is also no evidence that they are real.

According to WHOIS data, BlueChipPennyStockAlerts.com was registered 10 June 2019 via NameCheap with contact information protected by WhoisGuard. PennyStockMarketNews.com was registered on 8 May 2019 via NameCheap with contact info protected by WhoisGuard.

Full PennyStockMarketNews.com disclaimer:

PennyStockMarketNews.com reports/releases/profiles are commercial advertisements and is intended for general information purposes only. We are engaged in the business of marketing and advertising companies for monetary compensation unless otherwise stated.  
PLEASE NOTE WELL: PennyStockMarketNews.com and its employees are not a Registered Investment Advisor, Broker Dealer or a member of any association for other research providers in any jurisdiction whatsoever and we are not qualified to give financial advice. PENNYSTOCKMARKETNEWS.COM WILL NEVER ACCEPT FREE OR RESTRICTED TRADING SHARES IN ANY COMPANIES MENTIONED at PENNYSTOCKMARKETNEWS.COM OR OUR EMAIL ADVERTISING PLATFORMS.
Our website and newsletter are for Entertainment purposes only.  This newsletter is NOT a source of unbiased information. Never invest in any stock featured on our site or emails unless you can afford to lose your entire investment. The disclaimer is to be read and fully understood before using our site, or joining our email list.
We encourage all to read the SEC’s INVESTOR ALERT at https://www.sec.gov/oiea/investor-alerts-bulletins/ia_newsletters.html before reading this Newsletter.
Release of Liability: Through use of this email and/or website advertisement viewing or using you agree to hold PennyStockMarketNews.com, its operators owners and employees harmless and to completely release them from any and all liability due to any and all loss (monetary or otherwise), damage (monetary or otherwise), or injury (monetary or otherwise) that you may incur. PennyStockMarketNews.com sponsored advertisements do not purport to provide an analysis of any company’s financial position, operations or prospects and this is not to be construed as a recommendation by PennyStockMarketNews.com or an offer or solicitation to buy or sell any security.
COMPENSATION: PennyStockMarketNews.com was compensated $4,000 in cash via bank wire by Upforce Digital Advertising LLC for advertising Rivex Technology Corp. (RIVX).  PennyStockMarketNews.com does not own any shares of profiled companies. PennyStockMarketNews.com does not investigate the background of any third party. Any compensation constitutes a conflict of interest as to our ability to remain objective in our communication regarding profiled companies. The information contained in our newsletters are based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of the available data. PennyStockMarketNews.com encourages readers and investors to supplement the information in these reports with independent research and other professional advice. All information on featured companies is provided by the companies profiled through their website, news releases, and corporate filings, or is available from public sources and PennyStockMarketNews.com makes no representations, warranties or guarantees as to the accuracy or completeness of the disclosure by the profiled companies. Further, PennyStockMarketNews.com has no advance knowledge of any future events of the profiled companies which includes, but is not limited to, news & press releases, changes in corporate structure, or changes in share structure.
None of the materials or advertisements herein constitute offers or solicitations to purchase or sell securities of the companies profiled herein and any decision to invest in any such company or other financial decisions should not be made based upon the information provide herein. Instead PennyStockMarketNews.com strongly urges you conduct a complete and independent investigation of the respective companies and consideration of all pertinent risks. Readers are advised to review SEC periodic reports: Forms 10-Q, 10K, Form 8-K, insider reports, Forms 3, 4, 5 Schedule 13D. PennyStockMarketNews.com is compliant with the Can Spam Act of 2003.PennyStockMarketNews.com does not offer such advice or analysis, and PennyStockMarketNews.com further urges you to consult your own independent tax, business, financial and investment advisers. Investing in micro-cap and growth securities is highly speculative and carries and extremely high degree of risk. It is possible that an investor’s investment may be lost or impaired due to the speculative nature of the companies profiled.
The Private Securities Litigation Reform Act of 1995 provides investors a ‘safe harbor’ in regard to forward-looking statements.  Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, goals, assumptions or future events or performance are not statements of historical fact may be “forward looking statements”. Forward looking statements are based on expectations, estimates, and projections at the time the statements are made that involve a number of risks and uncertainties which could cause actual results or events to differ materially from those presently anticipated. Forward looking statements in this action may be identified through use of words such as “projects”, “foresee”, “expects”, “will”, “anticipates”, “estimates”, “believes”, “understands”, or that by statements indicating certain actions “may”, “could”, or “might” occur. Understand there is no guarantee past performance will be indicative of future results. Past Performance is based on the security’s previous day closing price and the high of day price during our promotional coverage.
In preparing this publication, PennyStockMarketNews.com has relied upon information supplied by various public sources and press releases which it believes to be reliable; however, such reliability cannot be guaranteed. Investors should not rely on the information contained in this email and website. Rather, investors should use the information contained in this website as a starting point for doing additional independent research on the featured companies. The advertisements in this email and website are believed to be reliable; however, PennyStockMarketNews.com and its owners, affiliates, subsidiaries, officers, directors, representatives and agents disclaim any liability as to the completeness or accuracy of the information contained in any advertisement and for any omissions of materials facts from such advertisement. PennyStockMarketNews.com is not responsible for any claims made by the companies advertised herein, nor is PennyStockMarketNews.com responsible for any other promotional firm, its program or its structure.

Full disclosure from BlueChipPennyStockAlerts.com:

Bluechippennystockalerts.com
Bluechippennystockalerts.com reports/releases/profiles are commercial advertisements and is intended for general information purposes only. We are engaged in the business of marketing and advertising companies for monetary compensation unless otherwise stated.  
PLEASE NOTE WELL: Bluechippennystockalerts.com and its employees are not a Registered Investment Advisor, Broker Dealer or a member of any association for other research providers in any jurisdiction whatsoever and we are not qualified to give financial advice. BLUECHIPPENNYSTOCKALERTS.COM WILL NEVER ACCEPT FREE OR RESTRICTED TRADING SHARES IN ANY COMPANIES MENTIONED at BLUECHIPPENNYSTOCKALERTS.COM OR OUR EMAIL ADVERTISING PLATFORMS.
Our website and newsletter are for Entertainment purposes only.  This newsletter is NOT a source of unbiased information. Never invest in any stock featured on our site or emails unless you can afford to lose your entire investment. The disclaimer is to be read and fully understood before using our site, or joining our email list.
We encourage all to read the SEC’s INVESTOR ALERT at https://www.sec.gov/oiea/investor-alerts-bulletins/ia_newsletters.html before reading this Newsletter.
Release of Liability: Through use of this email and/or website advertisement viewing or using you agree to hold Bluechippennystockalerts.com, its operators owners and employees harmless and to completely release them from any and all liability due to any and all loss (monetary or otherwise), damage (monetary or otherwise), or injury (monetary or otherwise) that you may incur. Bluechippennystockalerts.com sponsored advertisements do not purport to provide an analysis of any company’s financial position, operations or prospects and this is not to be construed as a recommendation by Bluechippennystockalerts.com or an offer or solicitation to buy or sell any security.
COMPENSATION: Bluechippennystockalerts.com was compensated $8,000 in cash via bank wire by Upforce Digital Advertising LLC for advertising Rivex Technology Corp. (RIVX).  Bluechippennystockalerts.com does not own any shares of profiled companies. Bluechippennystockalerts.com does not investigate the background of any third party. Any compensation constitutes a conflict of interest as to our ability to remain objective in our communication regarding profiled companies. The information contained in our newsletters are based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of the available data. Bluechippennystockalerts.com encourages readers and investors to supplement the information in these reports with independent research and other professional advice. All information on featured companies is provided by the companies profiled through their website, news releases, and corporate filings, or is available from public sources and Bluechippennystockalerts.com makes no representations, warranties or guarantees as to the accuracy or completeness of the disclosure by the profiled companies. Further, Bluechippennystockalerts.com has no advance knowledge of any future events of the profiled companies which includes, but is not limited to, news & press releases, changes in corporate structure, or changes in share structure.
None of the materials or advertisements herein constitute offers or solicitations to purchase or sell securities of the companies profiled herein and any decision to invest in any such company or other financial decisions should not be made based upon the information provide herein. Instead Bluechippennystockalerts.com strongly urges you conduct a complete and independent investigation of the respective companies and consideration of all pertinent risks. Readers are advised to review SEC periodic reports: Forms 10-Q, 10K, Form 8-K, insider reports, Forms 3, 4, 5 Schedule 13D. Bluechippennystockalerts.com is compliant with the Can Spam Act of 2003.Bluechippennystockalerts.com does not offer such advice or analysis, and Bluechippennystockalerts.com further urges you to consult your own independent tax, business, financial and investment advisers. Investing in micro-cap and growth securities is highly speculative and carries and extremely high degree of risk. It is possible that an investor’s investment may be lost or impaired due to the speculative nature of the companies profiled.
The Private Securities Litigation Reform Act of 1995 provides investors a ‘safe harbor’ in regard to forward-looking statements.  Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, goals, assumptions or future events or performance are not statements of historical fact may be “forward looking statements”. Forward looking statements are based on expectations, estimates, and projections at the time the statements are made that involve a number of risks and uncertainties which could cause actual results or events to differ materially from those presently anticipated. Forward looking statements in this action may be identified through use of words such as “projects”, “foresee”, “expects”, “will”, “anticipates”, “estimates”, “believes”, “understands”, or that by statements indicating certain actions “may”, “could”, or “might” occur. Understand there is no guarantee past performance will be indicative of future results. Past Performance is based on the security’s previous day closing price and the high of day price during our promotional coverage.
In preparing this publication, Bluechippennystockalerts.com has relied upon information supplied by various public sources and press releases which it believes to be reliable; however, such reliability cannot be guaranteed. Investors should not rely on the information contained in this email and website. Rather, investors should use the information contained in this website as a starting point for doing additional independent research on the featured companies. The advertisements in this email and website are believed to be reliable; however, Bluechippennystockalerts.com and its owners, affiliates, subsidiaries, officers, directors, representatives and agents disclaim any liability as to the completeness or accuracy of the information contained in any advertisement and for any omissions of materials facts from such advertisement. Bluechippennystockalerts.com is not responsible for any claims made by the companies advertised herein, nor is Bluechippennystockalerts.com responsible for any other promotional firm, its program or its structure.

Both disclaimers list the paying party as “Upforce Digital Advertising LLC” which likely does not exist in my opinion. It certainly has no web presence as a search for it on Google revealed no results whatsoever. I searched for business entities in all 50 States in the USA (clicking on the sites linked here) for “Upforce Digital Advertising” and found nothing close in any state.

RIVX was given Caveat Emptor designation by OTC Markets after the close on 4 November 2019 (the first day it was promoted). It dropped the next day but has since recovered.

RIVX daily chart

The prior promotion by this promoter, using the older website ProPennyStockAdvisors.com, was at least somewhat successful despite the early Caveat Emptor designation of the stock by OTC Markets, as the price did not drop substantially until 25 October, the day after I received the last promotion emails. ProPennyStockAdvisors.com was registered in the same manner as the two websites that promoted RIVX, with a registration date of 2 April 2019.

PXPP daily chart

Like with the newer promotion websites, the address given by ProPennyStockAdvisors.com does not appear to exist, at least according to Google Maps. That address is 516 Highway 159
Sekiu , WA 98326. Below is the disclaimer from the last PXPP promotion email I received.

PXPP disclaimer. Paying party disclosed as “Ontrackmedia Advertising Limited.”

One last thing to note: all the emails I have received in the last year from this promotion group have been sent by iContact. That is the same email service provider used by AwesomePennyStocks for most of that group’s existence.

Prior to publishing this post I sent an email requesting comment to all the emails from which I have received the stock promotion. I also sent an email to the iContact media email address requesting comment. Unsurprisingly, no one responded to my emails. If that changes I will update this post.

Disclaimer: No position in any company mentioned and no relationship with any person or entity mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

SEC settles with Canaccord Genuity for 15c2-11 violations

On August 14, 2019 the SEC settled with Canaccord Genuity over violations of Rule 15C2-11. The firm agreed to change its deficient procedures and pay a civil monetary penalty of $250,000. Read the order (pdf).

Violations of 15c2-11 are at issue in the recent SEC lawsuit against broker and market maker Spartan Securities. Also, the SEC recently proposed changing rule 15c2-11 to make it harder for firms that are not current on filing financials to be quoted by brokers.

Excerpts from the settlement:

Canaccord delegated to a compliance associate the responsibility to obtain and review the information required by Rule 15c2-11 and to fill out and sign the Form 211s, including placing the electronic signature of the designated principal on the filings. The compliance associate had no trading experience and no formal training to conduct the review required by the rule, such as training related to the analysis of financial statements
and other information.

the compliance associate generally placed the electronic signature of the designated principal on Canaccord’s Form 211 filings without having a reasonable basis to believe that the representations were accurate. In
addition, the compliance associate generally understood that the firm’s designated principal had not actually examined the form prior to its submission.

While Rule 15c2-11 files were maintained within the compliance department by the compliance associate, the files could not be independently accessed by the traders or the firm’s designated principal without requesting them from the compliance department. During the relevant period, the traders who intended to make a market in the security rarely, if ever, obtained or reviewed the required information contemplated under the Rule and Canaccord’s policies and procedures, and the firm’s designated principal rarely, if ever, reviewed or signed the Form 211s

In an unrelated action on 21 October 2019, Canaccord Genuity agreed to an Acceptance, Waiver, and Consent (AWC) with FINRA (pdf) for violations of Regulation SHO in its market making of OTC stocks.

Disclaimer: I have no positions in any stocks mentioned in this blog post. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

SEC Trading suspension for Canal Capital (OTC: COWP & COWPP)

Yesterday just before the market open the SEC announced a trading suspension in the shares of Canal Capital (OTC: COWP and OTC: COWPP). Canal Capital had run up from under 1 cent to over $0.50 in under a month before falling in the days preceding the trading suspension.

SEC Trading suspension press release (pdf)
SEC Trading suspension order (pdf)

COWP daily price chart
COWPP daily price chart

The reason for the trading suspension from the suspension press release:

concerns about the adequacy of information in the marketplace about the company’s operations and operating status, if any, and due to recent potentially manipulative trading in the company’s stock.

The suspension order gives more detail and relates this action to the SEC’s recent spate of suspensions of trading in companies that have been delinquent in reporting to the SEC:

Canal Capital was a Delaware corporation with its principal executive offices purportedly located in Port Jefferson Station, New York. Canal Capital’s last filing with the Commission was a Form 15 purporting to suspend its duty to file reports with the Commission on December 6, 2012. However, due to the number of shareholders of record indicated on the Form 15, Canal Capital was not eligible to suspend its duty to file reports with the Commission under Sections 13 and 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”). Canal Capital filed for dissolution with the Delaware Secretary of State, effective September 26, 2013.

Disclaimer: No position in any company mentioned and no relationship with any person or entity mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

FINRA Fines BNP Paribas Securities $15 million, in part for penny stock failings

On October 23, 2019 BNP Paribas Securities Corp. agreed to a $15 million fine and censure from FINRA for failings relating in part to accepting penny stock shares for deposit and liquidation. The 13-page Acceptance, Waiver, and Consent (AWC) (pdf) makes for some fun reading. Readers of this blog will be used to reports of fines from FINRA and the SEC for brokers that fail to do proper due diligence before allowing the liquidation of large blocks of shares of penny stocks or fail to file Suspicious Activity Reports (SARs), but the failings outlined in this AWC are among the worst I have seen in recent memory.

Following are excerpts from the AWC showing BNP Paribus’ failings with regard to penny stocks:

… BNP did not implement any systems or written procedures (“WSPs”) to determine whether resales of securities complied with Section 5’s registration requirements, even though a substantial portion of its business involved liquidating restricted shares of penny stocks deposited in certificated form.

As a result, BNP allowed the deposit of nearly 31 billion shares of penny stocks, with a notional value of approximately $338 million, without any review to determine whether the shares were restricted, qualified for an exemption from registration, held by control persons of the issuer, or otherwise eligible for re-sale. BNP also facilitated the removal of restrictive legends from 33.5 million shares of securities, with a total notional value of approximately $12.5 million, without conducting any review to determine whether the legends were eligible for removal.

It isn’t just that the review prior to removal of restricted legends was inadequate but that there was no review! Likewise, surveillance of penny stock transactions was not just inadequate — for a long time, there was no surveillance:

It did not conduct any surveillance targeting penny stock transactions, or transactions in securities trading outside of the traditional exchanges, until early 2016

Next, take a look at BNP’s failures to identify red flags that might have triggered the filing of SARs:

Because of these deficiencies in its AML Program, BNP did not identify red flags of potentially suspicious activity that may have required the filing of a suspicious activity report (“SAR”). For example, during the Relevant Period, BNP:
• did not identify 14 customer accounts that executed zero buy transactions while selling approximately 1 billion shares of low priced securities for proceeds of approximately $3.5 million;
• did not identify multiple accounts in which known toxic debt financiers engaged in sales of penny stocks representing more than 20% to 80% of the trading volume on the sale dates and involving securities that were the subject of negative news or suspicious promotional campaigns; and
• did not review at least 3,448 foreign currency wires representing a total value of more than $2.5 billion USD to determine whether they involved high-risk entities or jurisdictions, or represented the proceeds of potentially suspicious trading activity.

A retroactive review of penny stock transactions from April 2013 to April 2016 “identified more than one hundred instances where BNP did not reasonably detect and investigate potentially suspicious penny stock transactions that may have required the filing of a SAR.”

The AWC gives examples of suspicious wire transfer patterns that BNP did not review:

34 customer accounts that, during the period of February 2013 to May 2015, received more than 18 billion restricted shares of penny stocks and incoming wires totaling $40,344, while sending 220 outgoing wires that totaled more than $62 million during a 23-month period; and
• 44 customer accounts that, during the same period, executed zero buy transactions while depositing more than 17.8 billion shares of penny stock and wiring out more than $69 million in sale proceeds.

BNP Paribus was also slow to fix its problems even after they were identified internally:

In January 2014, the head of BNP’s Trading Operations advised senior management that BNP was “an outlier in the industry” in terms of its surveillance of microcap securities and recommended that BNP develop and implement specific policies, procedures and controls for penny stocks. In February 2014, BNP personnel raised additional concerns with BNP’s penny stock business and due diligence process after reviewing recent AML regulatory actions.

BNP did not act in a timely manner to address the deficiencies its personnel identified. BNP did not implement procedures relating to penny stocks or enhanced due diligence for physical certificates until March 2015, more than one year after the head of its Trading Operations identified the need.

In addition to the fine, BNP Paribus Securities Corp also consented to the imposition of a censure and a requirement to get its procedures up to an acceptable level within 90 days. I am actually a little surprised that BNP Paribus Securities Corp did not also exit the penny stock deposit business like Cor Clearing did in the wake of an SEC settlement a year ago.

Disclaimer: No position in any company mentioned and no relationship with any person or entity mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Criminal charges filed against Michael Starkweather, former CEO of penny stock Andiamo Corp

On October 21, 2019 a criminal complaint (pdf) against Michael Starkweather, former CEO of Andiamo Corp (OTC: ANDI), was unsealed in US District Court for the Eastern District of New York. The case is United States v. Starkweather (1:19-mj-00911). See the case docket. I previously reported on the SEC’s lawsuit against Starkweather and predicted criminal charges were coming. As the case has just been filed these are only allegations and have not been proven in a court of law.

Mike Caswell of StockWatch already wrote a good summary of the charges (though without linking to the complaint).

Starkweather was arrested in Ohio (see the Ohio case docket).

Excerpt from complaint / affidavit (do note that I had to OCR the complaint so that may have introduced errors):

I . The Defendant, the Publicly-Traded Company and Co-Conspirators
4. The defendant MICHAEL STARKWEATHER was a United States citizen who resided in North Ridgeville. Ohio. In or about and between November 2017 and September 2018. STARKWEATHER was Chief Executive Officer (“CEO”) of the Andiamo Corporation.
5. The Andiamo Corporation was a microcap or penny stock company whose shares traded publicly on the over-the-counter exchange under the ticker symbol ANDI (“ANDI”). In public statements that it issued at various times, ANDI purported to be involved in various businesses, as described in part below:
(a) In or about and between April 2016 and September 2016, ANDI purportedly entered into a joint venture with Peppermint Jim. a company in the business of marketing pure mint and essential oils, to help Peppermint Jim expand its business.
(b) In or about and between November 2016 and March 2017, ANDI purported to enter into the energy sector, whereby ANDI would create an on-demand hydrogen-producing unit designed to increase performance, reduce emissions and lower the cost of operations for vehicles.
(c) In or about and between November 2017 and June 2018, ANDI, through a merger with Utopya Innovations. Inc., purportedly began to develop a smartphone cellular device.
6. Cooperating Witness #1 (“CW #1”) was a stock promoter. In May 2016. CW # 1 pled guilty to conspiracy to commit securities fraud, in violation of Title 18. United States Code, Section 1349. pursuant to a cooperation agreement with the government.
7. Co-Conspirator # 1 (“CC #1”) was a former ANDI executive. Subsequent to the events described in this complaint. Co-Conspirator # 1 pled guilty to conspiracy to commit securities fraud, in violation of Title 18, United States Code, Section 371. pursuant to a cooperation agreement with the government.

Yet again we see the importance of cooperating witnesses in white collar criminal cases and here we have two cooperating witnesses (Co-Conspirator #1 and Cooperating Witness #1).

Further excerpt from the complaint:

17. In or about June 2018, STARKWEATHER met with C’C # 1 in Ohio to discuss the smartphone and STARKWEATHER told C’C # 1 that there was currently no smartphone.
18. In approximately November 2018, after the defendant MICHAEL STARKWEATIIER stepped down as CEO of ANDI, CC # 1 became CEO of ANDI. At that time, CC # 1 confirmed that no Utopya or Andiamo smartphone existed.
19. On February 28. 2019. the defendant MICHAEL STARKWEATHER met with CC # 1. The meeting was consensually recorded by CC # 1. During this meeting, CC # 1 told STARKWEATHER, “There is no phone there is no physical phones [sic] that I can sell right now.” STARKWEATHER replied: “There never was. What there was the ability for you to place an order for them [Utopya] to be the middleman. It always was a middleman scenario with software, but the software never got built. We paid Cycloids [the software company] and they never did anything. They never built anything…. They never built anything for us.” During that same conversation. CC # 1 stated. “I need a real phone that can be sold.” STARKWEATHER replied: “You’re not going to get one because it doesn’t exist until somebody puts in an order…. You have to put in an order before a real phone exists…. [T]hey [Utopya] have no money to pay for them to do the chip change over there, for the radio. They don’t have the money to pay for the radio….”
B. The Defendant MICHAEL STARKWEATHER received kickbacks from the purported sales of ANDI stock at artificially inflated prices
20. On or about January 18. 2018. the defendant MICHAEL STARKWEATHER met with CW # 1. The meeting had been arranged by CC # 1. and was consensually recorded by CW # 1. During the meeting, CW # 1 stated that he wanted to convert his ANDI notes into ANDI shares of common stock, and that STARKWEATHER needed to approve the conversion. STARKWEATHER told CW # 1 that if he sold such shares “profitably,” STARKWEATHER wanted “some sort of kickback” in return. STARKWEATHER later added that he wanted 50% of CW # 1’s profits and that STARKWEATHER could then “keep this thing [ANDI’s stock price] moving or at least hovering where it is now.

Disclaimer: No position in any company mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

SEC Sues Andiamo Corp and two former CEOs

On August 22, 2019 the SEC filed suit against William White, former CEO of Andiamo Corp’s (OTC: ANDI) for allegedly arranging for a stock promoter to receive discounted shares in exchange for a kickback. On September 30, 2019 the SEC filed suit against Michael J. Starkweather and Andiamo Corporation or issuing an allegedly false press release and receiving a kickback from a stock promoter. The SEC put out a press release about the suits last week. For a good overview of the second case, read Mike Caswell’s article on Stockwatch (free registration required to view the whole article).

Both cases are in the Eastern District of New York. The case dockets are below:

Securities and Exchange Commission v. White (2:19-cv-04825)
Complaint (pdf)

Securities and Exchange Commission v. Starkweather (1:19-cv-05528)
Complaint (pdf)

The White complaint (pdf) alleges misdeeds that happened between June and November 2016, when William White was CEO of Andiamo Corp. From the SEC complaint:

1. From at least June through November 2016 (the “Relevant Period”), White—then
the chief executive officer of Andiamo Corporation (“Andiamo”), a penny stock issuer—arranged for a stock promoter (the “Promoter”) to obtain millions of shares of Andiamo stock at a large discount so that the Promoter could make lucrative, manipulative trades and kick back a substantial portion of the profits to White.

2. Specifically, from June through October 2016, after the Promoter told White he planned to engage in pre-arranged matched trading with a buyer (the “Matched Buyer”) and agreed to give White half of the Promoter’s profits from those trades, White arranged for the Promoter to obtain at least 66 million shares of Andiamo common stock at a significant discount from the market price.

3. From July through November 2016, the Promoter engaged in eleven matched trades to sell over two million of these Andiamo shares to the Matched Buyer in pre-arranged transactions that created the false appearance of high-volume trading at inflated prices.

4. In exchange for White’s assistance, the Promoter paid White a significant portion of the Promoter’s profits from his matched trades.

Besides the Promoter and White, the complaint against White also mentions a “Matched Buyer” who worked with the Promoter to manipulate the stock using matched trades.

The more recent complaint (pdf) against Michael J. Starkweather and Andiamo Corporation alleges that they put out a false press release in April 2018. It was easy enough at the time to spot the problems with the press release and the company; see for example this insanely detailed research posted on the InvestorsHub message board on April 6, 2018 by pseudonymous researcher NoDummy. According to the SEC complaint:

The press release announced the “unveiling” of a smartphone Andiamo had purportedly developed, touted the phone’s technical features, and claimed that the phone was “available” for distribution. In reality, as Starkweather knew and later admitted, the purported smartphone did not exist: Andiamo had not actually had any such smartphone manufactured.

2. In the months leading up to this false press release, Starkweather and Andiamo issued four press releases touting the purported smartphone’s development in order to pique investor interest in Andiamo and its purportedly forthcoming smartphone. During this prior press release campaign, Starkweather sought and received “kickbacks,” as he called them, totaling over $15,000 from a stock promoter. These kickbacks supposedly represented a portion of the stock promoter’s profits from selling Andiamo shares during this press release campaign.

3. The false press release, which was the culmination of the preceding press release campaign, caused the volume of trading in Andiamo stock to triple and the stock price to increase.

The allegedly false press release gave many details about the phone:

The Utopya Odyssey is the first smartphone to be unveiled in the Company’s product lineup. This 4G smartphone features an incredible 4950 mAh battery, a beautiful 6″ FHD 18:9 display, dual SIM card functionality, up to 192 GB storage capacity, a 16 MP rear camera and 16 MP front camera, and 4 GB of RAM. The Androidbased Device also comes equipped with facial unlock technology and a fingerprint sensor for added user security.

Starkweather would later reveal to the subsequent CEO of Andiamo Corp, “There is no phone—there is no physical phones [sic] that I can sell right now .”

I believe there is a possibility that criminal complaints may yet be filed against the above-named defendants, considering that the SEC thanked the US Attorney’s Office from EDNY and the FBI in the press release about the lawsuits (“The SEC appreciates the assistance of the United States Attorney’s Office for the Eastern District of New York and the FBI.”). Of course it is also possible that the USAO and FBI investigated but decided that only civil charges were warranted. It is possible that the promoter mentioned in the complaints has been acting as a cooperating witness for the FBI in other cases and then gave the FBI information about Andiamo that was then forwarded to the SEC. This would also explain why the promoter was not charged in these cases. One last note — there is no information in the SEC press release or in the complaints that indicates whether the stock promoter in each case was the same or if they were different people.

Stock chart (daily candlesticks) of Andiamo Corp. ANDI

Disclaimer: No position in any company mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

OTC Markets’ Caveat Emptor designation keeps killing pumps

I will eschew the background info in this post — if you need to get up to date, read my previous posts on OTC Markets Caveat Emptor designation and how it has affected promoted stocks:

OTC Markets Kills a couple more pumps with caveat emptor designation ☠

OTCMarkets continues handing out Caveat Emptor ☠ designations like candy: VCEX, BETW, and ELGL

LifeQuest World Corp (LQWC) is the newest 7Stocks stock promotion & just got ☠

OTCMarkets Group brings the ☠ hurt to some high-profile pump & dumps

The most recent batch of promoted stocks to get the Caveat Emptor designation includes ESYL and PXPP on 10/7:

ESYL (Easylink Solutions Corp) was an uncompensated promotion by numerous promoters including MJ Capital (MomentumOTC.com), James Connelly (PennyStockProphet.com), Stock News Wire LLC (SmallCapFirm.com / FierceInvestor.com / StockWireNews.net), and likely others that I did not see.

PXPP (Phoenix Apps inc) was a promotion by a group connected to the defunct AwesomePennyStocks, referrred to as the “Tier 1” group by OTC Market Research. As you can tell from the chart below, the stock has continued to climb after being designated Caveat Emptor. They are the only promoters in the last year whose pumps have not all dropped following Caveat Emptor designation. They have been advertising aggressively recently; this promotion was via an older website, not the ones they are currently advertising.

Two other relatively recent stocks to be gifted the Caveat Emptor designation were HPMM (Hemp Naturals Inc) and SMPP (Strategic Management & Opportunity Corp).

HPMM closed at $0.20 just prior to it being designated Caveat Emptor on 8/26. The next day it closed at $0.13125.

SMPP gapped down from $0.712 to $0.53 and then closed at $0.25 on 8/7 the day after it was designated Caveat Emptor:

Disclaimer: No position in any company mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

When the wrong security spikes on news: Celgene CVR edition

One of my favorite trades is shorting a stock when the stock spikes on news from a similarly-named company. This is a rare event, but it is quite enjoyable and I have written about it when it happened to Riviera Tool Corp and Jetcom / Jet.com. A couple similar situations were Nestor Therapeutics / Nest Inc and Tweeter / Twitter. However, this is usually something that happens to illiquid OTC stocks. It appears that something like this just happened with a Nasdaq-traded contingent value right (CVR) relating to Celgene.

Basically, a CVR is a security issued by a company that is acquiring another company (usually a biotech) that will pay out if something good happens (usually drug approval). In this case, Charley Grant wrote a column for The Wall Street Journal that was bullish on a certain Celgene CVR that would pay out if three of its drugs in late-stage development got approved. That CVR was not yet assigned a ticker. Instead, a different CVR with the ticker CELGZ relating to Abraxane (from the merger of Abraxis and Celgene years ago) spiked 100% in two days starting the day the column was published and on the third day it lost all those gains.

The spike in CELGZ didn’t take it to an absurd value — it was higher back in March — but considering the timing and the volume it is almost certain that people bought the wrong CVR in response to Grant’s column. I checked Google News and I found no news for Abraxane around September 24th. Unfortunately, I did not trade CELGZ (even though it was available to short for about $0.006 per share at Centerpoint Securities on the day it dropped big). Oops.

CELGZ seven month daily candlestick chart
CELGZ one month daily candlestick chart

Once again, thanks to Twitter and one of the smart traders I follow on Twitter for pointing all this out, as shown in the tweets below:

Charley Grant tweet:

Here was the response from a trader I respect and follow:

There are a lot of smart traders on Twitter and one of the best ways to find them is to look at who the smart people follow. Start by seeing who I follow:

https://twitter.com/goodetrades/following

Disclaimer: No position in any company mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Archived post: Inside the Pump Factory, Part 1: The Aristocrat Group Pump and Dump

Seven years ago I thought to put out more detailed research on certain pump and dump scams on a separate blog at OTCMicrocapResearch.com. After a handful of highly-researched posts I got distracted and stopped. I am now giving up that domain name and shutting down that website. Below is a copy of one of those posts. The article below was originally published on 19 December 2012.

This is the first article in a series I am calling “Inside the Pump Factory.” These articles will show how a series of companies have been promoted in a way that appears to me to require the complicity of company executives. For this reason I am initiating coverage on Aristocrat Group Corp. (and will soon initiate coverage on other companies promoted by the same stock promoters). My rating on Aristocrat Group is Strong Sell and I have a medium-term (over the next few months but within a year) price target of $0.10, although the stock should eventually go much lower.
I believe that Aristocrat Group is being promoted by the same stock promoters that promoted First Titan Energy (OTCBB: FTTN), GTSO Resources (OTCBB: GTSO) and Rainbow Biosciences (OTCBB: RBCC).  After a brief review of Aristocrat Group’s fundamentals and a description of the current stock promotion on it, I will return to prove the connection between these companies.

As far as any fundamental analysis of Aristocrat Group goes, it is pitifully easy. With 62,250,000 shares outstanding and a recent stock price of $1.50, the company has a market capitatlization of $93 million. The company has total assets of $1,243 as of July 31st (per their recent 10-K) and liabilities of $9,118. I know high school students with more impressive balance sheets. What is the company doing with its pitifully small amount of money? At first, it looks like it must be buying advertisements on Yahoo! Below is a screenshot of an advertisement I saw for it today.

(highlighting of the ASCC advertisement added by me; click image to enlarge)

The link takes you to the company’s investor relations page, or more specifically, http://www.luxuriabrands.com/investors?utm_source=MSN&utm_medium=CPC&utm_term=Company&utm_content=NewsAd122&utm_campaign=ASCC.

Unlike most online stock promotion advertisements, the link does not take you to a stock promoter’s website but rather to the company’s website. So this is why it seems that the company is paying for the stock promotion ads.
The Luxuria Brands website is very slick and very promotional. Take a look at this image below that I took from the website’s Investors page:

ascc_price_target

I have seen companies pay for stock promotion campaigns before, and I have seen stock promoters paid by companies issue outrageous price targets. But I cannot remember ever having seen a company touting itself so blatantly on its own website.

From the same page:

ASCC’s Proprietary Formula Could Turn $5000 into $50,000  ASCC is on target to producing smooth, unflavored vodka that uses domestically-grown potatoes as its main ingredient—integral in appealing to consumers with allergies to certain grains. The market demand for our gluten-free vodka could boost investor gains by 400% or more!
Luxuria Brands is working to promote national market modernization trends in product branding beginning with an American-made premium vodka line, while helping to spur economic prosperity within the U.S. ASCC will expand into the music industry, branding in-demand products on a global scale!
As vodka’s popularity continues to spike, consumers and investors are likely to reap very high ROIs in the first few months of production.

marketshare

While all companies like to accentuate the positive, I must repeat that I have not previously seen such direct references to the stock price (rather than the actual business). What is worse is that the company makes specific predictions about their stock price (“… could boost investor gains by 400% or more”), and about their business performance (saying that they are “poised to capture 3-5%” of the vodka market, an outrageous prediction).

Even PacWest Equities, which rightly drew my ire for many failings, did not make specific and absurd predictions about market share that they would take and price gains that the stock would see. But all this, while highly irregular and inappropriate, misses the more important point. That point is that the company cannot be paying for these ads — it does not have enough cash and has disclosed nothing in its filings about paying for “investor relations” or “stock promotion” services. A quick search of Aristocrat Group’s most recent 10-K revealed no usage of either phrase. Furthermore, the recent 10-K shows that all expenses were under “general and administrative” expenses; stock promotion would not be considered a G&A expense. That brings me to a sinister conclusion: the company is acting in concert with the stock promoters. There is no other logical conclusion that I can think of, especially considering that the company’s two websites are on the same server as the websites of other companies pumped via the same method that I mentioned above (search the YouGetSignal reverse IP tool for the company’s luxuriabrands.com and aristocratgroupcorp.com websites and you find that they are hosted on the same server as the corporate websites of RBCC and FTTN and GTSO and many other penny stock companies).

See this screenshot:

yougetsignal

As mentioned above, First Titan Energy and Rainbow Biosciences have been promoted in the same manner, via online ads. At least one of the companies, Rainbow Biosciences (OTCBB: RBCC) is still being promoted in the same fashion. I cannot confirm that the other companies whose websites show up above were promoted in the same manner but I believe that to be the case. (One important aside: large websites like bhphotovideo.com, nextag.com, shopzilla.com, and bizrate.com are often hosted across many different servers and IPs, and I can safely state that they have no relationship with the other websites shown above.) Below is a screenshot of a search on Bing that yielded a Rainbow Biosciences advertisement:

(highlighting of the RBCC advertisement added by me; click image to enlarge)

I find this direct link between all these companies’ official websites and online stock promotion ads to be quite disturbing. Are the executives of all these companies cooperating with the stock promoters? Are all these companies put together and run from behind the scenes by a small cabal of deal-makers and promoters for the sole purpose of being pumped and dumped? While I believe one of these explanations must be true, extraordinary claims demand extraordinary evidence, which I will aim to provide in future articles in this series. In the meantime, I recommend that investors steer clear of all of these promoted, worthless companies.

Disclosure: It is the policy of MorningLightMountain LLC for no authors of articles nor anyone connected to the company or their immediate relatives to have positions in any stocks covered on the OTCMicroCapResearch.com website, from the time coverage is initiated until coverage of a company is officially dropped. This ensures that there will be no bias nor conflicts of interest for the authors of articles on this website. Furthermore, information about upcoming research reports will not be given to anyone prior to public notice being given via this website’s Twitter account or on this website itself (this report was published on Wednesday, December 19th, at 1:58pm EST). OTCMicroCapResearch.com never gets paid to analyze companies.