A stock transfer agent’s tip leads to British Columbia halt of FMNL

Forum National Investments (FMNL), a company that has skyrocketed on a recent stock promotion campaign, received a cease-trade order from the British Columbia Securities Commission (BCSC) five days ago. Of course, such orders do not prevent companies from trading on the OTCBB in the USA, although such orders often result in steep price declines. FMNL was no exception, dropping from a $2.70 close on 7/20/2012 to a close of $1.01 the next trading day, 7/23/2012.

The reason for the cease-trade order was not abnormal: a large promotional campaign along with a number of press releases from the company led to a significant increase in FMNL’s share price; also, the accounts of people associated with FMNL’s president engaged in significant trading in FMNL during the promotion. What is most interesting about the case is that it was the stock’s transfer agent that informed the BCSC of suspicious transactions by the insiders. Much penny stock fraud involves the selling of unregistered shares or the illegitimate issue of new shares. If more transfer agents were as vigilant as FMNL’s transfer agent, penny stock fraud would be significantly less common (or at least less remunerative).

See the BCSC press release. From the cease trade order and notice of hearing (pdf; emphasis mine):

4. Clozza is the President, Chief Executive Officer, and a director of Forum National.

5. Tutschek is the Chief Financial Officer and a director of Forum National.

6. Curtis is a shareholder of Forum National.

Unexplained attempts to transfer shares

21. On July 5, 2012, Clozza and Tutschek attended the offices of Forum National’s
transfer agent in Vancouver, British Columbia (Transfer Agent). They carried with
them share certificates representing approximately 2.7 million shares of Forum
National. Among these, were certificates in the names of Curtis and Tutschek.
22. Clozza instructed the Transfer Agent to “overnight” transfer the share certificates into
the name of a Bahamian company (Bahamian Entity), by way of a United States
based brokerage firm (American Brokerage). The Transfer Agent informed the
23. On July 10, 2012, the Dealer informed the Commission that some of the accounts
holding Forum National shares had instructed the Dealer to transfer their holdings to
the American Brokerage. Accounts in the names of Bahamian companies, including
the Bahamian Entity, were among those that provided transfer instructions.
24. On July 9 and 12, 2012, the Executive Director obtained freeze orders from the
Commission under section 151 of the Act. Among other things, the freeze orders
blocked attempts to transfer certain share certificates held at the Transfer Agent, and
certain accounts held at the Dealer.
25. On July 16, 2012, Tutschek sent the Transfer Agent a Treasury Direction signed by
Clozza and Tutschek on July 11, 2012, directing it to issue share certificates
representing 137,500 shares in Forum National. The Transfer Agent refused.

Also see David Baines’ article on this case and the Stockhouse article (the first one I saw on this case). Thanks to PromotionStocks for being the first that I saw to mention this case. More info can be found in this iHub post by nodummy.

The $650,000 promotion can be seen here and it was at AmericanInvestingReport.com but is no longer there. See an scanned copy of a physical mailer on it at Promobuyer.net.

Disclaimer: No relationship with any parties named above (except that I trade pump and dumps) and no positions in any stocks or funds 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.

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