Department of Justice files criminal complaints against Dror Svorai, Eli Taieb, and Charles Vaccaro for securities fraud and wire fraud

On July 22nd, the District Court for the Northern District of Ohio unsealed criminal complaints that had earlier been filed against Dror Svorai, Eli Taieb, and Charles Vaccaro. All three men were arrested and there are separate criminal complaints against each of them. Vaccaro will be released after he secures a $1 million secured appearance bond (pdf); Taieb was released on a $1 million personal surety bond and must wear a GPS monitoring device; Svorai was released on a $1 million personal surety bond (pdf) cosigned by his brother. The men are presumed innocent until proven guilty at trial.

Each of the three cases will be heard in the Northern District of Ohio District Court.

United States v. Vaccaro (1:19-mj-03190)

United States v. Svorai (1:19-mj-03191)

United States v. Taieb (1:19-mj-03192)

There was a brief proceeding held in the Southern District of Florida (1:19-mj-03164) where Svorai was arrested; another brief proceeding was held in the Eastern District of New York (2:19-mj-00666) where Vaccaro was arrested.

The charges against all three men are the same:
Conspiracy to commit securities fraud
Securities fraud
Wire fraud

Each complaint is accompanied by the same affidavit (pdf) of FBI Special Agent Anthony Fry. The introductory section of the affidavit is a good overview:

Upon information and belief, in and around July 2019, within the Northern District of Ohio and elsewhere, the defendants, DROR SVORAI, ELI TAIEB, and CHARLES VACCARO, together with others, did knowingly and intentionally attempt to execute a scheme and artifice to defraud investors and potential investors in connection with securities of issuers with a class of securities registered under Section 12 of the Securities Exchange Act of 1934, specifically PotNetwork Holdings, Inc., Clic Technology, Inc., White Label Liquid, Inc., Canna Corporation, and Vapor Group, Inc. to obtain money and property from investors and potential investors by means of materially false and fraudulent pretenses, representations, and promises in connection with purchases and sales of securities of issuers with a class of securities registered under Section 12 of the Securities Exchange Act of 1934, specifically, PotNetwork Holdings, Inc., Clic Technology, Inc., White Label Liquid, Inc., Canna Corporation, and Vapor Group, Inc. in violation of Title 18, United States Code, Sections 1348 and 1349.

In addition, based on my training and experience and the facts as set forth in this affidavit, there is probable cause to believe that violations of Title 18, United States Code, Sections 1343 (Wire Fraud), 1348 (Securities Fraud), and 1349 (Conspiracy to Commit Wire and Securities Fraud) have been committed by DROR SVORAI, ELI TAIEB, and CHARLES VACCARO and others, known and unknown, in the Northern District of Ohio and elsewhere

The gist of the alleged scheme is that the three men would buy shell companies and then take approximately 20% ownership through debt conversions. They would then transfer shares to an offshore brokerage, sell the shares, and transfer the money back into the United States. One undercover FBI agent (“Undercover Agent 1”) purported to be a middleman with contacts at offshore brokers. A cooperating witness (“CW1”) worked with Undercover Agent 1. A second undercover agent (“Undercover Agent 2”) purported to have a construction business that he could use to transfer that money back into the United States. The three men are alleged to have previously sold shares offshore but had trouble repatriating the proceeds.

The affidavit mentions that the three men had previously used another broker (“Broker 1”) to sell shares but that Taieb stated that they “need to deposit the shares elsewhere because Broker 1 had gotten more complicated.” I presume that what Taieb was referring to was FINRA and the SEC increasing the scrutiny of brokers and brokers thus being more careful about accepting deposits of large blocks of penny stocks, a topic I just wrote about.

The affidavit refers multiple times to the OTC Markets “Caveat Emptor” designation (which is Latin for ‘buyer beware’ and is indicated by an image of a skull and crossbones). I have previously written about how I think this designation has more importance than just serving as a warning to investors and traders. Taieb’s statements cited in the affidavit indicate to me that he did not believe that CLCI and WLAB could be sold with the Caveat Emptor still in effect: “[Taieb] stated the designations will be removed Monday and by the time Undercover Agent 1 started selling shares the stocks will be ready.”

The five stocks mentioned in the affidavit are PotNetworks Holdings Inc. (POTN), Clic Technology Inc. (CLCI), White Label Liquid Inc. (WLAB), Canna Corporation (CNCC), and Vapor Group Inc (VPOR). Two of those stocks, CLCI and WLAB, were designated ‘Caveat Emptor’ by OTC Markets in June. None of the companies listed above are accused of wrongdoing in the complaints.

One allegation that should be of interest to traders and regulators alike is that the men preferred to use pay per click stock promotion rather than emails or postal mailers. According to the affidavit, “SVORAI stated pay per click promotion would generate more volume, and it was harder for OTC to find out about it. SVORAI indicated they could spend $100,000 or $200,000 per week per symbol.”

A year ago, Chares Vaccaro was charged with four misdemeanors in connection with dumping untreated sewage from his 70-foot yacht into Lake Montauk when the boat’s septic tank overflowed. Vaccaro’s alleged apartment is for sale for just under $900,000.

Corrections and changes: 

1 August 2019 – Sentence about sewage charges added.

Disclaimer: I have no position in any stock mentioned. 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 sues Michael J. Black and Garrett M. O’Rourke for alleged ETII, AVOP, and CYBF boiler-room pump and dumps; O’Rourke gets indicted

On July 19th, the SEC unveiled a lawsuit against Garrett M. O’Rourke and Michael J. Black for alleged boiler-room pumps and dumps in the shares of three OTC stocks: EnviroTechnologies International Inc (ETII), AV1 Group (AVOP), and Cyberfort Software Inc (CYBF). Read the complaint (pdf). The lawsuit is 1:19-cv-04137 in the Eastern District of New York.

The Justice Department also filed criminal charges against Garrett M. O’Rourke for the AVOP promotion. He was arrested and then released on $1 million bond. Read the criminal complaint (pdf). The case is 1:19-mj-00644 in the Eastern District of New York. There is a second person named in the criminal complaint but that person’s name is currently redacted. However, given the information in the SEC complaint and the fact that the name “BLACK” shows up twice in the criminal complaint (without Black’s full name showing up), I conclude that Michael J. Black is the second defendant named in the indictment. Below are two excerpts from the complaint that mention “BLACK”:

Quartz has an excellent overview on the allegations and charges.

From the DoJ press release:

According to court filings, between April 2016 and June 2017, O’Rourke engaged in a securities fraud conspiracy to mislead investors into purchasing shares of AVOP by claiming, among other things, that he and his co-conspirators worked for Marketwise Report, a purported investment advising firm located in Florida that offered stock advice to clients.  In reality, O’Rourke and his co-conspirators did not work for this fictitious entity and instead worked in call rooms based in Florida and Medellin, Colombia.  O’Rourke and his co-conspirators made misrepresentations and false statements to induce investors to purchase and retain AVOP stock in order to profit for themselves.  By persuading numerous investors to purchase AVOP stock, O’Rourke and his co-conspirators were able to “pump” AVOP’s stock price.  Then, once the stock price had artificially increased, a co-conspirator “dumped” over $2 million in shares at the artificially inflated prices and shared the profits from the sale with O’Rourke and other co-conspirators. 

The criminal complaint mentions a cooperating witness (“CW1”).

Below are charts of the three companies mentioned in the SEC lawsuit, showing the period during which they were promoted.

ETII February 2017 to August 2017

AVOP May 2016 to September 2017

CYBF June 2018 to October 2018

Disclaimer: I have no position in any stock mentioned. 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 Suspends trading in Biohemp International (BKIT), another stock promoted by a boiler-room

I was somewhat surprised that the SEC did not suspend trading in boiler-room pump and dump Biohemp International (BKIT) about a month ago when it suspended trading in other similar pumps, but it is better late than never. Trading in BKIT was suspended before the market open this morning. It will resume trading on the OTC grey market at the open on August 9th.

SEC trading suspension PR (pdf)
Trading suspension order (pdf)

Reason for the trading suspension:

… potentially manipulative or deceptive activity relating to the company. It also appears that there is a lack of current and accurate information concerning the securities of BioHemp because of questions regarding the accuracy of assertions by BioHemp and by others in press releases and/or cold calls to investors concerning, among other things, the anticipated value of BioHemp stock.

Trading suspension order

I previously wrote about the boiler-room promotion of Biohemp International (BKIT). OTC Market Research made their research report on the company public after the stock dropped. See also my blog post on the SEC trading suspensions of other promoted stocks (many of them boiler-room promotions) just under a month ago. I also recommend reading the more in-depth post about three of those trading suspensions of boiler room pumps by OTC Market Research.

Disclaimer: I have no position in any stock mentioned. I have no relationship with any parties mentioned above except that I am a paying subscriber to OTC Market Research. 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 Enforcement files complaint against microcap broker Wilson-Davis for alleged market manipulation of promoted stock Nugene (NUGN)

On July 19, 2019, FINRA Enforcement filed a complaint (pdf) against microcap broker Wilson-Davis & Co for market manipulation of promoted stock Nugene (NUGN), failures to supervise, and failing to establish and implement appropriate AML policies and procedures. Readers of this blog will recall that FINRA Enforcement alleged that another microcap broker, Glendale Securities, manipulated trading in NUGN; the OHO hearing panel on that count decided that Glendale and its broker did not manipulate NUGN. Glendale was fined for AML failures and failures to supervise relating to trading in NUGN as well as another promoted stock. FINRA Enforcement appealed that decision.

There have been three major regulatory actions against Wilson-Davis in the last few years:

  • 26 April 2017: SEC settles with Wilson-Davis & Co for violations of Reg SHO (selling short stocks without having borrowed them and not engaging in bona-fide market making). Firm ordered to pay disgorgement of $208,645.71, interest of $27,068.79, and a civil penalty of $75,000.
  • 27 February 2018: FINRA OHO (Office of Hearing Officers) extended hearing panel reaches decision against Wilson-Davis for improper short sales and failures to supervise and implement adequate AML (anti-money laundering) procedures. Firm fined $1,470,000 and ordered to disgorge $51,624. This decision is currently on appeal to the FINRA National Adjudicatory Council (NAC) and the fines and other penalties are not put into effect while the decision is being appealed. I expect the NAC to rule on this appeal within the next couple months.
  • 15 May 2019: SEC settles with Wilson-Davis & Co for failures to file suspicious activity reports (SARs). The firm was fined $300,000. It also agreed to hire a consultant and follow the consultant’s recommendations to improve its compliance.

I should point out that at the present time the FINRA Enforcement complaint against Wilson-Davis contains allegations that have not been proven. At some points in the next few months to a year a FINRA OHO panel will be convened to hear the allegations and reach a decision on the facts of the matter and what penalties Wilson-Davis may face.

Along with Wilson-Davis & Co, its employees Craig Stanton Norton (CRD #349405), James C. Snow, Jr. (CCO & AMLCO), Lyle Wesley Davis (CEO; CRD #62352), and Byron Bert Barkley (VP and head of trading; CRD #12469) are named in the complaint.

Allegations

According to the complaint (pdf), over 20 clients of Wilson-Davis allegedly deposited over 4 million shares of Nugene (NUGN) that they had acquired privately and later sold. Prior to their trading in NUGN, FINRA had inquired with Wilson-Davis about some of those clients. Furthermore, some of those clients had been sued along with Wilson-Davis for involvement in an alleged pump and dump. I tried to find the lawsuit referred to in the allegations quoted below, but could not find it despite searching for Wilson-Davis in PACER’s case locator. Therefore I believe it must have been filed in Utah state court (where Wilson-Davis is based) as opposed to Federal court. Unfortunately, Utah does not have electronic access to case records. I also searched all Colorado state courts (Wilson-Davis has an office in Denver) and found no cases involving them in Colorado. Below are my PACER case locator search results:

Relevant excerpts from the complaint:

32. Around 2005, Norton attended an OTC investor conference in Las Vegas, where he met RW, AL, SH, and LB—all of whom opened accounts with Norton at Wilson-Davis and transacted in NUGN. Since meeting this group at the 2005 conference in Las Vegas, Norton has received several customer referrals through this group, including, in particular, RM (who controlled an entity named RC), JS (who controlled an entity named CC), JF (who controlled an entity named RH), and MT (who controlled an entity named CD). All of these individuals and entities were involved in the manipulative activity involving NUGN.

33. On December 18, 2014, just prior to the Bling-NuGene merger announcement, either Norton or his assistant, both of whom were located in Wilson-Davis’s office in Centennial, Colorado, telephoned numbers associated with Wilson-Davis customers RM, AL, SW, and JF.

34. A few days later, on or about December 20, 2014, RM (through his entity RC) acquired hundreds of thousands of shares of BLMK stock in a series of private transactions with existing BLMK shareholders, including several members of the same family. Later, in March 2015, RM privately sold some of this stock to other Wilson-Davis customers CC (controlled by JS), MS (controlled by AL), and PG and VH (entities connected to KC). CC, MS, PG, and VH deposited the NUGN shares bought from RM into accounts with Wilson-Davis.

35. In addition, at least 12 other Wilson-Davis customers who deposited NUGN stock with the firm apparently acquired their shares in similar private transactions, just prior to the merger, at or around the same time as Wilson-Davis customer RM.

36. Prior to December 2014, Wilson-Davis and Norton knew or should have known that RM, JF, and AL, as well as other Wilson-Davis customers who eventually transacted in NUGN, namely SH, MT, KC, JS, JC, and RW, had a history of engaging together in potentially suspicious activity involving other microcap securities. Specifically, during the period from June 2012 through November 2013, the firm had received several regulatory requests from FINRA staff concerning activity in other OTC microcap stocks traded by these customers. In addition, in November 2013, Wilson-Davis was named a defendant in a civil lawsuit alleging that the firm aided and abetted a network of its customers—including JF, RW, KC, JC, and MT—in orchestrating a “pump-and-dump” in another OTC microcap security.

Complaint, pages 9-10

A key part of the allegation of market manipulation is that by buying NUGN at $5.00 (for its proprietary trading account), Wilson-Davis allowed many of its clients to sell because they were no longer subject to the lock-up leak-out provision.

47. On February 24, 2015, when Norton accepted Broker-Dealer A’s offer and purchased 250 shares of NUGN at $5.00 per share, he did so without attempting to negotiate price. He did so even though, at the time of his $5.00 purchase, the highest offer to buy NUGN stock reflected in the market was $2.25 per share and Wilson-Davis’s own offer to buy the stock (publicly quoted by Norton, as a market maker) was $1.33 per share.

48. Norton’s $5.00 purchase of NUGN on February 24, 2015 represented 100% of the stock’s daily market volume that day and set the closing price for the stock at $5.00.

49. Over the next two trading days, Broker-Dealer A sold additional shares of NUGN stock in three transactions at $5.00 per share. These three transactions represented 100% of NUGN’s daily market volume on February 25 and 26, 2015, and resulted in setting the stock’s closing price at $5.00 per share for three consecutive days.

50. According to calculations in Wilson-Davis’s files, NUGN had approximately 41 million shares outstanding during the three-day period from February 24 through February 26, 2015. Based on those calculations, NUGN closing at $5.00 per share for three consecutive days would result in NuGene’s daily market capitalization exceeding $200 million. As a result of such market capitalization, pursuant to the terms of the Lock-Up/Leak-Out Agreement (see paragraph 23, above), Wilson-Davis customers with NUGN stock subject to the agreement were free to sell all their NUGN holdings regardless of the agreement’s restrictions.

51. Over the next few months, more than a dozen Wilson-Davis customers deposited over three million shares of NUGN stock with the firm that would have been subject to the trading restrictions set forth in the Lock-Up/Leak-Out Agreement absent the trading at $5.00 per share that occurred on February 24 through 26, 2015.

Complaint, pages 12-13

The entity that paid for the promotion is disclosed as “RC”, which is of course Result Corporation. They were disclosed in the mailer promotion and website as the party that paid for the promotion.

56. Shortly after AA’s deposit of NUGN, Norton’s customer RM (through his entity RC) paid $4.4 million dollars to create and disseminate a 28-page color brochure promoting NUGN and encouraging investors to buy NUGN stock. Among other things, the NUGN stock promotion brochure claimed that the price of NUGN shares “could fly from $1.27 to $25.08” and “could send NUGN shares soaring 1,875%.”

58. In addition, during the same time, RM was associated with the Wilson-Davis account for the entity BB, which deposited and sold NUGN stock through Norton, generating over $600,000 in sales proceeds.

Complaint, page 14

In my opinion the most damning part of the allegations of market manipulation is that Norton’s clients would use “not held” orders, which gave him discretion at which prices to buy or sell. These were not simple limit orders that were automatically executed as the price of NUGN hit those limits. The details:

67. Specifically, on March 2 and 3, 2015, Norton engaged in coordinating trading with one of his customers, FS, raising the reported price of NUGN stock. Specifically, toward the end of the trading day on March 2, 2015, Norton entered an order on FS’s behalf to buy 700 shares of NUGN at a maximum price of $1.60 per share. Seconds later, Norton filled FS’s order by short selling 700 shares of NUGN from his proprietary account at $1.50 per share, even 16 though the last reported trade for NUGN in the market was at $1.36 per share. Norton’s late-day trade with FS on March 2 set the closing price for the stock at $1.50 per share, $0.14 higher than the last reported trade in the market at the time, which was at $1.36 per share.

68. Then, on March 3, 2015, Norton placed an order on FS’s behalf to sell at $2.00 per share the NUGN stock she had just acquired from Norton the day before at $1.50 per share. As the market opened on March 3, 2015, Norton filled FS’s order by buying FS’s shares to cover his short position (which he had opened the day before to sell stock to FS) at an average price of $2.13 per share. Norton engaged in this trading with FS even though it caused him to cover Wilson-Davis’s short position at a loss. Norton’s morning trade with FS on March 3, 2015, was the first NUGN trade of the day and increased the reported market price of NUGN over the previous day’s close of $1.50—which he had set, as described above.

69. In addition, Norton made the last trade of the day in NUGN on March 3, 2015, when he sold 100 shares of NUGN out of Wilson-Davis’s proprietary trading account at $2.12 per share. This trade resulted in a price increase over the last reported trade from $2.00 to $2.12 and increased the closing price of NUGN stock by $0.62 over the prior day’s close.

70. In the early stages of the manipulation, Norton used his position as a NUGN market maker to coordinate trading in NUGN among his customers to further the appearance of an active and stable market for NUGN. Norton’s customers would often use “not held” buy or sell orders, which essentially gave Norton, as a market maker, discretion to buy or sell NUGN stock at various prices or amounts to coordinate trading between his customers. In other instances, Norton and his customers would cancel, replace or change existing orders in price or quantity to coordinate trading between Wilson-Davis customers.

Complaint, pages 16-17

The complaint alleges that over 50% of the trading from January 2015 to April 2015 involved Wilson-Davis clients or its proprietary trading account. Wilson-Davis clients being such a large proportion of the trading volume (both buying and selling) over such a long time period should have raised red flags about possible wash trading.

75. From March 2, 2015 through May 13, 2015, Norton and his customers’ NUGN trading activity dominated the market. During this time, Wilson-Davis accounted for 50% or more of NUGN’s daily market volume on 24 out of a possible 51 trading days. Specifically, Wilson-Davis’s trading in NUGN accounted for 50% or more ofNUGN’s total daily trading volume on the following days: March 11-12, March 25-26, March 30-April 2, April 6-9, April 13-16, April 22, April 24, April 28-29, May 6, and May 11-13. 19

76. Indeed, by early April 2015, Wilson-Davis was responsible for at least 50% of all NUGN’s trading volume since the stock began trading in January 2015. This trend continued throughout April 2015, when NUGN trading activity at Wilson-Davis accounted for at least 65% of the stock’s total trading volume for the month of April 2015.

Complaint, pages 19-20

The final results of the trading are quite impressive: 20 clients of Wilson-Davis allegedly deposited over 4 million shares of NUGN (acquired for pennies per share) that they then sold for almost $10 million. All the trading generated over $500,000 in commissions and fees for Wilson-Davis & Co.

82. In total, between February and October 2015, Wilson-Davis had over 20 customers deposit over 4 million shares of NUGN stock—most of which had been acquired from third parties for pennies a share just prior to the Bling-NuGene merger.

83. From March 2015 through October 2015, Wilson-Davis customers liquidated over 3.2 million of these shares, generating almost $10 million in net sales proceeds. In particular, customers who purchased NUGN stock privately from RM (through RC) generated over $2.5 million in NUGN sales proceeds coincident with the NUGN stock promotion.

84. In total, from February through October 2015, Wilson-Davis and Norton generated over $500,000 in commissions and fees from NUGN transactions. In particular, in just three months from March 3, 2015 to June 9, 2015, Norton generated approximately $415,000 in commissions from his customers’ NUGN trading.

Complaint, pages 21-22

The following section of the complaint details the alleged supervisory and AML system failures of Wilson-Davis. The section on the red flags associated with the trading of NUGN is in my opinion damning.

116. From December 2014 through October 2015, Wilson-Davis and the firm’s designated supervisors—Snow, Barkley, and Davis—failed to detect, escalate, or investigative numerous red flags of potentially suspicious activity associated with the firm’s customers’ liquidation and trading in NUGN, including:

a. In a short period, over 20 different customers deposited millions of shares of a thinly-traded, little known microcap security (NUGN) that they obtained in privately negotiated sales with third parties, including numerous members of the same family, just before this former shell company issuer (BLMK) announced a reverse merger, change in business line, and stock symbol change.

b. At least 12 Wilson-Davis customers obtained their NUGN stock at or around the same time (mid-December 2014) (see paragraph 35, above), and Wilson-Davis knew or had reason to know that several of these customers had garnered regulatory scrutiny for their microcap trading activity (see paragraph 36, above).

c. Several customers who deposited NUGN stock with the firm had questionable backgrounds, including SH (who was involved with prior stock promotions that garnered regulatory scrutiny), MT (who was fined $1.4 million by the State of Texas in 2005 for an illegal email stock promotion), and others who were named with Wilson-Davis in a lawsuit alleging that they engaged in a “pump and dump” scheme through the firm (including JF, RW, KC, JC, and MT).

d. Several of the original BLMK shareholders who sold their stock to Wilson-Davis customers were members of the same family (including NF, EF, MF, and SF), who were related to BLMK’s former CEO (DK), which was readily ascertainable from an Internet search for the former CEO’s name.

e. Stock deposit paperwork for several customers was incomplete and missing pages, including the reverse side of stock certificates and pages or sections of applicable stock purchase agreements. In addition, more than a dozen WilsonDavis customers who deposited NUGN stock with the firm used the same private attorney to provide opinion letters regarding their stock.

f. The total stock deposited by Wilson-Davis customers represented a significant percentage of NUGN’s public float (see paragraph 52, above)

g. At least eight Wilson-Davis customers—namely, AA, PE, MS, BB, AM, RG, KL, and CM—opened accounts with the firm only a few weeks prior to their NUGN deposit and liquidation activity. Seven of these customers (with the exception of MS) held no other securities in their accounts until they deposited their NUGN shares and two customers (AA and KL) began selling their NUGN holdings the day after depositing the stock; thereafter, they then began wiring the proceeds of these sales out of their Wilson-Davis accounts.

h. Wilson-Davis customer RM (through his entity RC) paid $4.4 million for the NUGN Stock Promotion (see paragraph 56, above), which the issuer addressed publicly in June 2015 (see paragraph 64, above), yet Wilson-Davis apparently failed to identify or address the stock promotion.

i. Shortly after depositing their stock and in the midst of a stock promotion paid for by one of Wilson-Davis’s customers (RM), Wilson-Davis customers liquidated millions of dollars’ worth of their newly-acquired, low-cost NUGN stock, while other Wilson-Davis customers with existing sizeable positions in the stock— namely AA, MS, and CD—engaged in significant buying activity in the stock (see paragraph 74, above).

J. Overall, Wilson-Davis’s and its customers’ trading in NUGN dominated the market from late February through early May 2015 (see paragraphs 48, and 75-76, above), including several trading days where NUGN trading through WilsonDavis alone accounted for 50% or more of the stock’s daily trading volume.

k. Wilson-Davis and its customers engaged in trading indicative of market manipulation, including coordinated trading between Wilson-Davis customers and the firm (see paragraphs 66-75, above).

Complaint, pages 28-29

The next section of the complaint alleges that when asked by FINRA to provide “[s]upervisory records evidencing review of all trading activity in NUGN” from May 5, 2014 through October 7, 2015, Lyle Davis created new records that he then provided to FINRA.

122. The firm did not have any documents responsive to FINRA’s March 4th Rule 8210 request for the time period covered by Davis’s retroactively created spreadsheet. Rather than inform FINRA that the firm did not have responsive documents reflecting Davis’s supervisory review of NUGN trading for the entire time period requested, Davis and Wilson-Davis created and produced the newly-created spreadsheet, which was not a contemporaneous supervision record responsive to FINRA’s request.

Complaint, page 30

The Charges and potential penalties

The charges are as follows:

FIRST CAUSE OF ACTION WILLFUL STOCK MARKET MANIPULATION Willful Violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Violation of FINRA Rules 2020 and 2010 (Wilson-Davis and Norton)

SECOND CAUSE OF ACTION DEFICIENT SUPERVISORY SYSTEM AND FAILURE TO SUPERVISE Violation of FINRA Rules 3110(a), 3110(b) and 2010 (Wilson-Davis, Snow, Davis, and Barkley)

THIRD CAUSE OF ACTION UNREASONABLE AML SYSTEM Violation of FINRA Rules 3310(a) and 2010 (Wilson-Davis and Snow)

FOURTH CAUSE OF ACTION PROVIDING FALSE AND MISLEADING INFORMATION TO FINRA Violation of FINRA Rules 8210 and 2010, Both Independently and by Virtue of Violating Rule 8210 (Wilson-Davis and Davis)

Complaint, pages 30-36

Given the severity of the allegations and over $500,000 in commissions and fees earned by Wilson-Davis on NUGN, in my opinion it is likely that FINRA will seek over $1 million in combined fines and disgorgement. Considering that the 2018 FINRA Extended Hearing Panel decision (currently on appeal so penalties are not in force) included 1-year suspensions on Snow and Barkley, in my opinion FINRA may seek to bar them.

One random note: the FINRA Enforcement complaint lists four senior lawyers from the SEC from different offices: Denver, Boston, New Orleans, and Los Angeles. That seems unusual to me.

Corrections and changes:
2019-7-26 – Added a couple links to the complaint.

Disclaimer. No position in any stock mentioned and I have no relationship with anyone mentioned in this post. 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.

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

Important disclosure: I am currently short LQWC and will profit if it drops. See bottom for full disclosure.

Just three days ago I wrote about the drop in Vaccex (VCEX) after it was designated ‘caveat emptor’ by OTCMarkets. VCEX was promoted by 7 Stocks LLC. Around the end of the VCEX promotion 7 Stocks LLC started promoting LQWC using search engine ads linking to the website 7Stocks.com/featured. After the market close yesterday LQWC was also designated ‘caveat emptor’ by OTC Markets.

Sample Google search ad:

Screenshot of promotion page:

Disclosed budget: $50,000
Promoter:  7 Stocks LLC
Paying party:  Antevorta Capital Partners Ltd
Shares outstanding:  85,294,700 
Unrestricted shares: 4,096,208
Previous closing price: $1.22
Market capitalization: $104 million

Disclaimer:

We are paid to advertise the Profiled Issuer (LQWC). 7stocks.com is owned by 7 Stocks, LLC and has been compensated $50,000 by Antevorta Capital Partners LTD. for a period beginning on July 9, 2019 and ending July 30, 2019. We will update any changes to our compensation. We own zero shares of (LQWC)

While I don’t often discuss the fundamentals of companies that are undergoing pump and dumps because they are almost always unbelievably bad, I would be remiss if I didn’t point out that LQWC reported absolutely no assets in its most recent quarterly report:

As I wrote in my post about VCEX, 7Stocks LLC is a Wyoming LLC with no information about its owners publicly available, which was registered on December 8, 2018. Just like with the promotion of VCEX the promotion was paid for by Antevorta Capital Partners Limited.

Antevorta Capital Partners Ltd’s UK company registration shows that it was incorporated on November 21, 2018. The one officer listed is Julius Charles Csurgo (Director), and his correspondence address is in Hungary: U 3/12, Pecs Bajcsy-Zsililnsky, Endre U, Hungary, 7622. Julius Csurgo’s LinkedIn profile lists him as a partner at Antevorta Capital Partners Limited from 2011 to the present. He is also listed as Managing Director of Merger Law Associates Ltd since 2005 and Director and CEO of Go Green Group Limited.

Antevorta Capital Partners Ltd. is mentioned only a handful of times in SEC filings. It is mentioned in the 5/7/2018 SEC Form 1-A of Deep Green Waste & Recycling, the 4/17/2017 10-K of Atacama Resources International, the 4/15/2015 10-K filed by Textmunication Holdings Inc, and an 8-K (4/17/2014) and an 8-K/A (12/3/2013) from Mobiagogo, Inc. Julius Csurgo is mentioned only twice in SEC filings, the 10-K filed by Cannagistics Inc. on 3/21/2019 and the 10-K/A filed 3/15/2019.

LQWC daily candlestick stock chart:

Disclaimer: I am currently short LQWC. This means that I will profit if the stock drops. I intend to hold the short for weeks if necessary. I may add to the position or cover it at any time. I have no position in any other stock mentioned. I have no relationship with any parties mentioned above except that I am a paying subscriber to OTC Market Research. 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.

Another boiler room pump bites the dust, this time without help from the SEC

The last four days have not been kind to investors in Biohemp International inc (BKIT). On July 12, 2019 it closed at $1.9425; with 28.85 million shares outstanding, it had a market cap of $56 million. Today it closed at $0.17, down over 90% from its highs.

BKIT has reportedly been the subject of a boiler room stock promotion. Here are a couple comments on BKIT’s Yahoo Finance message board:

Also, a short seller of pump and dumps that I know and respect posted one of the phone numbers used by the boiler room:

Of all the kinds of stock promotion, boiler room pumps are the hardest to identify because there is no public record of the phone calls, no emails, no websites, and no advertisements online (although some boiler room promotions also involve email and landing page promotion as well). At the present time, with SEC Enforcement acting aggressively, going under the radar is the best bet for promoters. This promotion even stayed out of sight of OTC Markets, which does not even have it marked as being a promoted stock.

Here is a screenshot from the OTCMarkets website on BKIT:

While BKIT dumped before the regulators came calling, the SEC did recently suspend trading in multiple boiler room pump and dumps that were all connected.

In addition to the boiler room pump, BKIT also had a paid analyst research note with Ludlow Research, which was paid $2,300 for “on-going media advisory services”. I encourage you to read the note (pdf) if you want a good laugh.

Update 2019-7-19: OTC Market Research just made their research report on BKIT publicly available. Read it.

Disclaimer: I have no position in any stock mentioned. I have no relationship with any parties mentioned above except that I am a paying subscriber to OTC Market Research. 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.

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

On July 9, 2019, after the market close, OTCMarkets.com designated three stocks as ‘Caveat Emptor’ (buyer beware; also known as the skull and crossbones for the emoji they use). I previously wrote about how poorly many recent stock promotions have performed after receiving the caveat emptor designation. I will continue to keep updating people on this topic.

The three stocks that were designated caveat emptor were Vaccex Inc (VCEX), Bettwork Industries Inc (BETW), and Element Global (ELGL).

Element Global was unknown to me until it was marked caveat emptor. Judging by the chart it had some sort of promotion or manipulation in May; in June it put out several press releases. The stock closed at 0.36 on July 9th and on the third trading day after being designated ‘caveat emptor’ (July 12th) it closed at $0.1648. With 249 million shares outstanding it still has a significant market cap of $55 million as I write this.

Bettwork Holding (BETW) is the only one of these three stocks that is above where it was before the caveat emptor designation. It closed at $0.6655 on July 9th, gapped down but then recovered the next day, and has continued to rise on light volume. BETW was promoted by PennyPickNewsletter.com (and possibly by other websites controled by the promoter behind it). OTC Market Research has referred to this promoter as the “Tier 1” promoter because they move stocks but keep changing which websites they use and use fake names in all their disclaimers. That BETW has kept rising is not that surprising to me — the only other recent promotion that kept rising after being designated ‘caveat emptor’ was another “Tier 1” pump, Kalmin Corp (KLMN). At a current price of $0.76, BETW has a market cap of $32 million.

I am short BETW (see full disclaimer at bottom).

The third stock that was designated caveat emptor on July 9th was Vaccex (VCEX). Vaccex had been promoted via an online landing page at https://thepublicmarkets.com/heres-why-otc-vcex-is-the-must-see-stock-of-the-year-the-timing-couldnt-be-better/. At some point on the second trading day after the caveat emptor designation (July 11th), that landing page was taken down. I was just about to blog about the promotion (after having just come back from vacaction) and had not yet saved a copy of the landing page. Thankfully, Archive.org had already archived the promotion page.

VCEX gapped down big after the caveat emptor designation and then dropped precipitously the second day and dropped more the third and fourth days. I was lucky enough to have just shorted VCEX on July 9th right before the caveat emptor. I covered at around $0.38. At a current price of $0.30, VCEX has a market cap of $15 million.

Disclaimer from VCEX landing page:

We are paid to advertise the Profiled Issuer (VCEX). thepublicmarkets.com is owned by 7 Stocks, LLC and has been compensated $100,000 by Antevorta Capital Partners LTD. for a period beginning on June 24, 2019 and ending July 22, 2019. We will update any changes to our compensation. We own zero shares of (VCEX)

Per the full disclaimer page at the website, it is owned and run by 7 Stocks LLC, a Wyoming LLC. It was initially registered on December 8, 2018 (filing # 2018-000831874). The company was registered by Cloud Peak Law Group with an employee of that firm listed as an ‘Authorized Individual’.

Disclaimer: I am currently short BETW. I intend to hold the short for weeks if necessary but I may cover the position at any time. I have no position in any other stock mentioned. I have no relationship with any parties mentioned above except that I am a paying subscriber to OTC Market Research. 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 Brings the Suspensions to many pump & dumps the one week I’m on vacation

Last week (the week of July 1st, 2019) was my first real ‘don’t even bother to look at your laptop to check stock prices during market hours’ vacation in two years. I took an Alaskan cruise and enjoyed seeing the sights (if you are ever in Ketchikan, Alaska, make sure to go snorkeling with Snorkel Alaska). So naturally the SEC decided that would be a good time to hand out more trading suspensions of active and recent pump and dumps in one week than it had done in years.

First, make sure to take a look at the article on the suspension by my friends at OTC Market Research: SEC Targets Boiler Room promoter. I will not repeat what they wrote (read it yourself!) except to list the stocks:

Anvia Holdings Corp (ANVV) was suspended on 2019-6-27 (PR | order)

Natural Health Farm Holdings (NHEL) was suspended on 2019-6-28 (PR | order). I wrote about the boiler-room pump & dump of NHEL on March 18, 2019.

Korver Corp (KOVR) was suspended on 2019-6-28 (PR | order)

Apotheca Biosciences Inc (CBDC) was suspended on 2019-6-28 (PR | order)

Befut Global (BFTI) was suspended on 2019-6-28 (PR | order)

Besides the above companies that were written about at OTC Market Research, the SEC also suspended trading in two stocks that are not connected with the others: Blue Eagle Lithium (BEAG) was suspended on July 1, 2019 and Upper Street Marketing Inc (UPPR) was suspended on June 27, 2019.

I previously wrote about the mailer promotion of BEAG on June 25, 2019. Read the SEC press release (pdf) and suspension order (pdf). BEAG will resume trading at the open on July 17, 2019. The reason given for the suspension (from the PR):

questions regarding (i) the accuracy and adequacy of publicly available information in the marketplace, since at least May 22, 2019, about the company, including statements in online promotional materials regarding analyst findings and the extent of the company’s mining claims; and (ii) recent unusual unexplained market activity in Blue Eagle Lithium, Inc.’s common stock.

Trading in Upper Street Marketing Inc. (UPPR) was suspended by the SEC on June 27, 2019. The stock will resume trading at the open on July 15, 2019. See the SEC press release (pdf) and the suspension order (pdf). The reasons given for the trading suspension are (surprisingly) quite specific:

questions about the accuracy and adequacy of information publicly disseminated concerning UPPR, including, among other things: (1) public statements by UPPR dated May 8, 2019 and May 23, 2019 concerning $10.55 million worth of purported financing for UPPR; (2) public statements by UPPR dated April 30, 2019 and May 23, 2019 denying its retention of an investor relations firm despite apparent possible promotional activity on behalf of UPPR; and (3) inadequate statements, since at least November 2018, concerning a possible private offering of at least $3 million dollars in UPPR’s common stock.

Oddly, I found no PRs or other public statements from the company on the dates listed in the SEC suspension release or even with the specific topics mentioned in the SEC release. I searched OTCMarkets.com, GlobeNewswire, and http://upperstreetmarketing.com, https://twitter.com/Growing_Springs, and https://www.facebook.com/GrowingSprings.



Disclaimer: I have no position in any stock mentioned. I have no relationship with any parties mentioned above except that I am a paying subscriber to OTC Market Research. 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.

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

A number of recent pump and dumps have been tagged with the “Caveat Emptor” (also known as the skull and crossbones ☠) designation by OTCMarkets.com. Below I have indicated on the stock charts when each stock was given the Caveat Emptor designation. For the most part, pumps marked with ☠ have quickly dropped and stayed down. Besides the negative publicity of the Caveat Emptor designation, it also has some deeper effects that have caused promoters to abandon tickers given the Caveat Emptor. Unfortunately I cannot yet publish the evidence I have for this conclusion. I do intend to explain this in a follow-up post, hopefully in a few months.

A list of stocks with the most recent addition or removal of Caveat Emptor status can be found at https://www.otcmarkets.com/market-activity/compliance-statistics. See OTCMarkets’ policy on when a stock gets marked Caveat Emptor. Follow their Twitter account for notifications of Caveat Emptor designation. A handy time-sorted list of only relevant tweets by @OTCMarkets is here. Unless otherwise noted, stocks were given the Caveat Emptor designation after the market close. Do note that when trading is suspended in a stock it automatically receives the Caveat Emptor; those cases are not interesting to me because the trading suspension by the SEC is the more important action. I have also excluded illiquid and subpenny stocks from the list below. I have tried to be thorough but let me know if I have missed any stocks.

A few stocks have been notable to me and the folks at OTC Market Research for not getting designated Caveat Emptor. Among those are long-time landing page promotion NUGL (which isn’t even marked as a paid promotion), BEAG (landing page and now a mailer pump), boiler-room pump NHEL from two months ago, and current boiler-room pump BKIT.

White Label Liquid Inc (WLAB): Caveat Emptor 6/19/2019

CLIC Technology Inc (CLCI): Caveat Emptor 6/17/2019

Antilia Group Corp (AGGG): Caveat Emptor 6/7/2019 (midday — I reported it in chat at 1:07pm Eastern but stock had already dropped a lot by then)

Frelii (FRLI): Caveat Emptor 5/22/2019

Bionovate Technologies Corp (BIIO): Caveat Emptor 5/8/2019

Perkins Oil & Gas (OOIL): Caveat Emptor 4/8/2019. Exactly one month later on 5/8/2019 the SEC suspended trading in the stock. The reason given in the order (pdf) was “because of concerns regarding the accuracy and adequacy of information in the marketplace, including statements by third-parties about OOIL’s assets and valuation.”

Kalmin Corp (KLMN): Caveat Emptor 1/31/2019 — This is the one promotion that held up the best after the CE designation, gapping down but then recovering completely on the second day after receiving the skull and crossbones.

Corrections & Clarifications
2019-7-9 Title changed to remove OTCMarkets Group CEO’s name (Cromwell Coulson) and replace it with ‘OTCMarkets Group’
2019-7-10 Info on trading suspension of OOIL added.

Disclaimer: I am short FRLI and have no position in any other stock mentioned. I have no relationship with any parties mentioned above except that I am a paying subscriber to OTCMarket Research. 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.

Blue Eagle Lithium (BEAG) is the newest mailer pump & dump

Blue Eagle Lithium is reportedly being promoted via a mailer (at least according to two posters on Investorshub). There is also a corresponding online landing page (https://independentlivingnews.com/LithiumProfits/). It had already been promoted off and on via a landing page that had also promoted FRLI and YVR (https://thenextbigthing.com/2018/02/08/is-this-changing-the-game-in-tech/). To keep up with landing page promotions, I suggest frequently visiting the OTC Market Research Landing Page tracker page.

Screenshot from promotion page:

Disclosed budget: $1,345,452
Promoter:  Off-Grid Confidential
Paying party:  Pinnacle Media Ltd.
Shares outstanding:  76,483,855
Free float: 35,000,000
Previous closing price: $1.34
Market capitalization: $102 million

Daily stock chart:

Unfortunately, while BEAG has not been tagged with the Caveat Emptor by OTCMarkets, it is blocked from trading by my main broker, Interactive Brokers (likely because of the stock promotion and the fact that it is a shell). If it weren’t, I would be short already and looking to profit from the coming dump.

Landing page disclosure:

IMPORTANT NOTICE AND DISCLAIMER: All investments are subject to risk, which must be considered on an individual basis before making any investment decision. Off-Grid Confidential is an investment newsletter which is also being advertised herein. This paid advertisement includes a stock profile of Blue Eagle Lithium Inc., (BEAG). This paid advertisement is intended solely for information and educational purposes and is not to be construed under any circumstances as an offer to buy or sell, or as a solicitation to buy or sell, any securities. In an effort to enhance public awareness of Blue Eagle Lithium Inc. and its securities, Pinnacle Media Ltd. (Payor) provided advertising agencies with a total budget of approximately one million, three hundred forty-five thousand, four hundred fifty two dollars to date to cover the costs associated with creating, printing and distribution of this advertisement. Blue Eagle Lithium Inc. was chosen to be profiled in this advertisement after Off-Grid Confidential conducted an investigation of the company and its management. Off-Grid Confidential was paid thirty five thousand dollars as a research fee and two thousand, two hundred thirty dollars in travel expenses. In addition, Off-Grid Confidential may receive subscription revenue in the future from new subscribers as a result of this advertisement. The advertising agencies will retain any excess sums after all expenses are paid. As of the date these materials are disseminated, neither the advertising agencies nor Off-Grid Confidential nor any of their respective officers, principals or affiliates (as defined in the Securities Act of 1933, as amended, and Rule 501(b) promulgated thereunder) own or beneficially own any securities of Blue Eagle Lithium Inc. Neither the advertising agencies nor Off-Grid Confidential or any of their respective officers, principals or affiliates will purchase or receive any securities of Blue Eagle Lithium Inc. for a period of ninety (90) days following the date this advertising campaign is concluded. The Payor has represented in writing to Off-Grid Confidential and the advertising agencies that neither the Payor nor any of its officers, directors, principals or affiliates (as defined in the Securities Act of 1933, as amended, and Rule 501(b) promulgated thereunder) owns or beneficially owns, and that they are not acting on behalf of any person who owns or beneficially owns, any securities of Blue Eagle Lithium Inc. or will purchase or receive any securities of Blue Eagle Lithium Inc. for a period of ninety (90) days following the conclusion of this advertising campaign. If successful, this advertisement will increase investor and market awareness, which may result in an increased number of shareholders owning and trading the securities of Blue Eagle Lithium Inc., increased trading volume, and possibly an increased share price of Blue Eagle Lithium Inc. securities, which may be temporary. This advertisement, the advertising agencies and Off-Grid Confidential do not purport to provide a complete analysis of Blue Eagle Lithium Inc.’s financial position. They are not, and do not purport to be, broker-dealers or registered investment advisors. This advertisement is not, and should not be construed to be, personalized investment advice directed to or appropriate for any particular investor. Any investment should be made only after consulting a professional investment advisor and only after reviewing the financial statements and other pertinent publicly-available information about Blue Eagle Lithium Inc. and its industry. Further, readers are specifically urged to read and carefully consider the Risk Factors identified and discussed in Blue Eagle Lithium Inc.’s SEC filings. Investing in micro cap securities such as Blue Eagle Lithium Inc. is speculative and carries a high degree of risk. Past performance does not guarantee future results. This advertisement is based exclusively on information generally available to the public and does not contain any material, non-public information. The information on which it is based is believed to be reliable. Nevertheless, the advertising agencies and Off-Grid Confidential cannot guarantee the accuracy or completeness of the information and are not responsible for any errors or omissions. This advertisement contains forward-looking statements, including statements regarding expected continual growth of Blue Eagle Lithium Inc. The advertising agencies and Off-Grid Confidential note that statements contained herein that look forward in time, which include everything other than historical information, involve risks and uncertainties that may affect Blue Eagle Lithium Inc.’s actual results of operations. Factors that could cause actual results to differ include the size and growth of the market for Blue Eagle Lithium Inc.’s products and/or services, the company’s ability to fund its capital requirements in the near term and long term, pricing pressures, etc. Off-Grid Confidential is the publisher’s trademark. All trademarks used in this advertisement other than Off-Grid Confidential are the property of their respective trademark holders and no endorsement by such owners of the contents of this advertisement is made or implied. The advertising agencies and Off-Grid Confidential are not affiliated, connected, or associated with, and are not sponsored, approved, or originated by, the trademark holders unless otherwise stated. No claim is made to any rights in any third-party trademarks.

Disclaimer: I have no position in BEAG. I have no relationship with any parties mentioned above except that I am a paying subscriber to OTCMarket Research. 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.