SEC Sues Jason McDiarmid & Kenneth George Cedric Telford for allegedly pumping & dumping Interactive Multi-Media Auction Corp (IMMA)

On September 29, 2017 the SEC filed suit against Jason McDiarmid & Kenneth George Cedric Telford for their alleged involvement in the pump and dump of Interactive Multi-Media Auction Corp (IMMA). See the SEC press release.

Excerpt:

According to the complaint, McDiarmid and Telford incorporated IMMA and took it public through a 2013 Form S-1 registration statement, registering a public offering of the company’s common stock by selling shareholders, including two of McDiarmid’s and Telford’s nominees. IMMA’s Form S-1 and its amendments allegedly falsely claimed that IMMA’s chief executive officer, McDiarmid’s friend who had no corporate experience, ran the company, when in fact it was secretly run by McDiarmid and Telford. The complaint also alleges that the S-1s also included lies that certain selling stockholders purchased their shares in IMMA through private placements, which were sham transactions. The complaint also alleges that, after learning that the SEC had subpoenaed testimony from the sister of IMMA’s CEO, who was one of the parties in the sham transactions, McDiarmid suggested a “script” for her testimony, which included false information about her relationship with Telford.

The complaint further alleges that once the Form S-1 went effective, McDiarmid repeated these lies, along with others, to a market maker for IMMA’s stock, who included them in its successful application to obtain clearance from FINRA to quote IMMA’s stock, which was needed for the company to be publicly traded.

According to the complaint, McDiarmid and Telford opened brokerage accounts in the names of nominees in order to sell their stock and, when they deposited IMMA shares into the accounts, they lied about how much stock they owned, how they obtained it, and the relationship of the nominees to them. McDiarmid and Telford also prepared IMMA’s periodic filings made with the SEC, which largely repeated the same lies in the Forms S-1. The complaint further alleges that McDiarmid and Telford organized and implemented a promotional campaign, including email blasts and a boiler room that targeted senior citizens. IMMA’s stock price increased, from $0.93 per share on September 30, 2014 to $1.62 per share on May 1, 2015, during which time McDiarmid and Telford dumped their shares through the nominees, earning them net illegal profits of about $3.1 million.

See the SEC’s complaint (pdf).

From the complaint:

Lastly, from October 2014 to May 2015, McDiarmid and Telford
organized and implemented a promotional campaign, including email blasts and a
boiler room to target senior citizens. As a result of their campaign, IMMA’s stock
price increased significantly, from $0.93 per share on September 30, 2014 to $1.62
per share on May 1, 2015, during which time McDiarmid and Telford dumped their
shares through their nominees for net proceeds of about $3.1 million.

See also the Stockwatch article about the suit (full text available only to subscribers).

Disclaimer. No position in any stocks 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.

SEC Sues alleged boiler room operators involved in New Generation Energy (NGEY) pump & dump

On September 27th, 2017 the SEC sued individuals and companies that it alleges illegally sold shares in multiple penny stock companies through boiler rooms. From the SEC press release:

The Securities and Exchange Commission has charged six unregistered broker-dealers located in California and Colorado with illegally selling securities in penny stock companies.

The SEC’s complaint alleges that brothers David H. Welch and Marc J. Bryant, both located in southern California, and John C. Knight, located in Colorado, sold securities in New Global Energy Inc., its predecessor company, Global Energy Technology Group, Inc., and other companies in unregistered transactions using sales agents located in boiler rooms, both nationally and internationally, raising over $10 million from investors over four years. Welch, Bryant and Knight used various entities, including Defendants Bio-Global Resources, Inc., Diversified Equities Inc. (DEI), and Diversified Equities Development Inc. (DED), to make these illegal sales. In addition, according to the complaint, all of the defendants, including New Global and its CEO, Florida attorney Perry D. West, sold securities without filing a registration statement with the SEC.

See the SEC’s legal complaint (pdf). Excerpt from the complaint:

This case involves numerous individuals and entities acting as brokerdealers
– including operating a boiler room “cold-calling” operation – despite failing
to register with the SEC in violation of Section 15(a) of the Exchange Act. In
addition, all of the Defendants, operating through a web of controlled entities, sold
stock in two successive companies to the public in unregistered transactions in
violation of Sections 5(a) and 5(c) of the Securities Act, thereby depriving investors
of important and legally required information. Through their illegal plan the
Defendants effected millions of dollars of securities transactions in the stock of two
entities: Global Energy Technology Group, Inc. (“Global Energy”) and Defendant
New Global Energy, Inc. (“New Global”).

From their sales of the securities of Global Energy and New Global, the
Welch, Bryant, Knight, Bio-Global, DEI and DED raised over ten million dollars
from more than 500 investors. As a result of conduct alleged in this Complaint, these
Defendants violated the broker-dealer registration provisions of Section 15(a)(1) of
the Exchange Act, 15 U.S.C. § 78o(a)(1)

New Global Energy (NGEY) was the stock that is mentioned in the complaint. Below is the weekly candlestick chart.

The case is Securities and Exchange Commission v. David Howard Welch, et al, No. 17-cv-01968. It was filed in the Central District of California.

 

Disclaimer. No position in any stocks 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.

Jason Napodano of Zacks Small Cap Research sued by SEC (and settles with them) and charged with criminal stock fraud for insider trading

Yesterday the SEC sued Jason Napodano of Zacks Small Cap Research as well as two other men, Bilal Basrai and Bryce Stirton. All three settled the civil suit without admitting or denying the allegations. See the SEC press release. In addition, the employer of all three men, LBMZ Securities (owner of Zacks), agreed to “pay a $240,000 penalty without admitting or denying the SEC’s findings that the firm failed to enforce policies and procedures designed to prevent its employees from misusing nonpublic information.”

The Securities and Exchange Commission today charged a stock market analyst with insider trading prior to the publication of research reports and articles he authored with the false disclaimer that he wasn’t trading in the companies being covered.  He agreed to settle the charges and be barred from trading in penny stocks for the rest of his life.

The SEC alleges that Jason Napodano, who headed a division called Zacks Small Cap Research within a larger investment research firm, misled investors in penny stocks by representing that he wasn’t trading or holding positions in the companies he was writing about while secretly trading the same stocks based on nonpublic information about the publication date of his research.  In an effort to evade detection, Napodano allegedly limited his profits from each illegal trade by taking small positions and closing the positions shortly after his reports and articles were published.

In addition to a permanent penny stock bar, Napodano agreed to pay full disgorgement of his insider trading profits totaling $143,865.48 plus interest of $17,620.87 and a penalty of $143,865.48.  The settlement is subject to court approval.

Basrai agreed to settle the charges by paying disgorgement of his insider trading profits of $39,668.37 plus interest of $4,617.89 and a penalty of $39,668.37.  Stirton agreed to settle the charges without admitting or denying the allegations by paying disgorgement of his insider trading profits totaling $2,218.87 plus interest of $257.43 and a penalty of $2,218.87.  Basrai and Stirton also agreed to be barred from trading penny stocks and from working in the securities industry, with Stirton having the right to reapply after five years.

The parallel criminal charges (one count each of stock fraud) were filed in the Northern District of Illinois (press release) against Napodano and Basrai. Stirton was not criminally charged. From the press release about the criminal charge:

JASON NAPODANO, a former Managing Director of a Chicago investment research firm, used material, non-public information he obtained while preparing equity research reports about companies to purchase and sell stock in those companies, according to a criminal information filed in federal court in Chicago. The illegal trading profits netted Napodano approximately $143,000, the information states.

In a related case, BILAL BASRAI, a former Managing Director of a Chicago investment banking firm, used material, non-public information to earn approximately $37,157 in illegal profits from the purchase and sale of stock in three companies.  Through his legal counsel, Basrai authorized the U.S. Attorney’s Office to disclose that Basrai has cooperated with the government’s investigation and intends to plead guilty to the charge contained in the information.

This case seems to signal increasing aggressiveness on the part of the SEC — while I do know that the SEC is more aggressive against insider trading than many other violations of securities laws, I cannot recall any other time that the settlement (for anything) has included a complete ban from trading penny stocks as opposed to just a bar from participating in penny stock offerings (“barred from trading in penny stocks for the rest of his life.”).

According to the Charlotte Observer, Jason Napodano is currently running a biotech newsletter called Bio5C:

According to LinkedIn, Napodano worked at Zacks from 2003 to 2015. He then came to Charlotte, where he started a company called BioNap Consulting, then Bio5C. His biography says he “has significant experience as a pharmaceutical and biotechnology stock analyst,” as well as degrees from Virginia Tech and Wake Forest.

The “code of conduct” page on the Bio5C web site includes this statement without attribution: “I have made terrible mistakes in the past when it comes to disclosure and personal trading. For these mistakes, I am truly ashamed and sorry. My mistakes, although now just public, were between 2013 and 2015. I learned a tough lesson. I’m committed to impeccable disclosure and ethics on Bio5C.”

 

Disclaimer. No position in any stocks 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.

Some belated updates on John Babikian, Awesome Pennystocks, Jay Fung, Eric Van Nguyen, & Anthony Thompson

I haven’t kept up with John Babikian (evidently the man behind Awesomepennystocks.com, perhaps the most successful stock promoter of its time) for the last couple years as not much has happened with him. But I did notice a few things have happened that I had not recorded on this blog, so here they are.

Babikian’s (now ex-) wife dropped her suit against Babikian in LA Superior Court three years ago. I have no clue what happened to the divorce proceedings (those are normally sealed in Quebec).

Request to drop suit (pdf)
Order dropping suit (pdf)

In October 2016 Jean-François Cloutier of Journal de Montreal wrote about Babikian’s former associate Robert Kalfayan and his alleged attempts to remove money from Canada to allegedly escape seizure by the tax authority (article in French). See previous article on Revenue Québec getting a lien on Kalfayan’s home.

Meanwhile, the SEC’s case against Anthony Thompson, Jay Fung, and Eric Van Nguyen (associated with Awesomepennystocks predecessor websites) continues. That case is:

1:14-cv-09126-KBF Securities and Exchange Commission v. Thompson et al
Katherine B. Forrest, presiding
Date filed: 11/17/2014

Currently the case is stayed pending the resolution of the parallel criminal case against Thompson, Fung, and Nguyen and the CEOs of five penny stock companies. If the criminal case (supposed to go to trial on September 27, 2017) does not immediately go to trial the civil case may continue per request of Thompson’s attorneys (docket 70; PDF copy). Below is the judge’s decision (hand-written on the last page of docket 70)

The criminal matter is New York State Court (Manhattan Supreme Court) case 3853/14. See the press release about the original indictment.

Back on May 16th, 2016 the judge ordered a bunch of the charges dropped, including larceny charges, because they were deemed not to fit the crime. The order described in that article can be found on Justia.

I should mention that while the promoters were the ones who became infamous, they were not the alleged mastermind(s). Instead, that was allegedly Kevin Sepe (who was not charged in the case). From the statement of facts in the order I linked above:

STATEMENT OF FACTS

The indictment arises from 9 alleged fraudulent “penny stock” “pump and dump” schemes. A penny stock is one which trades for less than $5 per share, is not listed on the NASDAQ and requires limited disclosure, making investments more risky and volatile. The company shares in this case traded for pennies or fractions of pennies but the conduct here also involved millions of shares. Those companies and their ticker symbols (the symbols which designated the companies on the market) were: Blast Applications (BLAP), Blue Gem Enterprises (BGEM), Recyle Tech (RCYT), Hydrogenetics (HGYN), Xynergy Holdings (XYNH), Mass Hysteria Entertainment Company Inc. (MHYS), Lyric Jeans (LYJN), SunPeaks Ventures (SNPK) and Smart Holdings (SMHS) (hereinafter sometimes referred to as the “subject companies”).

The architect and orchestrator of the scheme was Kevin Sepe. The remaining defendants, as described infra, were either affiliates of Kevin Sepe or stock promoters who worked with him to implement the alleged frauds. The Defendants’ work with the companies followed a similar pattern. A publicly traded “shell” company (a company with no substantial business) would be [*3]identified and Mr. Sepe and his affiliates would then act to merge a private company they controlled into the shell company. This allowed the shares of the new company to be freely traded without a waiting period. Money would be loaned to the company and then the loan would be converted into equity through the receipt of shares of the company stock as a substitute for the repayment of the debt. A stock promotion would then take place. Typically, there would have been very little trading in the company’s stock prior to the promotion. Immediately prior to the beginning of the promotion, however, some shares might be leaked into the market so that regulators would not see that a company went immediately from having no shares traded to a large trading volume.

The shares held by Sepe and his affiliates would rise in value following the promotion. Sepe and his affiliates would sell the shares at huge profits. The promotional campaign would then end. The share price would then rapidly decline. Kevin Sepe and his affiliates knew, in advance, that the stocks would follow this pattern pursuant to the beginning and end of internet marketing campaigns and scheduled and coordinated their stock sales accordingly. In each case, the sales and profits followed the pre-arranged pattern.

A key part of the scheme was to conceal the fact that Kevin Sepe controlled a vast portion of the trading shares. To conceal his ownership, his shares were placed in the names of multiple loyal nominees including Defendants Luz Rodriguez and Joseph Dervali who then sold their shares and split the profits with Kevin Sepe. In addition to concealing his ownership and control, having shares held by these nominees allowed Sepe to evade requirements that persons who held more than 5% of the shares of a company be disclosed.

Kevin Sepe was sued by the SEC back in 2012 for his involvement in the pump and dump of Recycle Tech and HydroGenetic and he settled that case. “Sepe agreed to disgorgement of $1,416,466.16, prejudgment interest of $126,761.86, and penalties of $185,000 as well as a permanent bar from participating in an offer or sale of penny stocks.” As with most SEC settlements, Sepe neither admitted nor denied the allegations in the settlment.

 

Disclaimer. No position in any stocks 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.

 

Another day, another Bitcoin-related penny stock trading suspension: American Security Resources Corp $ARSC

Just yesterday trading in First Bitcoin Capital Corp was suspended by the SEC. Today, the SEC suspended trading in American Security Resources Corp (ARSC).

SEC trading suspension release (PDF)
SEC trading suspension order (PDF)

The reason given for the trading suspension:

The Commission temporarily suspended trading in the securities of ARSC because of questions
that have arisen regarding publicly available information about the company in press releases on
OTCMarkets.com, dated August 1, and August 8, 2017, concerning, among other things, the
company’s business transition to the cryptocurrency markets and early adoption of blockchain
technology.

Following are links to and excerpts from the above-mentioned press releases:

American Security Resources Corp. (OTC PINK: ARSC) Officially Changes Name to Bitcoin Crypto Currency Exchange Corporation (August 1st, 2017)

HOUSTON, TX / ACCESSWIRE / August 1, 2017 / American Security Resources Corporation (OTC PINK: ARSC) is pleased to announce that the Company has officially changed its name to Bitcoin Crypto Currency Exchange Corporation in Nevada, the State of incorporation, as it prepares to enter the booming Crypto currency markets.

“We have decided to make this change to better reflect the new activities of our company. We have already taken steps to bring the company into compliance with OTC Markets and expect to have more announcements soon,” said CEO Frank Neukomm.

He further added, “The Company, today, has appointed Jay Jordon, Michel Beaulieu, and Duncan Brown to its Advisory Board as they have more than 50 years of combined experience in emerging digital technologies. We believe the Company is now positioned to aggressively pursue crypto-currencies and Bitcoin opportunities, and have changed our name to accurately reflect our new direction.”

Bitcoin Crypto Currency Exchange Corporation (OTC PINK: ARSC) Announces the Acquisition of Kachingpay.com

HOUSTON, TX / ACCESSWIRE / August 8, 2017 / Bitcoin Crypto Currency Exchange Corporation (OTC PINK: ARSC), formerly known as American Security Resources Corporation, announces today that it has acquired 100% of Kachingpay.com Incorporated (“KaChing”), in a cash and stock transaction. KaChing will be merged in to ARSC as a wholly owned subsidiary.

About Kachingpay.com:

KaChing is a smartphone-based payment and money transfer system created by Prometheus Software. KaChing is fast, free, and failsafe. KaChing recognizes that current user fees and charges with existing payment and money transfer systems are excessive. Today’s payment transactions and systems are burdened by their complexity and cost.

KaChing will drive down user fees and charges so that purchase payment processing will become a low cost, commodity utility. Using the free KaChing mobile app, consumers purchase tokens for their digital wallet. KaChing gift card tokens are then used for purchases with merchants. Consumers do not need credit cards, debit cards or specialized hardware. Merchants use existing hardware as well: computers, smartphones or tablets. KaChing uses Apple iOS and Android mobile devices for payment.

Management considers this acquisition significant as it provides a mobile front end on iOS and Android to the BitcoinMWallet mobile exchange platform for crypto currencies, which will be created by the Company.

 

ARSC will resume trading on the grey market (no market makers) at the open on September 11th.

 

Disclaimer. No position in any stocks 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.

 

 

 

First Bitcoin Capital Corp $BITCF receives SEC trading suspension

This morning just prior to the market open the SEC issued a trading suspension for First Bitcoin Capital Corp (BITCF), which has a market cap of $545 milliion as of the most recent close of $1.79.

SEC trading suspension release (PDF)
SEC trading suspension order (PDF)

The reason given for the trading suspension:

because of concerns regarding the accuracy and adequacy of publicly available information about the company including, among other things, the value of BITCF’s assets and its capital structure.

My bet is that the news from August 2nd of BITCF preparing to pay a dividend in an illiquid cryptocurrency (TeslaCoilCoin) was one of the primary reasons for the trading suspension. The record date for that dividend was to be September 12th which is why I think the SEC acted now. After first posting this article Jacob Ma-Weaver mentioned that BITCF had issued a cryptocurrency version of its own stock and he thought that was the reason for the suspension. I had missed this initially and now agree with Jacob. From the company’s recent PR about the dividend, “We may also from time to time pay dividends in our own common shares in their crypto form which trades under the crypto symbol $BITCF on various foreign cryptocurrency exchanges.”

BITCF will resume trading on the grey market (no market makers) at the open on September 8, 2017.

While I did not follow $BITCF closely, there were plenty of red flags. Besides the usual lack of assets ($673,000 including their cryptocurrency holdings), there was having Anthony M. Santos as legal counsel. I didn’t recognize his name at first but he was attorney for NevWest, a key broker that processed the illegal sales of billions of shares of stock in CMKM Diamonds.

Disclaimer. No position in any stocks mentioned and I have no relationship with anyone mentioned in this post. New information was added to this post later on the day it was first published to give more reasons why BITCF may have been suspended. 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.

 

Environmental Packaging Technologies Holdings $EPTI to resume trading on July 13th after SEC trading suspension

Not long (13 days) after I blogged about the hard mailer promoting Environmental Packaging Technologies Holdings (EPTI) and uploaded a scan of the mailer, during premarket trading on June 28th the SEC suspended trading in the stock. It will resume trading on the grey market (no market makers) at the market open on July 13th, likely gapping down 90% or so.

SEC trading suspension release (PDF)
SEC trading suspension order (PDF)

The reason given for the trading suspension:

concerns regarding: (i) the accuracy and adequacy of publicly available information in the marketplace
since at least June 9, 2017 regarding statements in third party stock promotion materials pertaining to Environmental Packaging’s 2016 revenues, projected 2017 revenues, and the company’s buyout potential; and (ii) recent trading activity in the security that potentially reflects manipulative or deceptive activities.

While I would love to take credit for the SEC suspension of EPTI, that “The Commission acknowledges FINRA’s assistance in this matter” means that some broker(s) likely submitted SARs (suspicious activity reports) about potentially manipulative trading and that was the prime reason for the suspension.

 

Disclaimer. No position in any stocks 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.