In the latest twist to the Bermuda Short Sting of 2003, on June 19, 2013, the Securities and Exchange Commission (“SEC”) Division of Enforcement charged David F. Bahr of Rancho Santa Fe, California, with securities fraud for attempting to generate the appearance of market interest in a penny stock in an effort to cause investors to buy the stock. Unfortunately for Bahr, his problems didn’t end with the SEC’s investigation of his fraudulent activity, however.
Bahr’s target was iTrackr Systems (IRYS), a Florida company. According to the SEC’s Division of Enforcement, Barr conspired with a purported businessman who claimed to have access to a network of crooked brokers willing to help out with the fraudulent scheme in return for kickbacks in the amount of 30% of the price of stock they’d purchase through their customers’ accounts.
The crooked brokers would assist in manipulating the market for iTrackr’s stock by arranging for the shares purchased to be held for a year to prevent significant declines in iTrackr’s stock price. It is difficult to see why Bahr believed that claim; did he expect these “clients” not to look at their brokerage statements for 12 months?
Unfortunately for the hapless Bahr, the “businessman” turned out to be an undercover FBI agent.
The pair decided that the supposedly complicit brokers would purchase 10 million shares of iTrackr stock at an average $0.25 a share, for a total of $2.5 million. They then agreed to begin with a test run in which the businessman would purchase some shares and be paid a small commission by Bahr. During the first week of December, 135,000 shares were bought, accounting for 32% of iTrackr’s volume during that period. The price paid for the stock was $14,000.
Bahr sealed his fate when he wired $3000 to the FBI-controlled bank account to which the businessman had told him to send his kickback. Bahr had intended to promote the stock later, to inflate the price further, but it was too late for that. He was arrested shortly thereafter.
The day the SEC announced its action, the U.S. Attorney’s Office for the Southern District of California issued a press release explaining their parallel charges. Bahr has already pleaded guilty, and will be sentenced on September 3. The maximum sentence for his crime is 25 years’ imprisonment and a $250,000 fine.
In conjunction with the filing of its lawsuit against Bahr, the SEC suspended trading in iTrackr because it is delinquent with the periodic reports required by the SEC. When it resumes trading on July 2, it will be on the illiquid Grey Market.
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