On January 23, 2020, the Securities and Exchange Commission (SEC) issued a cease and desist order against attorney Ben Bunker (Benjamin L. Bunker). Bunker is a 42 year old lawyer based in Las Vegas, Nevada. Bunker was working for two individuals using the company Greenway Design Group, Inc. to perpetrate a scheme where they placed Greenway shares into a brokerage account, promoted the shares so that the stock price would rise artificially and then sell the shares back into the market. Bunker’s role was to prepare false opinion letters necessary for the two individuals to obtain stock certificates, transfer them, and then later sell them to the public.
FINRA, before the New Year 2020, sanctioned five major financial firms who failing to reasonably supervise custodial accounts. These five firms were: Citigroup Global Markets Inc.; J.P. Morgan Securities LLC; LPL Financial LLC; Morgan Stanley Smith Barney LLC; and Merrill Lynch, Pierce, Fenner & Smith Incorporated. The violation was of FINRA Rule 2090, known as FINRA’s “Know Your Customer” rule. This rule states “Every member shall use reasonable diligence, in regard to the opening and maintenance of every account, to know (and retain) the essential facts concerning every customer and concerning the authority of each person acting on behalf of such customer.”
On March 13, 2019, the Securities and Exchange Commission (SEC) charged attorney Diane Dalmy with fraud for “for concealing from transfer agents and brokerage firms her involvement in preparing legal opinion letters concerning the sale of certain microcap securities.” The OTC Markets had placed Diane Dalmy on their prohibited list of attorneys; the OTC Markets is the largest trading system for microcap securities in the United States. To work around this, Dalmy used another lawyer– Michael Woodford, a retired divorce attorney, to sign legal opinion letters that she handed off to him. Of course, Michael Woodford did not due any due diligence himself in order to give a proper legal opinion, and would just sign whatever document was put in front of him. He then provided the opinion letters to transfer agents and brokerage firms. He would go on to be charged for his role as well in June 2019.
A California man, Guy Scott Griffithe, and a Washington state man, Robert William Russell, were charged on Tuesday, January 21, 2020, by the Securities and Exchange Commission (SEC) for defrauding investors by selling them shares of one company, which they said would go towards operating another, when in fact the funds were being used for personal expenses. In other words, they were selling fake shares of a company. The companies in question here are Renewable Technologies Solution, Inc., an entity controlled by Guy Griffithe, and SMRB LLC, a Washington company owned by Robert Russell. SMRB LLC holds a license to grow marijuana under Washington’s recreational marijuana laws. These licenses can often be hard to get, which can make a company valuable if it has one. Griffithe and Russell ended up raising almost $5 million of the fraudulent shares of the cannabis company.
On Wednesday, January 15, 2020, the Chicago Sun Times reported “A federal judge has frozen the assets of Kenneth Courtright, an Illinois man and the company he ran under the name “The Income Store” after the U.S. Securities and Exchange Commission (SEC) accused him of a “Ponzi-like scheme” that raised $75 million.” This man is named Kenneth Courtright. He founded the company and is the current chairman. Courtright was using the money from his company to overpay his mortgage and pay tuition for his kids’ private school. The Income Store is officially known as Todays Growth Consultant, Inc. (TGC).
Offering integration can become a problem for some issuers conducting Regulation A+ (also known as Reg A) offerings. The Reg A offering integration rules prevent companies from improperly avoiding SEC registration by dividing a single securities offering into multiple securities offerings to take advantage of Securities Act exemptions that would not be available for the combined offering.
Rule 504 of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”) allows an issuer to raise capital of up to $5,000,000 in a 12-month. As discussed below, unlike Rule 506(b) when sales are made to non-accredited investors in reliance upon Rule 504, there are no specified disclosure requirements. Read More
The New York Post reported on Friday, January 17, 2020, “A convicted hedge-fund swindler assumed a fake name and donned a disguise to lure investors into a $30 million cryptocurrency fraud in New York that spanned two years.” This man was Boaz Manor, who was arrested in 2010 in Canada for misappropriating $100 million from his hedge fund. He was sentenced to 4 years in prison, but was released early in 2012. He was also banned for life from the securities industry. Then, in 2015, he had the bright idea of pretending to be somebody else to get back into the industry. To do this, the Post reports “Manor darkened his blond hair and grew a beard. After trying on aliases like “Jay Mills” and “Jay Belzberg,” Manor appears to have settled on the name “Shaun MacDonald.”” Theblockcrypto.com first uncovered and reported MacDonald’s scheme in December of 2018, with great reporting and interesting details.
When dealing with potential investors, Regulation A Issuers may test the waters when implementing solicitation materials before AND after the Form 1-A offering statement is filed with the Securities and Exchange Commission (“SEC”) subject to issuer compliance within the rules on filing and disclaimers.
Testing the waters with Regulation A means you can now advertise ANYWHERE you think you’ll attract potential investors. Take social media for example… You could put together a formal ad campaign that costs tens of thousands of dollars. Or, you can simply do it yourself on Twitter or Facebook.
The SEC and Stock Promotion
In the over-the-counter equities market, paid stock promotion has long been of concern to the Securities and Exchange Commission (“SEC”) and to responsible market participants. Recently the OTC Markets has taken an interest in the rules that apply to investor activities and promotion of the issuers on their platform. Stock Promotion isn’t just a way of attracting attention to a company and its stock; it can also be a form of illegal stock manipulation. That is because nearly all stock promotions are financed by individuals or entities that hold large securities positions acquired at negligible cost or at a considerable discount to market price, who want to sell their shares for a hefty profit. Those people may be former insiders, current insiders concealing the amount of their ownership, stock promoters paid in shares or toxic funders who lent money to the issuer in exchange for convertible notes.
The schemes in which they participate are called pump and dump operations. Stock promoters use various means at their disposal—email blasts, phony “research reports” posted on a variety of websites, social media chatter talking up the “hidden gem” in question, and, even today, boiler rooms whose staff cold calls likely prospects—to send a stock skyward. Sometimes management is in on the play, and helps it along by issuing an avalanche of press releases touting the company’s accomplishments and imaginary future projects. The plan may be even more elaborate. A group of unscrupulous individuals will purchase a shell company, or even create one from scratch, and spend a year or more setting it up as a vehicle for a pump and dump. When the time is ripe, the pump will begin. Read More