SEC Charges Healthcare Company and Its Founder with Multimillion Dollar Fraud

On May 19, 2021, the Securities and Exchange Commission (the “SEC”) charged a New Jersey-based healthcare company and its founder, Josiah David (formerly known as Dennis Lee), with fraudulently raising nearly $4 million from over 130 investors nationwide through the sale of membership units in the company.

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Two Jackson Men Charged in Multi-Million Dollar Fraud Scheme Conspiracy

We recently wrote about two interesting SEC enforcement actions that examine the question of whether the individuals and entities that purchase convertible promissory notes from public companies are “dealers” according to the definition established in Section 15(a)(1) of the Securities and Exchange Act of 1934 (“Exchange Act”). Informally known as “toxic lenders” or “dilution funders” because the terms of their financing agreements contain provisions that almost always result in harm to investors and issuers alike, they’re considered by many to be the scourge of the penny stock market. Typically, the notes they buy can be converted at any time, often at a discount to market price of 70 percent or more. As the lender converts and sells, stock price drops. To avoid making insider filings to the SEC, the lender's financing agreements specify that he may own no more than 4.99 percent of the company’s stock at any time. But that in no way stops him from converting his note continuously, in a succession of tranches. Since the conversion ratio is pegged to the security’s recent average bid price, every time he converts, he gets more stock than the time before. As he sells tranche after tranche, the company’s stock price enters freefall. Sometimes the only remedy for the issuer is a large reverse split.

On May 20, 2021, Ted Brent Alexander, 55, and Jon Darrell Seawright, 49, both of Jackson, Mississippi, were indicted by a federal grand jury for their roles in a large multi-million dollar Ponzi scheme that adversely affected hundreds of victims across multiple states over about eight years.

The case is currently scheduled to go to trial on July 6, 2021, before United States District Judge Carlton W. Reeves in Jackson.

Both Alexander, a prominent lobbyist for Baker Donelson, and Seawright, a law partner at Baker Donelson, are charged with one count of conspiracy to commit securities fraud and wire fraud; one count of securities fraud; and four counts of wire fraud involving a scheme to defraud investors, all in connection with a Ponzi scheme promising guaranteed returns to investors who thought they were lending money to a ‘broker” enterprise purchasing timber that was then marketed to multiple lumber mills. Read More

Going Public: Myths and Misinformation about Reverse Mergers

Startups and businesses with limited cash looking to go public are understandably very money-conscience and want to use the most cost-effective route. The survival and/or further development of their business may depend on getting access to capital raised through the public marketplace and managing the process without breaking the bank.

Reverse Mergers have long been considered one of the most cost-effective and fastest ways to go public, but is it really the best option?

The truth is that there are lots of myths and misinformation in the marketplace about Reverse Mergers. Let’s review some of them.

Myth #1: Reverse Mergers are the cheapest way to go public

Yes, it is possible to find publicly-traded shells for sale to use as a public vehicle for a Reverse Merger, but existing shells come with lots of risks that, in the long run, could lead to exorbitant costs and even the loss of your business.

The cheaper the shell, the more risk. The biggest risks being: Read More

David C. Coggins Sentenced for $1.3 Million Securities Fraud Scheme

On March 22, 2019, the SEC charged registered investment adviser Direct Lending Investments, LLC with a multi-year fraud that resulted in approximately $11 million in over-charges of management and performance fees to its private funds, as well as the inflation of the private funds' returns.

On Friday, May 14, 2021, David C Coggins, 42, of Miami, was sentenced to 51 months in prison, followed by 36 months of supervised release, and ordered to pay $1,305,000 in restitution for operating an investment scheme in which he used investor funds to repay other investors and misappropriated funds for himself, including to pay for personal use, a vehicle and travel.

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There has never been a better time to be a Whistleblower

The Securities and Exchange Commission (the “SEC”) began its whistleblower program in August of 2011. 

The concept was simple, to catch more bad guys and minimize the harm done to investors, the SEC created a program that would incentivize people with knowledge of possible securities law violations and other forms of fraud for sharing that information, allowing the SEC to more swiftly and efficiently hold accountable those responsible for unlawful conduct. 

If the information proves to be original and leads to SEC action, the whistleblower is eligible for an award ranging between 10% and 30% of the money collected. Since the SEC would likely not have brought litigation without the information provided by the whistleblower, it is a win-win situation for all involved, especially the victims who otherwise may not have ever recouped any of their losses.

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SEC Charges Broker-Dealer for Failures Related to Filing Suspicious Activity Reports

On May 12, 2021, the Securities and Exchange Commission (the “SEC”) announced settled charges against GWFS Equities Inc. (GWFS), a Colorado-based registered broker-dealer and affiliate of Great-West Life & Annuity Insurance Company, for violating the federal securities laws governing the filing of Suspicious Activity Reports (SARs).

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Mark Lisser Pleads Guilty to Securities Fraud Conspiracy

Earlier today, in federal court in Central Islip, Mark Lisser pleaded guilty to securities fraud conspiracy for lying to customers about investments in shares of several companies prior to the initial public offering (IPO) of those companies.  

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SEC Charges Under Armour Inc With Disclosure Failures

On May 3, 2021, the Securities and Exchange Commission (“SEC”) charged sports apparel manufacturer Under Armour Inc (NYSE: UAA) with misleading investors as to the basis of its revenue growth and failing to disclose known uncertainties concerning its future revenue prospects. Under Armour has agreed to pay $9 million to settle the action.

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Court Enters Judgments Against Promoters in Pump-And-Dump Scheme

On May 7, 2021, the Securities and Exchange Commission (“SEC”) announced that the U.S. District Court for the Central District of California entered final judgments against the remaining three defendants in a 2019 SEC action charging them for their alleged roles in a pump-and-dump scheme in the stock of southern California beverage and cannabis company Green Cures & Botanical Distribution, Inc (GRCU). 

On May 20, 2019, the SEC charged Ishmail Calvin Ross, Zachary Logan, Jessica Snyder, and David N. Osegueda with deceiving a brokerage firm into allowing Ross, Logan, and Osegueda to deposit their GRCU stock into their accounts in advance of their pumping up the company’s stock price through a promotional campaign. Ross, Logan, and Osegueda then allegedly dumped their shares on unsuspecting investors, generating approximately $1.9 million in illicit proceeds. Read More

TD Ameritrade to restrict orders in Caveat Emptor designated OTC securities to liquidating trades only

According to a statement posted on the TD Ameritrade website, the popular trading platform will restrict orders in Caveat Emptor designated OTC securities to liquidating trades only starting May 25, 2021.

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Robinhood Legal Battle Updates

On April 16, 2021, the Securities and Exchange Commission (“SEC”) case against Robinhood Financial moved one step closer to a payout when the SEC issued an Order appointing JND Legal Administration as the Fund Administrator of the Fair Fund established for the $65,000,000 that Robinhood Financial had agreed to pay on December 17, 2020.

The Fair Fund will be used to distribute the $65,000,000 among harmed investors.

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SEC Charges Ubong Uboh and Tyler Crockett for Using a Call Room to Manipulate Stocks

On April 20, 2021, the Securities and Exchange Commission (the “SEC”) filed charges against Ubong Uboh and Tyler Crockett for soliciting investors to purchase shares of several microcap issuers from a call room in Miami, Florida.

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Five Individuals Charged in Fraud Stock Offering, Stock Manipulation and Money Laundering Scheme

J.W. Korth & Company Restitution

On Wednesday, April 14, 2021, five Individuals were indicted for a stock manipulation/money laundering scheme involving a private oil and gas company and two public Issuers,  OrgHarvest Inc (“ORGH”) and ERF Wireless Inc (“ERFB”).

The five-count indictment filed in federal court in Brooklyn charged Richard Dale Sterritt, Jr (“Sterritt”), Michael Greer (“Greer”), Robert Magness (“Magness”), Mark Ross (“Ross”) and Robyn Straza (“Straza”) with conspiracy to commit securities fraud, wire fraud and money laundering, among other offenses.

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Six Individuals Charged with a Multi-Million Dollar Scheme to Peddle Fraudulent Stocks

On Wednesday, April 7th, six South Florida residents were indicted by a federal grand jury on charges that they defrauded investors of approximately $21 million by falsely claiming that the investors’ money would go towards the development of a lucrative mobile gaming application that, in reality, never launched and generated no revenues. The fraud scheme operated out of Broward and Palm counties and target victim investors across the country using telephone sales rooms, also commonly known as “boiler rooms”.

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Direct Public Offering Attorneys, DPO, Go Public Direct

Go Public Direct, Direct Public Offeirng, Going Public AttorneysMost small private companies are unable to find an underwriter prior to going public.  A direct public offering (“Direct Public Offering”) provides a viable solution to these companies. Using a Direct Public Offering  to go public direct can allow the company to sell its shares directly to investors without the use of an underwriter. With a Direct Public Offering, the company typically files a registration statement with the Securities and Exchange Commission (“SEC”) under the Securities Act of 1933, as amended (the “Securities Act”), typically on EC Form S-1 or F-1

A  Form S-1 registration statement can be used by a company to register securities on its own behalf in an initial public offering, register securities on behalf of its selling security holders in a secondary offering or both to register securities on its own behalf as well as for selling security holders.

Using a Direct Public Offering and Form S-1 to Go Public Direct

All issuers qualify to file a registration statement on Form S-1 and it is the most common registration statement form used in going public transactions.  Filing a registration statement in connection with a going public transaction eliminates many of the risks and expenses associated with reverse mergers including among other things, undisclosed liabilities, sketchy corporate records, DTC Chills, Global Locks and SEC trading suspensions. Read More

SEC Cleans up OTC Markets – SEC Trading Suspension of 71 Penny Stocks

On February 14, 2021, we published an article alerting the public about what we calculated to be the start of a new initiative by the Securities and Exchange Commission (“SEC”) to reign in the market manipulation of no information stocks through Social Media. 

Since that article, the SEC has suspended 70 more stocks, in addition to the SpectraScience Inc (SCIE) suspension that kicked off the string of activity.

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SEC Says Unregistered Dealer Almagarby’s Convertible Notes Are Toast

Toxic Financing Toxic Convertible Note Toxic funding Convertible Note Lender

On November 17, 2017, the Securities and Exchange Commission (“SEC”) filed an enforcement action against Ibrahim Almagarby and his company Microcap Equity Group LLC. Both defendants were charged with two counts: effecting transactions, or inducing or attempting to induce the purchase or sale of securities using the instrumentalities of interstate commerce while not registered with the Commission of a dealer; and, as to Almagarby only, violating the Securities and Exchange Act of 1934 (“Exchange Act”) through his control of Microcap Equity. The SEC Action was filed in the U.S. District Court for the Southern District of Florida.

At the time the SEC filed its enforcement action, Almagarby was only 27 years old. He’d formed Microcap Equity Group in Florida in January 2013 with the intention, the SEC says, of using it to buy and sell securities for the defendants’ own accounts, “as part of a regular business.” That business would be familiar to anyone who follows the OTC Marketplace: the defendants purchased convertible notes from small companies in need of cash for operations and then converted all or part of the notes into common stock and sold that stock on the open market. Read More

Is the SEC Sending a Big Hint With Its Latest Penny Stock Suspension?

At the open of the trading session on February 11th, The Securities and Exchange Commission (the “SEC”) suspended trading in SpectraScience Inc (SCIE).

On the surface, the suspension seems pretty typical — a penny stock that was suspended because of “questions regarding the accuracy and adequacy of information about the Company in the market place and potentially manipulative trading activity.”

It’s the exact verbiage that appears in nearly every suspension order against penny stocks (after all, the penny stock market is full of stocks with questionable business operations, spotty public disclosures, and manipulative trading activity). But if we dig a little deeper, this suspension might not be so typical after all. In fact, it could be a precursor for a significant change in focus for the SEC to try to clean up a marketplace that has gone off the rails lately with an unprecedented amount of manipulative trading activity through the influence of Social Media. 

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The SEC charges Giuliani Associates Lev Parnas and David Correia

On February 4, 2021, the U.S. Securities and Exchange Commission announced charges against two associates of Rudy Giuliani, the former New York City mayor and lawyer for Donald Trump, alleging they raised $2 million from investors by making false and misleading representations.

According to the Complaint, Lev Parnas and David Correia raised the money for their company, Fraud Guarantee, between January 2013 and mid-2019, but instead of using the money to get the company off the ground as promised, Parnas and Correia misappropriated the bulk of those funds to pay for personal expenses, including travel, jewelry, cars, and disbursements at a casino.

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Two Recidivists That Met Behind Bars Busted for Securities Fraud

On January 8, 2021, the Securities and Exchange Commission (the “SEC”) announced settled charges against a Utah corporation, its principals, Mark W Wiseman and Clark J Madsen, and two securities fraud recidivists, Thomas J Robbins and Daniel J Merriman, for orchestrating two inter-related frauds resulting in approximately $11 million in investor losses to around 80 investors.

According to details in the Complaint, Robbins and Merriman met while behind bars serving out sentences from prior securities fraud convictions, sharing stories of their past schemes, and plotting for the future. 

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Executive Order 13959 Sees Its First Casualties

On November 12, 2020, President Donald Trump signed Executive Order 13959. The Order’s goal is “Addressing the Treat From Securities Investments That Finance Communist Chinese Military Companies”.

The executive order prohibits all U.S. Investors (institutional and retail alike) from purchasing or investing in securities of companies identified by the U.S. government as “Communist Chinese military companies.” The prohibition went into effect on January 11, 2021, and immediately resulted in its first casualties, with 3 listed stocks being delisted and several OTC stocks having their symbols deleted.

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SEC Amends Rule 144 for Convertible Notes and Unregistered Dealers


On December 22, 2020, the Securities and Exchange Commission (“SEC”)  voted to propose amendments to Rule 144 to eliminate tacking for shares acquired upon exercise or conversion of market-adjustable securities. We have previously discussed the pattern of unregistered dealer activity associated with toxic convertible notes sold to issuers on the OTC Markets. Market adjustable securities are most often promissory notes, warrants, or preferred stock convertible into common or other shares at a dramatic discount to the issuer’s trading price. These types of market adjustable securities are known as “toxic financings” or “death spirals” for a reason. These financings are typically provided by persons acting as unregistered dealers, and they have crippling effects on small businesses and investors.

The SEC’s proposal is consistent with its recent enforcement actions targeting unregistered dealers involved in the business of toxic convertible note lending.

The proposed amendment the treatment of convertible notes under Rule 144 would not apply to securities issued by listed companies, the theory being that exchange listing standards requiring shareholder approval for substantial issuances would largely prevent these dilutive issuances. Read More

Nine Individuals Indicted in Global Resource Energy Inc (GBEN) “Pump and Dump” Scheme

On December 17, 2020, the United States Department of Justice unsealed an Indictment against nine individuals charged in a “pump and dump” stock manipulation scheme involving Global Resource Energy Inc (GBEN) filed in the Northern District of Ohio, Eastern Division.

Charged and arrested in the case were:

    • Thomas Collins, a relative of the GBEN executive officer, Cathy Collins, described as owning a substantial number of GBEN shares through his family members, co-conspirators, and associates over which he had influence and control.
    • Patrick Thomas, a substantial GBEN shareholder and convertible note holder (through View Point Health Investments LLC, Sims Investment Holdings, Gulf Coast M&A Ltd, and Avila P&H LLC).
    • Tyler Paulson, a substantial GBEN shareholder and convertible note holder (through Super Boat Marine Inc).
    • Hughe Duwayne Graham, an unlicensed stockbroker (through HDG Global Marketing LLC), solicited potential investors using the alias “Michael Strong” to purchase GBEN stock.
    • Brian Kingsfield, an unlicensed stockbroker that solicited potential investors to purchase GBEN stock.
    • Dale Pearlman, an unlicensed stockbroker that solicited potential investors to purchase GBEN stock.
    • Gary Kouletas, an unregistered broker-dealer (through PAG Group LLC) that liquidated shares in GBEN for the benefit of Collins, Thomas, and Paulson, receiving compensation in the form of kickbacks or commissions.
    • Paul Giarmoleo, an unregistered broker-dealer that worked with Kouletas at PAG Group LLC and through Private Resources LLC, liquidating shares in GBEN for the benefit of Collins, Thomas, and Paulson, receiving compensation in the form of kickbacks or commissions.
    • Damon Durante, a substantial GBEN shareholder through his personal companies (including Verde Asset Management LLC), co-conspirators, and associates over which he had influence and control that received kickbacks and undisclosed commissions for the sale of GBEN stock and paid other unlicensed stockbrokers for soliciting and selling GBEN stock.

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SEC Approves NYSE Plan for Direct Listings

On Tuesday, the US Securities and Exchange Commission (SEC) approved a proposed plan by the New York Stock Exchange (NYSE) to let companies raise capital through direction listing.

The plan will allow companies that opt for a direct list to save on bank underwriting fees and raise capital by issuing new shares and selling them to public investors on the first day of trading.

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SEC Charges The Cheesecake Factory For Misleading COVID-19 Disclosures

On Friday, the Securities and Exchange Commission (the “SEC”) announced that it had settled charges against The Cheesecake Factory Incorporated (CAKE) for making misleading disclosures about the impact of the COVID-19 pandemic on its business operations and financial condition.

As part of the settlement, Cheesecake Factory agreed to pay $125,000 to the SEC within 15 days.

The action is the SEC’s first charging a public company for misleading investors about the financial effects of the pandemic.

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House Passes Marijuana Decriminalization Bill

On Friday, the U.S. House of Representatives passed a historic bill that would end the federal prohibition of marijuana. 

The Marijuana Opportunity, Reinvestment and Expungement (MORE) Act passed by a 228 to 164 margin. Nearly all Democrats supported the bill, with only six Democrats voting against it. In contrast, only five Republicans voted for it.

It was the first time that such a bill has gone before Congress.

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Nasdaq Announces New Proposed Listing Requirements to Advance Diversity

On December 1, 2020, the Nasdaq Stock Market LLC filed a proposal with the U.S. Securities and Exchange Commission (“SEC”) to adopt new listing rules related to board diversity and disclosure.

If approved by the SEC, the new listing rules would require all companies listed on the Nasdaq exchange to publicly disclose “consistent, transparent diversity statistics regarding their board of directors.” Additionally, the new rules would require most Nasdaq-listed companies to have, or explain why they don’t have, at least two diverse directors, including one who self-identifies as female and one who self-identifies as either an underrepresented minority or LGBTQ+. 

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Congress passes a Bill that forces Chinese stocks to meet US accounting standards

The U.S. House of Representatives unanimously passed legislation on Wednesday that would kick Chinese companies off U.S. stock exchanges if they do not fully comply with the U.S. auditing rules. 

The Holding Foreign Companies Accountable Act, which was first introduced in May of 2019, passed the Senate by unanimous vote in May. Next, it will go to President Donald Trump’s desk, where it is expected to be signed into law. 

Though the legislation applies to all countries, the bill’s sponsors intended it to target Chinese companies listed in the United States. 

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Licensed Attorney And Disbarred Attorney Charged For Roles In Fraudulent Opinion Letter Scheme

On December 2, 2020, the Securities and Exchange Commission (the “SEC”) charged disbarred attorney Richard J. Rubin and licensed attorney Thomas J. Craft with fraud for their roles in a legal opinion letter scheme to fraudulently facilitate the sale of millions of shares of microcap securities to retail investors.

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OTCQX Listing and Eligibility

OTC Markets Group Inc. operates the OTCQX® Best Market, the OTCQB® Venture Market, and the Pink® Open Market for 11,606 U.S. and global securities. Securities are placed into one of these three tiers based on the level of disclosure provided and the listing fees paid by the issuer.

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