Stock Promoter Alexander Kon settles with SEC

After almost two years of litigation and negotiation that started on November 14, 2016 with an SEC cease and desist administrative proceeding (pdf) before an SEC Administrative Law Judge (ALJ), Alexander Kon submitted an offer of settlement (pdf) that the SEC accepted on May 29th, 2018. This is a very simple case but it is important in that it addresses the legality of incorrectly listing the name of the party that paid for a stock promotion. Also, it addresses the legality of the SEC hearing cases before its own ALJs. The second issue is beyond my legal interest so I encourage the interested reader to read Brenda Hamilton’s blog post on the case.

The facts of the case as contained in the settlement (pdf) are as follows:

1. In early 2014, as part of an effort to increase his company’s (“Issuer A”) stock price, Issuer A’s former CEO (the “Former CEO”) retained Kon to disseminate information about Issuer A.

2. Kon possessed an email list and various websites through which he touted microcap stocks. Oftentimes, Kon hired other promoters to help distribute touts.

3. After various email exchanges and phone calls between the Former CEO and Kon, they agreed that for $25,000, Kon would run a marketing campaign on Issuer A stock on April 14, 2014 via four websites that Kon operated: 1)
007stockchat.com; 2) awesomestocktips.com; 3) otcfire.com; and 4) pennystockspy.com.

4. Kon and the Former CEO interacted with each other to both organize the promotional campaign and to make arrangements for payment for the campaign. The $25,000 payment to Kon was effected via wire transfer by the Former CEO and was in response to an invoice Kon sent directly to the Former CEO. However, despite Kon interacting exclusively with the Former CEO, sending the invoice directly to the Former CEO, and receiving payment from a transaction effected by the Former
CEO, Kon determined that the disclaimer for each of the touts on the four websites would note that Kon received money from “third party Casey Cummings.” Moreover,
Kon was aware that Casey Cummings was the Former CEO’s son, yet did not disclose this in the touts either.”

Brenda Hamilton identified the company (Issuer A) as CannaBusiness Group (CBGI) and the “Former CEO” (more appropriately referred to as the “then-CEO” in my opinion and referred to in that way by Brenda Hamilton), as Michael Cummings.

On the same day that the initial proceeding against Alexander Kon was announced, the SEC announced a settlement with Casey Cummings (pdf).

The violation listed in the SEC settlement with Kon is:

As a result of the conduct described above, Kon willfully violated Section 17(b) of the Securities Act, which prohibits the publication of any notice, circular, advertisement, newspaper, article, letter, investment service, or communication which, though not purporting to offer a security for sale, describes such security for a consideration to be received from an issuer, without fully disclosing the receipt of such consideration and the amount thereof.

The penalty agreed to by Kon and the SEC was a 12 month suspension “from participating in any offering of a penny stock, including: acting as a promoter, finder, consultant …”. Also, Kohn “shall pay disgorgement of $25,000, prejudgment interest of $332, and a civil money penalty of $20,000, for a total of $45,332”.

Getting back to the topic of the legality of incorrectly identifying the paying party in a stock promotion, see the ruling of the ALJ (pdf) in Kon’s case from early 2017 (shortly before the proceeding was stayed (pdf) because of questions about the legality of the SEC hearing cases in front of their ALJs).

From that ruling (emphasis added by me):

Respondent argues that the misconduct alleged in the OIP did not amount to a violation of the law because the websites at issue disclosed the fact and amount of consideration received. See Motion at 7-10. Respondent contends that Section 17(b) does not require disclosure of the source of the consideration, and that “misidentifying the source of the consideration” does not violate Section 17(b). Motion at 8.

A reading of the statutory text alone is sufficient to reject this contention. Section 17(b) contains two elements directly relevant here: (1) the consideration at issue must be “fully disclos[ed]”; and (2) the duty to disclose only arises when the consideration is from an issuer, dealer, or underwriter. 15 U.S.C. § 77q(b). Full disclosure means exactly that – disclosure that is fulsome rather than incomplete. If consideration is received from an issuer, but the only disclosed consideration is gratuitously (or misleadingly) reported to be from a third party, then the consideration from the issuer is not “fully disclos[ed]” within the meaning of Section 17(b). Such a disclosure constitutes an omission, not merely a misidentification of the source of the consideration. Here, drawing all reasonable inferences in the Division’s favor, Respondent allegedly omitted disclosure of consideration received from the issuer (via its CEO), and thereby failed to fully disclose that consideration under Section 17(b).

In urging a different result, Respondent cites SEC v. Recycle Tech, Inc., No. 12-21656-CV-LENARD, 2013 WL 12063952 (S.D. Fla. Sept. 26, 2013). See Motion at 10. In Recycle Tech, two defendants were charged with violating Section 17(b) based on disclaimers stating that they had “received from a third party non affiliate 2.325 million free trading shares of [Recycle Tech] for advertising and marketing,” or similar language. 2013 WL 12063952, at *8. According to the complaint, however, both defendants had received their shares indirectly from Recycle Tech, the issuer. See id. The district court held that “misidentifying the source of the consideration” did not violate Section 17(b) because the disclaimers “‘fully disclos[ed] the
receipt . . . of such consideration and the amount thereof.’” Id.

According to Respondent, the district court’s holding “clearly demonstrate[s] that the Respondent’s alleged actions are not in violation of Section 17(b).” Motion at 10. I respectfully disagree with the district court’s construction of Section 17(b), because that construction did not consider the entirety of the statutory text. The other cases upon which Respondent relies are either factually distinguishable or do not support his position. See Motion at 8-9; Reply at 13.

I previously blogged about the Recycle Tech suit.

Because the Recycle Tech ruling was from a district court judge while the ruling in this case was from an SEC ALJ, I believe that a future defendant could have a good case for arguing that the district court ruling is the correct precedent. However, by aggressively pursuing this case, the SEC has shown that it still believes that any false information in a stock promotion disclaimer violates Section 17(b). Expect this issue to be litigated more in the future.

 

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.

Update on Eros International v. Short sellers litigation

It has now been eight months since Eros International (EROS) sued a large number of short sellers for defamation after they publicly criticized the company. Anyone can see the court docket and download files for free at the New York County Supreme Court website (the case is 653096/2017). So far a not much has been decided in the case, with the majority of the defendants having responded having filed motions to dismiss and Eros attempting to move to discovery. The plaintiffs and defendants (specifically,  the Mangrove Defendants, the GeoInvesting Defendants, and the ClaritySpring Defendants) wrote to the judge (read the letter) on May 4th, 2018 to argue whether it was proper to move to discovery prior to the judge considering the motion to dismiss. The judge has not yet decided those issues.

A number of subpoenas were served on third parties by Eros’ counsel to attempt to ascertain the identity of John Doe defendants and this has taken up a lot of time. On February 22nd the judge ruled that Eros had until June 1st to properly serve remaining John Doe defendants. See doc 161 (pdf) for ruling.

On February 14th, 2018 the judge granted Eros’ motion for default against Manuel Asensio and Mill Rock Advisors for failing to respond to the complaint. See doc 160 (pdf) for ruling.

A copy of the docket (direct-linking to documents at the court website) is below:

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To view details, click on the Doc # link
Doc # Document Type
Information
Status Received Date
Filing User
View
 1 SUMMONS WITH NOTICE 
Summons with Notice
Processed 06/06/2017
Bowe, M.
Confirmation Notice
 2 SUMMONS – SUPPLEMENTAL (PRE RJI) 
Supplemental Summons
Processed 09/29/2017
Bowe, M.
Confirmation Notice
 3 COMPLAINT 
Complaint
Processed 09/29/2017
Bowe, M.
Confirmation Notice
 4 EXPARTE ORDER (PROPOSED)  (Motion# 001) 
(Proposed) Ex Parte Order to Extend Time to Serve John Doe Defendants Nos. 1-20
Processed 09/29/2017
Bowe, M.
Confirmation Notice
 5 AFFIDAVIT OR AFFIRMATION IN SUPPORT OF PROPOSED OSC/EXPARTE APP  (Motion# 001) 
Affirmation in Support of Motion to Extend Time to Serve John Doe Defendants Nos. 1-20
Processed 09/29/2017
Bowe, M.
Confirmation Notice
 6 EXHIBIT(S)   – A  (Motion# 001) 
Original Summons with Notice
Processed 09/29/2017
Bowe, M.
Confirmation Notice
 7 EXHIBIT(S)   – B  (Motion# 001) 
Supplemental Summons with Notice
Processed 09/29/2017
Bowe, M.
Confirmation Notice
 8 RJI -RE: OTHER EX PARTE APPLICATION  (Motion# 001) Processed 09/29/2017
Bowe, M.
Confirmation Notice
 9 ADDENDUM – COMMERCIAL DIVISION (840C)  (Motion# 001) Processed 09/29/2017
Bowe, M.
Confirmation Notice
 10 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit of Service of the Supplemental Summons, Summons with Notice, Complaint, and Notice of Comm(..)
Processed 10/03/2017
Bowe, M.
Confirmation Notice
 11 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit of Service of the Supplemental Summons, Summons with Notice, Complaint, and Notice of Comm(..)
Processed 10/03/2017
Bowe, M.
Confirmation Notice
 12 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit of Service of the Supplemental Summons, Summons with Notice, Complaint, and Notice of Comm(..)
Processed 10/03/2017
Bowe, M.
Confirmation Notice
 13 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit of Service of the Supplemental Summons, Summons with Notice, Complaint, and Notice of Comm(..)
Processed 10/03/2017
Bowe, M.
Confirmation Notice
 14 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit of Service of the Supplemental Summons, Summons with Notice, Complaint, and Notice of Comm(..)
Processed 10/03/2017
Bowe, M.
Confirmation Notice
 15 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit of Service of the Supplemental Summons, Summons with Notice, Complaint, and Notice of Comm(..)
Processed 10/03/2017
Bowe, M.
Confirmation Notice
 16 DECISION + ORDER ON MOTION  (Motion# 001) Processed 10/06/2017
Court User
Confirmation Notice
 17 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit of Service of the Supplemental Summons, Summons with Notice, Complaint, and Notice of Comm(..)
Processed 10/10/2017
Bowe, M.
Confirmation Notice
 18 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit of Service of the Supplemental Summons, Summons with Notice, Complaint, and Notice of Comm(..)
Processed 10/10/2017
Bowe, M.
Confirmation Notice
 19 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit of Service of the Supplemental Summons, Summons with Notice, Complaint, and Notice of Comm(..)
Processed 10/10/2017
Bowe, M.
Confirmation Notice
 20 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit of Service of the Supplemental Summons, Summons with Notice, Complaint, and Notice of Comm(..)
Processed 10/10/2017
Bowe, M.
Confirmation Notice
 21 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit Of Service Of Notice Of Commencement, Summons With Notice, and Supplemental Summons And Co(..)
Processed 10/11/2017
Bowe, M.
Confirmation Notice
 22 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit Of Service Of Notice Of Commencement, Summons With Notice, and Supplemental Summons And Co(..)
Processed 10/11/2017
Bowe, M.
Confirmation Notice
 23 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit of Service of Notice of Commencement of Action Subject to Mandatory Electronic Filing, Sum(..)
Processed 10/13/2017
Bowe, M.
Confirmation Notice
 24 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavit of Service of Notice of Commencement of Action Subject to Mandatory Electronic Filing, Sum(..)
Processed 10/13/2017
Bowe, M.
Confirmation Notice
 25 AFFIRMATION/AFFIDAVIT OF SERVICE 
Supplemental Affidavit of Service of the Supplemental Summons, Summons with Notice, Complaint, and N(..)
Processed 10/13/2017
Bowe, M.
Confirmation Notice
 26 STIPULATION – OTHER – ( REQUEST TO SO ORDER ) 
Stipulation Extending the Time to Respond to the Complaint
Processed 10/23/2017
Asaro, M.
Confirmation Notice
 27 NOTICE OF APPEARANCE (POST RJI) 
Patrick L. Rocco for ClaritySpring, Inc., ClaritySpring Securities LLC and Nathan Z. Anderson
Processed 10/27/2017
Rocco, P.
Confirmation Notice
 28 NOTICE OF APPEARANCE (POST RJI) 
Susan M. Davies for Defendants ClaritySpring, Inc., ClaritySpring Securities LLC and Nathan Z. Ander(..)
Processed 10/27/2017
Davies, S.
Confirmation Notice
 29 STIPULATION – SO ORDERED Processed 10/30/2017
Court User
Confirmation Notice
 30 STIPULATION – OTHER – ( REQUEST TO SO ORDER ) 
Stipulation Extending Time to Respond to Complaint
Processed 10/30/2017
Davies, S.
Confirmation Notice
 31 STIPULATION – SO ORDERED Processed 11/06/2017
Court User
Confirmation Notice
 32 ORDER TO SHOW CAUSE ( PROPOSED )  (Motion# 002) 
For pro hac vice admission of Stephen Ryan, Jr.
Processed 11/16/2017
Davies, S.
Confirmation Notice
 33 Deleted
 34 AFFIRMATION 
Affirmation of Susan M. Davies
Processed 11/16/2017
Davies, S.
Confirmation Notice
 35 STIPULATION – OTHER 
Stipulation to Admission Pro Hac Vice
Processed 11/16/2017
Davies, S.
Confirmation Notice
 36 AFFIDAVIT OR AFFIRMATION IN SUPPORT  (Motion# 002) 
Affidavit of Stephen Ryan, Jr.
Processed 11/16/2017
Davies, S.
Confirmation Notice
 37 AFFIDAVIT OR AFFIRMATION IN SUPPORT  (Motion# 002) 
Affirmation of Susan M. Davies
Processed 11/16/2017
Davies, S.
Confirmation Notice
 38 STIPULATION – OTHER  (Motion# 002) 
Stipulation to Pro Hac Vice Admission
Processed 11/16/2017
Davies, S.
Confirmation Notice
 39 ORDER TO SHOW CAUSE ( PROPOSED )  (Motion# 003) 
Proposed Order to Show Cause for Pro Hac Vice Admission of Bryan A. Wood
Processed 11/16/2017
Davies, S.
Confirmation Notice
 40 AFFIDAVIT OR AFFIRMATION IN SUPPORT  (Motion# 003) 
Affidavit of Bryan A. Wood
Processed 11/16/2017
Davies, S.
Confirmation Notice
 41 AFFIDAVIT OR AFFIRMATION IN SUPPORT  (Motion# 003) 
Affirmation of Susan M. Davies
Processed 11/16/2017
Davies, S.
Confirmation Notice
 42 STIPULATION – OTHER  (Motion# 003) 
Stipulation to Pro Hac Vice Admission
Processed 11/16/2017
Davies, S.
Confirmation Notice
 43 AFFIRMATION/AFFIDAVIT OF SERVICE 
Affidavits of Service re: ClaritySpring Securities LLC
Processed 11/17/2017
Bowe, M.
Confirmation Notice
 44 DECISION + ORDER ON MOTION  (Motion# 002) Processed 11/27/2017
Court User
Confirmation Notice
 45 DECISION + ORDER ON MOTION  (Motion# 003) Processed 11/27/2017
Court User
Confirmation Notice
 46 LETTER / CORRESPONDENCE TO JUDGE 
Letter requesting page limit enlargement
Processed 11/28/2017
Wise, T.
Confirmation Notice
 47 ORDER TO SHOW CAUSE ( PROPOSED )  (Motion# 005) Processed 11/30/2017
Asaro, M.
Confirmation Notice
 48 MEMORANDUM OF LAW IN SUPPORT  (Motion# 005) Processed 11/30/2017
Asaro, M.
Confirmation Notice
 49 AFFIDAVIT OR AFFIRMATION IN SUPPORT OF PROPOSED OSC/EXPARTE APP  (Motion# 005) 
Affirmation of Jessica A. Fitts in Support of Defendants Mangrove Partners’ and Nathaniel H. August'(..)
Processed 11/30/2017
Asaro, M.
Confirmation Notice
 50 EXHIBIT(S)   – 1  (Motion# 005) 
October 30, 2015 report
Processed 11/30/2017
Asaro, M.
Confirmation Notice
 51 EXHIBIT(S)   – 2  (Motion# 005) 
November 10, 2015 report
Processed 11/30/2017
Asaro, M.
Confirmation Notice
 52 EXHIBIT(S)   – 3  (Motion# 005) 
November 13, 2015 report
Processed 11/30/2017
Asaro, M.
Confirmation Notice
 53 EXHIBIT(S)   – 4  (Motion# 005) 
November 20, 2015 report
Processed 11/30/2017
Asaro, M.
Confirmation Notice
 54 EXHIBIT(S)   – 5  (Motion# 005) 
October 23, 2015 report
Processed 11/30/2017
Asaro, M.
Confirmation Notice
 55 EXHIBIT(S)   – 6  (Motion# 005) 
October 26, 2015 report
Processed 11/30/2017
Asaro, M.
Confirmation Notice
 56 EXHIBIT(S)   – 7  (Motion# 005) 
October 23, 2015 article
Processed 11/30/2017
Asaro, M.
Confirmation Notice
 57 EXHIBIT(S)   – 8  (Motion# 005) 
“Alpha Exposure” tweets through September 29, 2017
Processed 11/30/2017
Asaro, M.
Confirmation Notice
 58 EXHIBIT(S)   – 9  (Motion# 005) 
August 14, 2017 report
Processed 11/30/2017
Asaro, M.
Confirmation Notice
 59 EXHIBIT(S)   – 10  (Motion# 005) 
Complaint
Processed 11/30/2017
Asaro, M.
Confirmation Notice
 60 ORDER TO SHOW CAUSE ( PROPOSED )  (Motion# 004) 
Proposed Order to Show Cause to Dismiss the Complaint Pursuant to CPLR 3211(a)(1),(7)
Processed 11/30/2017
Deleeuw, M.
Confirmation Notice
 61 AFFIDAVIT OR AFFIRMATION IN SUPPORT OF PROPOSED OSC/EXPARTE APP  (Motion# 004) 
Affirmation of Michael de Leeuw In Support Of Order To Show Cause To Dismiss The Complaint Pursuant (..)
Processed 11/30/2017
Deleeuw, M.
Confirmation Notice
 62 EXHIBIT(S)   – 1  (Motion# 004) 
Exhibit 1 to de Leeuw Affirmation
Processed 11/30/2017
Deleeuw, M.
Confirmation Notice
 63 EXHIBIT(S)   – 2  (Motion# 004) 
Exhibit 2 to de Leeuw Affirmation
Processed 11/30/2017
Deleeuw, M.
Confirmation Notice
 64 EXHIBIT(S)   – 3  (Motion# 004) 
Exhibit 3 to de Leeuw Affirmation
Processed 11/30/2017
Deleeuw, M.
Confirmation Notice
 65 EXHIBIT(S)   – 4  (Motion# 004) 
Exhibit 4 to de Leeuw Affirmation
Processed 11/30/2017
Deleeuw, M.
Confirmation Notice
 66 EXHIBIT(S)   – 5  (Motion# 004) 
Exhibit 5 to de Leeuw Affirmation
Processed 11/30/2017
Deleeuw, M.
Confirmation Notice
 67 EXHIBIT(S)   – 6  (Motion# 004) 
Exhibit 6 to de Leeuw Affirmation
Processed 11/30/2017
Deleeuw, M.
Confirmation Notice
 68 EXHIBIT(S)   – 7  (Motion# 004) 
Exhibit 7 to de Leeuw Affirmation
Processed 11/30/2017
Deleeuw, M.
Confirmation Notice
 69 EXHIBIT(S)   – 8  (Motion# 004) 
Exhibit 8 to de Leeuw Affirmation
Processed 11/30/2017
Deleeuw, M.
Confirmation Notice
 70 EXHIBIT(S)   – 9  (Motion# 004) 
Exhibit 9 to de Leeuw Affirmation
Processed 11/30/2017
Deleeuw, M.
Confirmation Notice
 71 EXHIBIT(S)   – 10  (Motion# 004) 
Exhibit 10 to de Leeuw Affirmation
Processed 11/30/2017
Deleeuw, M.
Confirmation Notice
 72 MEMORANDUM OF LAW IN SUPPORT  (Motion# 004) 
Memorandum of Law in Support of Order to Show Cause to Dismiss the Complaint Pursuant to CPLR 3211(a(..)
Processed 11/30/2017
Deleeuw, M.
Confirmation Notice
 73 ORDER TO SHOW CAUSE ( PROPOSED )  (Motion# 006) 
for Dismissal of All Causes of Action Against ClaritySprings, Inc., ClaritySprings Securities LLC an(..)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 74 AFFIRMATION  (Motion# 006) 
Affirmation of Susan M. Davies re Briefing Schedule
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 75 EXHIBIT(S)   – 1  (Motion# 006) 
Davies Exhibit 1 (Order Entered 11/6/2017 NYSCEF 31)
Processed 11/30/2017
Rocco, P.
Confirmation Notice

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Page:  << 1 2 3 >> Last
To view details, click on the Doc # link
Doc # Document Type
Information
Status Received Date
Filing User
View
 76 EXHIBIT(S)   – 2  (Motion# 006) 
Davies Exhibit 2 (Order Entered 10/30/2017 NYSCEF 29)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 77 AFFIDAVIT  (Motion# 006) 
Affidavit of Stephen Ryan, Jr.
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 78 EXHIBIT(S)   – 1  (Motion# 006) 
Ryan Exhibit 1 (ClaritySpring Inc. Twitter Page)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 79 EXHIBIT(S)   – 2  (Motion# 006) 
Ryan Exhibit 2 (ClaritySpring Inc. Tweet 3/9/2017)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 80 EXHIBIT(S)   – 3  (Motion# 006) 
Ryan Exhibit 3 (ClaritySpring Inc. Tweet 3/17/2017)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 81 EXHIBIT(S)   – 3A  (Motion# 006) 
Ryan Exhibit 3A (ValueWalk Article “GeoInvesting Now Says Eros Facing ‘Very Real Liquidity Crisis'”)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 82 EXHIBIT(S)   – 4  (Motion# 006) 
Ryan Exhibit 4 (ClaritySpring Inc. Tweet 3/31/2017)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 83 EXHIBIT(S)   – 4A  (Motion# 006) 
Ryan Exhibit 4A (“Quoth the Raven” Tweet)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 84 EXHIBIT(S)   – 5  (Motion# 006) 
Ryan Exhibit 5 (ClaritySpring Inc. Tweet 6/26/2017)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 85 EXHIBIT(S)   – 6  (Motion# 006) 
Ryan Exhibit 6 (ClaritySpring Inc. Tweet 7/21/2017)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 86 EXHIBIT(S)   – 7  (Motion# 006) 
Ryan Exhibit 7 (ClaritySpring Inc. Tweet 7/27/2017)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 87 EXHIBIT(S)   – 8  (Motion# 006) 
Ryan Exhibit 8 (Hindenburg Research Article “Eros Earning Review: An Abundance of Red Flags”
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 88 EXHIBIT(S)   – 9  (Motion# 006) 
Ryan Exhibit 9 (Hindenburg Research Article “Eros’s Latest Buyout Rumors Seem Suspect”
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 89 EXHIBIT(S)   – 10  (Motion# 006) 
Ryan Exhibit 10 (Hindenburg Research Article “Eros International: New Receivables Accounting Red Fl(..)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 90 EXHIBIT(S)   – 11  (Motion# 006) 
Ryan Exhibit 11 (Hindenburg Research Tweets 8/1/2017)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 91 EXHIBIT(S)   – 12  (Motion# 006) 
Ryan Exhibit 12 (Hindenburg Research Tweet 8/4/2017 at 10:32 am)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 92 EXHIBIT(S)   – 12A  (Motion# 006) 
Ryan Exhibit 12A (Article “Film Artists Working Abroad Shown as Exports to Evade Tax: CAG”)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 93 EXHIBIT(S)   – 13  (Motion# 006) 
Ryan Exhibit 13 (Hindenburg Research Tweet 8/4/2017 at 10:18 am)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 94 EXHIBIT(S)   – 13A  (Motion# 006) 
Ryan Exhibit 13A (Document from Indian Ministry of Corporate Affairs)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 95 MEMORANDUM OF LAW IN SUPPORT  (Motion# 006) 
Memorandum of Law in Support of Motion To Dismiss All Causes of Action Against ClaritySpring Inc., C(..)
Processed 11/30/2017
Rocco, P.
Confirmation Notice
 96 ORDER TO SHOW CAUSE  (Motion# 004) Processed 12/01/2017
Court User
Confirmation Notice
 97 ORDER TO SHOW CAUSE  (Motion# 005) Processed 12/01/2017
Court User
Confirmation Notice
 98 ORDER TO SHOW CAUSE ( PROPOSED )  (Motion# 007) 
(Proposed)Order To Show Cause
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 99 MEMORANDUM OF LAW IN SUPPORT  (Motion# 007) 
Memorandum Of Law In Support Of Plaintiffs Motion For Default Judgments Against Defendants Manuel P.(..)
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 100 AFFIDAVIT OR AFFIRMATION IN SUPPORT OF PROPOSED OSC/EXPARTE APP  (Motion# 007) 
Affirmation Of Michael J. Bowe In Support Of Plaintiffs Motion For Default Judgments Against Defenda(..)
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 101 EXHIBIT(S)   – A  (Motion# 007) 
Asensio Nail and Mail Affidavit of Service
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 102 EXHIBIT(S)   – B  (Motion# 007) 
Asensio Doorman Affidavit of Service
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 103 EXHIBIT(S)   – C  (Motion# 007) 
Asensio & Co SOS Affidavit of Service
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 104 EXHIBIT(S)   – D  (Motion# 007) 
Mill Rock SOS Affidavit of Service
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 105 EXHIBIT(S)   – E  (Motion# 007) 
CPLR_3215(g) Aff.
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 106 EXHIBIT(S)   – F  (Motion# 007) 
2017.11.20 Asensio Email
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 107 EXHIBIT(S)   – G  (Motion# 007) 
2017.11.22 Tountas Email
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 108 EXHIBIT(S)   – H  (Motion# 007) 
2017.11.22 Asensio Email
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 109 EXHIBIT(S)   – I  (Motion# 007) 
2017.11.24 Bowe Email
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 110 EXHIBIT(S)   – J  (Motion# 007) 
2017.11.24 Tountas Email
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 111 EXHIBIT(S)   – K  (Motion# 007) 
2017.11.25 Asensio Email
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 112 EXHIBIT(S)   – L  (Motion# 007) 
2017.11.28 Asensio Email
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 113 EXHIBIT(S)   – M  (Motion# 007) 
2017.11.29 Cantor Email
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 114 EXHIBIT(S)   – N  (Motion# 007) 
2017.10.20 Sorkin Email
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 115 EXHIBIT(S)   – O  (Motion# 007) 
2017.10.05 Alpha Exposure Tweets
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 116 EXHIBIT(S)   – P  (Motion# 007) 
2017.10.05 Asensio Tweet
Processed 12/01/2017
Bowe, M.
Confirmation Notice
 117 NOTICE OF APPEARANCE (POST RJI) Processed 12/03/2017
Cantor, M.
Confirmation Notice
 118 AFFIDAVIT OR AFFIRMATION IN OPPOSITION TO ORDER TO SHOW CAUSE  (Motion# 007) 
Affidavit in Opposition to Proposed OSC
Processed 12/03/2017
Cantor, M.
Confirmation Notice
 119 EXHIBIT(S)   – 1  (Motion# 007) 
November 20, 2017 email
Processed 12/03/2017
Cantor, M.
Confirmation Notice
 120 EXHIBIT(S)   – 2  (Motion# 007) 
June 12, 2016 Letter
Processed 12/03/2017
Cantor, M.
Confirmation Notice
 121 ORDER TO SHOW CAUSE  (Motion# 006) Processed 12/04/2017
Court User
Confirmation Notice
 122 ORDER TO SHOW CAUSE  (Motion# 007) Processed 12/06/2017
Court User
Confirmation Notice
 123 AFFIRMATION/AFFIDAVIT OF SERVICE  (Motion# 007) Processed 12/08/2017
Bowe, M.
Confirmation Notice
 124 STIPULATION – ADJOURNMENT OF MOTION – BEFORE JUDGE  (Motion# 007) Processed 01/12/2018
Cantor, M.
Confirmation Notice
 125 LETTER / CORRESPONDENCE TO JUDGE 
Letter to Justice Bransten requesting leave to file an omnibus opposition that does not exceed 60 pa(..)
Processed 01/16/2018
Tountas, S.
Confirmation Notice
 126 LETTER/CORRESPONDENCE – SO ORDERED Processed 01/17/2018
Court User
Confirmation Notice
 127 STIPULATION – ADJOURNMENT OF MOTION -IN SUBMISSIONS PART -RM 130  (Motion# 007) Processed 01/22/2018
Cantor, M.
Confirmation Notice
 128 MEMORANDUM OF LAW IN OPPOSITION  (Motion# 005) 
Plaintiff’s Memorandum of Law in Opposition to The Mangrove Defendants’ Order to Show Cause
Processed 01/23/2018
Bowe, M.
Confirmation Notice
 129 AFFIDAVIT OR AFFIRMATION IN OPPOSITION TO ORDER TO SHOW CAUSE  (Motion# 005) 
Affirmation of Michael J. Bowe in Opposition to The Mangrove Defendants’ Order to Show Cause
Processed 01/23/2018
Bowe, M.
Confirmation Notice
 130 EXHIBIT(S)   – A  (Motion# 005) 
Bloomberg News Feed
Processed 01/23/2018
Bowe, M.
Confirmation Notice
 131 MEMORANDUM OF LAW IN OPPOSITION  (Motion# 004) 
Plaintiff’s Memorandum of Law in Opposition to The GeoInvesting Defendants’ Order to Show Cause
Processed 01/23/2018
Bowe, M.
Confirmation Notice
 132 AFFIDAVIT OR AFFIRMATION IN OPPOSITION TO ORDER TO SHOW CAUSE  (Motion# 004) 
Affirmation of Michael J. Bowe in Opposition to The GeoInvesting Defendants’ Order to Show Cause
Processed 01/23/2018
Bowe, M.
Confirmation Notice
 133 EXHIBIT(S)   – A  (Motion# 004) 
Letter from Tountas to Anderson
Processed 01/23/2018
Bowe, M.
Confirmation Notice
 134 EXHIBIT(S)   – B  (Motion# 004) 
Bloomberg News Feed
Processed 01/23/2018
Bowe, M.
Confirmation Notice
 135 EXHIBIT(S)   – C  (Motion# 004) 
GeoInvesting Mar. 8, 2017 Article
Processed 01/23/2018
Bowe, M.
Confirmation Notice
 136 MEMORANDUM OF LAW IN OPPOSITION  (Motion# 006) 
Plaintiff’s Memorandum of Law in Opposition to The ClaritySpring Defendants’ Motion to Dismiss the C(..)
Processed 01/23/2018
Bowe, M.
Confirmation Notice
 137 AFFIDAVIT OR AFFIRMATION IN OPPOSITION TO ORDER TO SHOW CAUSE  (Motion# 006) 
Affirmation of Michael J. Bowe in Opposition to The Clarity Spring Defendants’ Order to Show Cause
Processed 01/23/2018
Bowe, M.
Confirmation Notice
 138 EXHIBIT(S)   – A  (Motion# 006) 
Letter from Tountas to Anderson
Processed 01/23/2018
Bowe, M.
Confirmation Notice
 139 EXHIBIT(S)   – B  (Motion# 006) 
Hindenburg SA Profile
Processed 01/23/2018
Bowe, M.
Confirmation Notice
 140 EXHIBIT(S)   – C  (Motion# 006) 
Bloomberg News Feed
Processed 01/23/2018
Bowe, M.
Confirmation Notice
 141 AFFIRMATION/AFFIDAVIT OF SERVICE Processed 02/01/2018
Tountas, S.
Confirmation Notice
 142 ORDER TO SHOW CAUSE ( PROPOSED )  (Motion# 008) 
Plaintiff Eros International PLC’s Order to Show Cause to Extend Time
Processed 02/01/2018
Bowe, M.
Confirmation Notice
 143 AFFIDAVIT OR AFFIRMATION IN SUPPORT OF PROPOSED OSC/EXPARTE APP  (Motion# 008) 
Affirmation In Support Of Eros Second Motion To Extend Time To Serve John Doe Defendants Nos. 1-5 & (..)
Processed 02/01/2018
Bowe, M.
Confirmation Notice
 144 EXHIBIT(S)   – A  (Motion# 008) 
Summons with Notice
Processed 02/01/2018
Bowe, M.
Confirmation Notice
 145 EXHIBIT(S)   – B  (Motion# 008) 
Supplemental Summons
Processed 02/01/2018
Bowe, M.
Confirmation Notice
 146 EXHIBIT(S)   – C  (Motion# 008) 
Decision and Order
Processed 02/01/2018
Bowe, M.
Confirmation Notice
 147 EXHIBIT(S)   – D  (Motion# 008) 
Part 1
Processed 02/01/2018
Bowe, M.
Confirmation Notice
 148 EXHIBIT(S)   – D  (Motion# 008) 
Part 2
Processed 02/01/2018
Bowe, M.
Confirmation Notice
 149 EXHIBIT(S)   – E  (Motion# 008) 
StockTwits Subpoena Duces Tecum
Processed 02/01/2018
Bowe, M.
Confirmation Notice
 150 EXHIBIT(S)   – F  (Motion# 008) 
Scribd Subpoena Duces Tecum
Processed 02/01/2018
Bowe, M.
Confirmation Notice

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Doc # Document Type
Information
Status Received Date
Filing User
View
 151 EXHIBIT(S)   – G  (Motion# 008) 
Twitter Subpoena
Processed 02/01/2018
Bowe, M.
Confirmation Notice
 152 EXHIBIT(S)   – H  (Motion# 008) 
LinkedIn Subpoena
Processed 02/01/2018
Bowe, M.
Confirmation Notice
 153 ORDER TO SHOW CAUSE  (Motion# 008) Processed 02/05/2018
Court User
Confirmation Notice
 154 MEMORANDUM OF LAW IN REPLY  (Motion# 006) Processed 02/07/2018
Rocco, P.
Confirmation Notice
 155 MEMORANDUM OF LAW IN REPLY  (Motion# 004) 
Reply In Further Support of Order to Show Cause By Defendants GeoInvesting, LLC, Christopher Irons, (..)
Processed 02/07/2018
Deleeuw, M.
Confirmation Notice
 156 MEMORANDUM OF LAW IN REPLY  (Motion# 005) 
Reply Memorandum of Law in Further Support of Defendants Mangrove Partners’ and Nathaniel H. August'(..)
Processed 02/07/2018
Asaro, M.
Confirmation Notice
 157 STIPULATION – ADJOURNMENT OF MOTION – BEFORE JUDGE  (Motion# 007) Processed 02/14/2018
Cantor, M.
Confirmation Notice
 158 LETTER / CORRESPONDENCE TO JUDGE  (Motion# 005) 
Letter to the Honorable Eileen Bransten from Joseph L. Sorkin dated 2/15/2018
Processed 02/15/2018
Sorkin, J.
Confirmation Notice
 159 LETTER / CORRESPONDENCE TO JUDGE 
Letter to Justice Bransten, dated February 16, 2018, from Michael J. Bowe, in response to Defendant(..)
Processed 02/16/2018
Bowe, M.
Confirmation Notice
 160 DECISION + ORDER ON MOTION  (Motion# 007) Processed 02/26/2018
Court User
Confirmation Notice
 161 DECISION + ORDER ON MOTION  (Motion# 008) Processed 02/26/2018
Court User
Confirmation Notice
 162 LETTER / CORRESPONDENCE TO JUDGE 
Joint Letter to Justice Bransten dated May 4, 2018 requesting Preliminary Conference
Processed 05/04/2018
Bowe, M.
Confirmation Notice

 

Disclaimer. I have no position in any stock mentioned above. 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.

Penny Stock attorney Diane Dalmy sentenced to 3 years in prison

Yesterday attorney Diane Dalmy was sentenced to three years in prison for her work on behalf of penny stock companies and insiders.

From the DoJ press release:

According to court documents and statements made in court, DALMY, an attorney, performed securities-related legal work on behalf of several public companies, including Mammoth Energy Group, Inc., a company that later became known as Strategic Asset Leasing Inc.; and Fox Petroleum, Inc. (the “Subject Companies”).  Between approximately January 2009 and July 2016, DALMY conspired with others, including William Lieberman, of Boca Raton, Florida, and Christian Meissenn, of Suffield, Connecticut, to defraud investors through a stock “pump and dump” scheme.  During the course of the conspiracy, DALMY acted largely at Lieberman’s direction.

Finally, between February 2015 and July 2016, DALMY laundered a portion of the proceeds of the scheme on behalf of the co-conspirators.  DALMY helped Lieberman to incorporate and open bank accounts for a private company, Queen Asia Pacific Ltd. (“Queen Asia”), which was controlled by Lieberman.  These bank accounts were used to receive proceeds of the scheme from a brokerage account in Queen Asia’s name. DALMY periodically received money in Queen Asia’s bank accounts, transferred those funds to her IOLTA, and then transferred the funds again to Lieberman, Meissenn, and their network of stock promoters.  In total, DALMY laundered approximately $825,000 on behalf of the co-conspirators through Queen Asia’s bank accounts and her IOLTA.

Dalmy has been prohibited from representing companies trading on OTCMarkets since September 2009:

Compared to how much money she made, Dalmy is being fined a lot:

DALMY’s total gain from her participation in this conspiracy, and related legal work for the Subject Companies, was approximately $30,000.

Judge Meyer ordered DALMY to pay $2 million in restitution.

On February 6, 2018, DALMY pleaded guilty to one count of conspiracy.

The lesson we can learn from this: don’t commit serious crimes for small amounts of money, especially if you are an attorney.

Dalmy has less than one more month of freedom. She has been ordered to report to prison on June 14, 2018.

Disclaimer. I have no position in any stock mentioned above. 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.

USA v. Delaney Equity Group LLC

I just saw that Delaney Equity Group LLC (a small broker and OTC market maker) has been criminally charged in an ongoing ‘shell factory’ investigation. See the Palm Beach Post story. Below I have downloaded the court docket and linked all the documents currently available. I intend to post updates to this occasionally (at least for important filings). Read the complaint. The SEC had filed civil charges against Delaney back in 2015.

Excerpt from the complaint:

7. DELANEY EQUITY GROUP LLC, lndividual A, and Ian C. Kass would prepare Forms 211 on behalf of the issuers and submit them to the Financial Industry Regulatory Authority (“FINRA”) so that shares of the issuers could be quoted and traded over-the-counter. These forms falsely and fraudulently represented that the companies were executing their business plans and were operating under the direction of the straw CEO.

The allegations go on, but the fact that the forms 211 are mentioned is a big deal for OTC Markets in my opinion– this could scare off market makers from filing these forms for any sketchy company in the future.

U.S. District Court
Southern District of Florida (Miami)
CRIMINAL DOCKET FOR CASE #: 1:18-cr-20336-CMA All Defendants

Case title: USA v. Delaney Equity Group LLC Date Filed: 04/26/2018

Assigned to: Judge Cecilia M. Altonaga
Defendant (1)
Delaney Equity Group LLC represented by Ryan Dwight O’Quinn 
DLA Piper LLP (US)
200 South Biscayne Boulevard
Suite 2500
Miami, FL 33131
305-423-8553
Fax: 305-675-0807
Email: ryan.oquinn@dlapiper.com
LEAD ATTORNEY
ATTORNEY TO BE NOTICEDElan Abraham Gershoni 
DLA Piper LLP (US)
200 S. Biscayne Boulevard
Suite 2500
Miami, FL 33131
305.423.8500
Fax: 305.675.0527
Email: Elan.Gershoni@dlapiper.com
ATTORNEY TO BE NOTICED
Pending Counts Disposition
18:371.F CONSPIRACY TO UNLAWFULLY SELL UNREGISTERED SECURITIES
(1)
Highest Offense Level (Opening)
Felony
Terminated Counts Disposition
None
Highest Offense Level (Terminated)
None
Complaints Disposition
None

Plaintiff
USA represented by Jerrob Duffy 
United States Attorney’s Office
99 N.E. Fourth Street
4th Floor
Miami, FL 33132
305-961-9273
Fax: 305-536-5321
Email: jerrob.duffy@usdoj.gov
LEAD ATTORNEY
ATTORNEY TO BE NOTICED
Designation: Retained

 

Date Filed # Docket Text
04/26/2018 1 INFORMATION as to Delaney Equity Group LLC (1) count 1 and FORFEITURE COUNT. (wc) (Entered: 04/26/2018)
04/26/2018 2 NOTICE of Similar Action by USA as to Delaney Equity Group LLC (Duffy, Jerrob) (Entered: 04/26/2018)
04/26/2018 3 NOTICE OF ATTORNEY APPEARANCE: Ryan Dwight O’Quinn appearing for Delaney Equity Group LLC . Attorney Ryan Dwight O’Quinn added to party Delaney Equity Group LLC(pty:dft). (O’Quinn, Ryan) (Entered: 04/26/2018)
04/26/2018 4 NOTICE OF ATTORNEY APPEARANCE: Elan Abraham Gershoni appearing for Delaney Equity Group LLC . Attorney Elan Abraham Gershoni added to party Delaney Equity Group LLC(pty:dft). (Gershoni, Elan) (Entered: 04/26/2018)

 

Disclaimer. I have no position in any stock mentioned above. 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 fines Aegis Capital Corporation after it admits to failing to file SARs

On March 28, 2018 the SEC announced in a press release that Aegis Capital Corporation (a broker and investment bank) had settled with the SEC following accusations of failing to file suspicious activity reports (SARs) that brokers are required to file.

From the press release:

Broker-dealers are required to file SARs for certain transactions suspected to involve fraudulent activity or have no business or apparent lawful purpose.  The SEC’s order found that Aegis failed to file SARs on suspicious transactions that raised red flags indicating the transactions were potentially related to the market manipulation of low-priced securities.

“Aegis failed to meet its AML obligations to report suspicious activity, including when it was faced with specific information alerting the firm to suspicious transactions,” said Antonia Chion, Associate Director and head of the Broker-Dealer Task Force of the SEC’s Enforcement Division.  “Given the critical importance of SARs to the regulatory and law enforcement community, brokerage firms must comply with their SAR reporting obligations.”

The SEC’s order found that Aegis willfully violated an SEC financial recordkeeping and reporting rule.  Aegis agreed to pay a $750,000 penalty and retain a compliance expert.  FINRA also announced a settlement with Aegis today that includes an additional $550,000 penalty. 

In addition to the fines against the company, two Aegis employees settled with the SEC and agreed to fines and a third is defending himself against the SEC’s charges:

In a separate settled order, Aegis’ former anti-money laundering (AML) compliance officer Kevin McKenna was found to have aided and abetted the firm’s violations.  Aegis CEO Robert Eide was found to have caused them.  Without admitting or denying the SEC’s findings, Eide and McKenna agreed to pay penalties of $40,000 and $20,000, respectively.  McKenna also agreed to a prohibition from serving in a compliance or AML capacity in the securities industry with a right to reapply.     

In a litigated order, the Enforcement Division alleges that another former Aegis AML compliance officer, Eugene Terracciano, failed to file SARs on behalf of Aegis.  Terracciano is alleged to have aided and abetted and caused Aegis’ violations.  The matter pertaining to Terracciano will be scheduled for a public hearing before an administrative law judge, who will prepare an initial decision stating whether the Enforcement Division has proven the allegations in the order and what, if any, remedial actions are appropriate. 

 

SEC Press Release
FINRA Press Release
SEC Order on Aegis Capital (PDF)
SEC Order on Kevin McKenna and Robert Eide (PDF)
SEC Order on Eugene Terracciano (PDF)

 

The SEC orders have lots of great details, some of which I have excerpted below. While firms and clients and stocks are not named, I was able to determine two of the stocks given as examples in the orders (Issuers A and F).

First, some details about Aegis’ business from the SEC order on Aegis (emphasis mine):

RESPONDENT
Aegis is a dually-registered investment adviser and broker-dealer with multiple branches and is headquartered in New York, NY. For its fiscal year 2014, Aegis had revenues of approximately $123 million and, for its fiscal year 2015, revenues of approximately $98 million. During those fiscal years, Aegis had revenues of approximately $250,000 and $270,000 from its low-priced securities business. Aegis’ business consists of investment banking, venture capital,
and debt market services as well as full-service retail and institutional advisory and brokerage services. Aegis’ CEO is also the firm’s founder and 100% owner.

FACTS
A. Aegis’ Low Priced Securities Business
1. During the relevant period, Aegis had various brokerage customers who transacted in low-priced securities. Several of these customers did so through DVP/RVP accounts. In
DVP/RVP accounts held at Aegis, the customer deposited their shares at another firm in a custodial account, and the sale transactions were effected through Aegis. During the
relevant period, Aegis had relationships with various clearing firms that assisted in effecting low-priced securities transactions.

2. Aegis had customers at their branch offices who transacted in low-priced securities.
Several of these customers were foreign financial institutions that effected transactions on
behalf of their underlying customers, all of whom were unknown to Aegis.

So Aegis penny stock business was very small relative to the size of its business overall and it appears that much of the low-priced securities (penny stock) business was with foreign financial firms. One such client (“customer A”) is described as well as its trading in “Issuer A” (quote from the Order on Aegis; emphasis mine):

Illustrative Examples of Transactions in which Aegis Failed to File SARs
i. Customer A
23. Between October 17 and December 27, 2012, an Aegis customer – Customer A – sold approximately 2.1 million shares of Issuer A, which traded on OTC Link (previously
“Pink Sheets”) operated by OTC Markets Group Inc. (“OTC Link”). Customer A held a DVP/RVP account at Aegis and is a private Swiss bank that traded significant volumes of low-priced securities through an omnibus arrangement with Aegis on behalf of the Swiss bank’s underlying clients who were unknown to Aegis.

24. At the same time Customer A was selling shares of Issuer A, a stock promotion touting the company’s prospects was underway. Coinciding with the promotional campaign,
Issuer A’s share price fluctuated from a low of $0.51 to a high of $0.93 on average daily volume of 558,792 shares. In the two months prior to October 17, 2012, no shares of
Issuer A traded at all. Thus, Customer A’s trading in Issuer A occurred during a period of a sudden spike in price and volume – which were specific AML red flags identified in
Aegis’ written supervisory procedures.

25. Prior to Customer A’s trading in Issuer A, Issuer A had undergone several name changes – again a specific AML red flag identified in Aegis’ written supervisory procedures. Moreover, contrary to the rosy picture of Issuer A painted by the above described promotional campaign, Issuer A’s Form 10-Q for the period ending September 30, 2012 reported that Issuer A had no revenues, a net loss of $143,345, and a “going concern” statement from its management.

 

After doing a search on Edgar Pro I discovered that the only company with a net loss of $143,345 in that quarter was Graphite Corp (GRPH at the time) that was a pump and dump at the time (and multiple times since). Therefore Graphite Corp is Issuer A. Here is a screenshot of the results of my search:

And a screenshot of the 10-Q in question:

 

 

Another stock traded by Customer A was also a purported graphite company undergoing a pump and dump campaign (Issuer B). From the order on Aegis:

In addition to the suspicious trading noted above, there were other indicia that Issuer B likely was the subject of market manipulation. For example, Issuer B reported in 2013 that it was a world-class graphite company, yet two years earlier it had been a Malaysian publishing company that operated under a different name. Recent changes in an issuer’s name and business was one of the specific AML red flags identified in Aegis’ written supervisory procedures.

“Customer B” is also interesting:

37. Customer B is a British Virgin Islands company based in China that offers consulting and advisory services.
38. In an approximately one month period beginning in April 2013, Customer B sold approximately 200,000 shares of Issuer C through Aegis for proceeds of $2.3 million, or
over $10 per share. Issuer C was listed on NASDAQ.

“Customer D” was yet another foreign company:

55. Another Aegis customer – Customer D – engaged in suspicious low-priced securities transactions for which Aegis did not file a SAR. Customer D was a foreign financial
institution with a DVP/RVP account at the firm and traded on behalf of underlying customers who were unknown to Aegis.
56. Over an approximately six-month period beginning in late May 2013, Customer D sold approximately 457,000 shares of Issuer F for proceeds of approximately $2.8 million. Issuer F traded on OTC Link. Just prior to the trading – and coinciding with a promotional campaign – Issuer F’s share price climbed from $3.90 to $9.39 on
substantially increased volume.
57. Customer D was not the only Aegis customer who traded suspiciously in Issuer F. Starting approximately two months before Customer D’s trading, Customers A and E sold a substantial amount of Issuer F shares for substantial proceeds. Customer E was yet another foreign financial institution with a DVP/RVP account at the firm and traded on behalf of underlying customers who were unknown to Aegis; it was incorporated in New Zealand and operated from Switzerland

Based solely on the description of the stock price and volume, I believe that “Issuer F” is Octagon Resources (OCTX), about which I wrote a blog post. In addition to “Customer D” selling shares of “Issuer F”, “Customer A” and “Customer E” also sold many shares:

Starting approximately two months before Customer D’s trading, Customers A and E sold a substantial amount of Issuer F shares for substantial proceeds. Customer E was yet another foreign financial institution with a DVP/RVP  account at the firm and traded on behalf of underlying customers who were unknown to Aegis; it was incorporated in New Zealand and operated from Switzerland.
58. In particular, Customer A sold approximately 638,000 shares of Issuer F for proceeds of approximately $3.7 million while Customer E sold approximately 494,000 shares of Issuer F for proceeds of approximately $3.3 million. Thus, together Customers A and E sold over one million shares of Issuer F for proceeds of approximately $7 million.

 

I am late to reporting this and I apologize for that (I did previously tweet about it on the day it was announced).

 

Disclaimer. I have no position in any stock mentioned above. 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.

FINRA reaches decision against penny stock broker Wilson-Davis & Co

While searching for another FINRA decision I came across an extended hearing panel decision from February 27, 2018 by FINRA that lays out in detail many things that penny stock traders have guessed or suspected about broker and market maker Wilson-Davis Co and Anthony Kerrigone. That FINRA decision is against Wilson-Davis & Co, James C. Snow (President and Chief Compliance Officer), and Byron B. Barkley (Head of Trading). Do note that this decision has been appealed to the FINRA appeals panel. Until the appeal is resolved the suspensions will not take effect and the fines will not have to be paid. It is possible that the respondents will win the appeal and face lesser sanctions or no sanctions.

I previously wrote about Wilson-Davis and Kerrigone a little over a year ago when the SEC fined Wilson-Davis for Reg SHO violations.

The penalties are (all quotes in this post are from the decision):

Respondent Wilson-Davis & Co. is fined $1,170,000 and ordered to disgorge $51,624 for improper short sales. For its failure to supervise and implement adequate AML procedures, Wilson-Davis is fined an additional 300,000,
while Respondents James Snow and Byron Barkley are fined $140,000 and $115,000, respectively, and both are suspended for one year and ordered to requalify before re-entering the industry.

The really interesting things in the decision all concern Anthony Kerrigone:

Wilson-Davis hired registered representative Anthony Kerrigone (“Kerrigone”) as a trader in September of 2008. Although Kerrigone maintained a small number of retail customers, his primary business was trading in one of the Firm’s proprietary accounts as a market maker in various securities. Kerrigone’s “niche” as a market maker was the markets of penny stock companies that traded in high volume following promotional or touting campaigns. Kerrigone researched stocks to find those that were experiencing a run up in price because “they were being promoted and touted,” even though the securities were “generally worthless” and “had zippo, no value.” Because the promoters “managed to figure out how they’d get a lot of people to buy” these “worthless” stocks, they presented a “trading opportunity” for Kerrigone.

Once Kerrigone identified a suitable “trading opportunity,” his activity in the security followed a consistent pattern. Kerrigone entered the market of an actively promoted stock by first selling the security short, on the assumption that once the market impact of promotional activity dissipated the stock would lose value. Although Kerrigone typically posted both “bid” and “ask” quotes as a market maker when he was first active in a stock, during this early period his “bid” quotes were generally not competitive with other market quotes, minimizing the possibility that he would actually purchase any significant quantities of the stock from the market as he shorted.

Later, as the effect of the promotional activity dissipated and value of the stock began to fall, Kerrigone moved his “bid” to a competitive level and executed market purchases of the stock sufficient to cover his short positions. During this latter stage, his “ask” quotes were typically away from the “inside” and not competitive with other market quotes, minimizing the possibility that he would sell additional stock and increase his diminishing short position. After fully covering his short position, he exited the market of the security. His trading in each security was brief, typically only a few trading days. By starting out as a net seller of the promoted stocks, accumulating his short position, and then buying to cover the stock he shorted, Kerrigone effectively piggy-backed the trajectory of potential “pump and dump” schemes to sell stock to the public while it was artificially inflated.

Kerrigone and his superiors at Wilson-Davis knew that Regulation SHO generally required a seller to borrow a security before selling the security short. But the Firm made no effort to do so before Kerrigone’s short selling. Instead, the Firm assumed that its trading fell within an exemption to the borrow requirement provided to Firms who engage in “bona-fide market making.” Kerrigone’s strategy was lucrative for both himself and Wilson-Davis. Kerrigone, who worked on a commission based on his trading profits, made in excess of $15 million between 2011 and 2013. During this time the Firm similarly made “tens of millions of dollars in profit.” The strategy is illustrated by Kerrigone’s trading in four penny stocks—Preventia, Inc. (“PVTA”), PM&E, Inc. (PMEA”), China Teletech Holdings (“CNCT”), and Lot 78, Inc. (“LOTE”).

My previous blog post about the SEC fine against Wilson-Davis for Reg SHO violations covers most of what FINRA alleges in this decision. More interesting is the description of the short squeeze in LOTE (Lot 78 Inc).

The decision describes Kerrigone’s trading in LOTE:

Like the other companies, Lot 78 was a penny stock whose market saw little or no activity before Kerrigone decided to trade the stock. Kerrigone began trading in LOTE on April 24, 2013. Unlike the other stocks, Kerrigone’s trading did not start immediately after promotional activity—instead, the promotion began on March 10, 2013, more than a month before Wilson-Davis entered the market. Kerrigone’s trading varied slightly from his typical pattern. He briefly accumulated a long position by purchasing LOTE stock at the market open on April 24, before changing direction less than an hour later placing a sale transaction of more than 1.1 million shares, resulting in a net short position of approximately 476,000 shares.

Similar to the other stocks, Wilson-Davis did not borrow the securities it sold short. Kerrigone continued to increase his short position to approximately 1 million shares by the end of the trading day.95 Kerrigone’s last purchase of the day was at a price of $2.45 per share. The next day, Kerrigone began purchasing stock to cover his short position, but found that unlike the price trajectory of the other stocks, the price of LOTE continued to increase.

After a single purchase of 256,878 shares at $3.34 per share, Kerrigone stopped making substantial efforts to cover and traded in only small volumes of LOTE as the stock price continued to rise throughout the day. Kerrigone’s last trade of the day was at $4.05 per share. Despite the fact that Kerrigone’s net short position decreased by approximately 250,000 shares as a result of his purchase, the value of his outstanding LOTE short position increased from approximately $2.4 million to $2.9 million as a result of the rising price of the stock.

On the third day after Kerrigone entered the market, the price of LOTE continued to rise. That morning, Kerrigone purchased another 199,132 shares to reduce his short position to approximately 544,576 shares, this time at a price of $4.81 per share. Kerrigone again traded only small volumes of the stock, with his last trade of the day at $6.05 per share. Despite the fact that his short position was again reduced, the increased share price meant that the value of the outstanding position that Kerrigone still needed to cover had increased to over $3.2 million.

Despite the rising price of LOTE, Firm policy required Kerrigone to cover his short position quickly. Kerrigone finally covered his net short position on the fourth trading day. He did so by executing a purchase of 545,388 shares at a price of $7.89 per share. After that fourth day, Kerrigone never traded in LOTE again. In total, Kerrigone executed at least 102 trades in LOTE during his trading, including 51 short sales.109 Because LOTE’s stock price did not follow Kerrigone’s anticipated trajectory and he had to purchase his covering shares at prices substantially higher than where he shorted, his trading in the stock resulted in a loss to WilsonDavis of more than $4.2 million.

Shortly thereafter, Wilson-Davis required Kerrigone to reimburse the Firm for its LOTE losses, and asked him to leave the Firm.

Kerrigone’s posted market maker quotations for LOTE during the period of his trading were once again more consistent with his effort to execute his trading strategy than actually providing general liquidity to the market as a market maker. During the early part of the trading when Kerrigone was accumulating his short position, Wilson-Davis’ posted bid was significantly away from the inside bid (82 percent of the time), ensuring that his bid would usually not result in market purchases. Indeed, even when Kerrigone purchased a large quantity of stock before building his short position, he did so by initiating transactions with other brokers at prices higher than Wilson-Davis’ own quoted bid price.

Later, when Kerrigone was attempting to cover, he ensured that Wilson-Davis’ posted sell quotes would not increase his short position by moving those posted quotes to levels significantly away from the inside ask (approximately 55 percent of the time). Moreover, during this later period, Wilson-Davis’ posted bid quotes were also almost always significantly away from the inside bid (approximately 92 percent of the time), as Kerrigone sought to avoid buying as well in light of the increasing price of LOTE stock, providing little liquidity to the market in either direction.

This provides clarity about a short squeeze that traders at the time saw happen in real time. As the decision states, “He briefly accumulated a long position by purchasing LOTE stock at the market open on April 24, before changing direction less than an hour later placing a sale transaction of more than 1.1 million shares, resulting in a net short position of approximately 476,000 shares.” As I remember it (I was trading the stock at the time although in very small size), the full size of that sell order was shown to the market. After the price of the stock declined in reaction to the large sell order, the order was filled completely and the stock quickly bounced. The trading and short squeeze in LOTE was first reported by Promotion Stock Secrets.

According to FINRA Brokercheck, Anthony Kerrigone is no longer employed by BMA Securities; his last day there was reportedly April 9, 2017. He is not currently registered as a broker.

Disclaimer. No position in any stock mentioned and I have no relationship with anyone mentioned in this post except that I am a subscriber to Promotion Stock Secrets and have been for a few years. 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.

UMF Group (UMFG) Pump and dump appears over

I apologize to my dear readers: I have not had much time for blogging recently. Unfortunately that has led to me failing to blog about several interesting stock promotions and a couple stories that are very interesting and inflammatory that require a lot of work. One recent pump and dump that did surprisingly well is UMF Group (UMFG).

As you can see from the chart there were two separate pump phases of UMFG. The first pump was accompanied by emails and a landing page at http://dailystocktraders.com/UMFG2/ (that page has since been removed). Thanks to Tim Lento for blogging about the pump and capturing an image of the first pump page (click below to enlarge). Make sure to follow Tim’s blog. The second phase of the promotion (after the landing page was removed and unaccompanied by any emails that I received) was in January and impressively resulted in the stock breaking out to new highs before crashing again. Perhaps UMFG was promoted by a boiler room in January?

As is common with promoted stocks that slowly uptick for many days in a row, I see a very strong probability (>95%) that the stock was manipulated and I could even describe how.

Disclosed budget: not mentioned
Promoter:  DailyStockTraders.com
Paying party: not mentioned
Shares outstanding: 121,221,878
Previous closing price: $0.556
Market capitalization: $67 million

 

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.

Vilacto Bio (VIBI) Landing page stock promotion

I had seen the chart but it wasn’t until I was castigated on Twitter for not blogging about Vilacto Bio (VIBI) that I bothered to look into the promotion pushing it up. As is usual with promoted garbage stocks, the company has little in the way of assets ($135,000 per most recent 10-Q), no revenues, and negative book value.

There is a landing page promoting VIBI at: http://dailystocktraders.com/VIBI/

Disclosed budget: $2,000,000
Promoter: Dheise Oliveira / DailyStockTraders.com
Paying party: not mentioned
Shares outstanding: 90.000.000
Previous closing price: $1.67
Market capitalization: $150 million

Disclaimer from the landing page (emphasis mine):

Disclaimer: Information about many publicly traded companies, including Vilacto Bio Inc. and other investor resources can be found directly from the Securities and Exchange Commission as well as from its website, www.sec.gov. It is recommended that any investment in any security should be made only after consulting with your registered investment advisor and only after reviewing all publicly available information, including the statements of the company. Do not base any investment decisions upon any material found in this advertisement. The information contained herein has been prepared for informational purposes only and is not intended in any way to be used as a complete source of information on any particular company, including Vilacto Bio Inc. This publication does not purport to provide a full analysis of any company’s financial position. Any public company’s financial position and all other information regarding the company should be verified directly with the company and its regulatory disclosures. Dheise Oliveira has been paid $4,000 to be a spokesperson in this advertisement. An individual should not invest in the securities of Vilacto Bio Inc. based solely on information contained in this advertisement. Investing in securities is speculative and carries significant risk, including the total loss of principal. This advertisement is not intended to be, nor should it be construed as, an offer to buy or sell nor a solicitation to buy or sell securities, nor should it be construed as the provision of any investment related advice nor services tailored to any particular individual’s financial situation or investment objective(s). The publisher distributes general content offering impersonalized entertainment to readers and/or prospective readers and is not an investment advisor or broker-dealer registered with either the U.S Securities and Exchange Commission nor with any state securities regulatory authorities. The publisher is neither licensed nor qualified to provide financial advice. As such, the publisher rely upon the “publisher’s exclusion” as provided under Section 202(a)(11) of the Investment Advisors Act of 1940 and its corresponding state securities laws. Do not invest in this company unless you can afford to possibly lose your entire investment. The company featured herein appears as paid advertising, paid by a third party to provide public awareness for Vilacto Bio Inc. The publisher understands that in an effort to enhance public awareness of Vilacto Bio Inc. and its securities through the distribution of this online advertisement, if successful, the advertisement will increase investor and market awareness, which could result in increased numbers of shareholders owning and trading the common stock of Vilacto Bio Inc., and/or increase trading volumes, and/or possibly increased share price of the common stock of Vilacto Bio Inc. The publisher and marketing vendors will be managing a total budget of two million dollars, provided for all online advertising and marketing efforts; and will retain any amounts over and above the cost of production, advertising, copywriting services, mailing and other distribution expenses, as a fee for their services. The publisher has not undertaken to determine if paying parties are, or intend to be, directly or indirectly, a shareholder of Vilacto Bio Inc. This publication 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 publisher cannot guarantee the accuracy or completeness of the information. The information contained herein contain forward-looking information within the meaning of section 27a of the Securities Act and section 21e of the Securities Exchange Act including statements regarding expected growth of Vilacto Bio Inc. In accordance with the safe harbor provisions of the Private Securities Litigation Reform Act, the publisher notes that statements contained herein that look forward in time, which include everything other than historical information, involve risks and uncertainties that may affect the Company’s actual results of operations. Factors that could cause actual results to differ include, but are not limited to, the size and growth of the market for the company’s products and services, the company’s ability to fund its capital requirements in the near and long term, pricing pressures and other risks detailed in the company’s filed reports with SEC. To the fullest extent of the law, we will not be liable to any person or entity for the accuracy, quality, completeness, reliability, or timeliness of the information provided herein, nor for any direct, indirect, consequential, incidental special or punitive damages that may arise out of the use of information we provide to any person or entity (including, but not limited to, lost profits, loss of opportunities, trading losses, and damages that may result from any inaccuracy or incompleteness of this information).

PDF copy of landing page

 

 

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.

Tactical Services (TTSI) Stock promotion: emails and boiler room

Note: When I published this on 11/15/2017 Tactical Services was trading as LUADD. It is now trading as TTSI. 

The new stock promotion on the block is Tactical Services (LUADD). It isn’t completely new — it has been going on since October 26th. However, while I tweeted about it, I didn’t blog about it because volume was low and it looked like it was failing quickly. Also, I couldn’t sign up for the promoter’s email list. However, with the recovery in the stock price and hearing that there is a boiler room promoting the stock I decided to blog about it. Keep in mind that boiler room pumps usually result in the biggest dumps. The last big boiler room pump and dump was Homie Recipes (HOMR; now trading as STVA Stevva Corp), which quickly dropped from $1.80 to $0.20 in two days. I traded it horribly (shorting at $1.90 and covering my short at $0.80) and still made decent money. It now trades at $.002.

Here is the STVA daily candlestick chart — trading in it was suspended for two weeks by the SEC on October 5th.

The LUADD stock chart does not appear nearly as well controlled / manipulated as STVA/HOMR did, but it has been slowly upticking on pretty decent volume for the last 7 days.

Below is a screenshot of an email promoting LUADD. Thanks to @TheReal666 for posting this on Twitter. Unfortunately the disclaimer is too small for me to read.

Other reliable sources have confirmed the Stock Callers promotion of LUADD:

I tweeted about the LUADD stock promotion on October 31, pointing out that the number of shares outstanding was a lot higher than many thought:

According to TheOTC.today, the StockCallers promotion group is comprised of the following websites:

ActiveWallStreet.com
EquityResearchDaily.com
GlobalStockAdvantage.com
Stock-Callers.com

The top three of those websites no longer exist and I cannot sign up for the Stock-Callers.com email list.

As of 11/17/2017 Tactical Services has begun trading as TTSI.

Update 3/8/2018: I finally got around to updating the chart of TTSI/LUADD. The first big down day (11/16/17) was as LUADD and the following day it began trading as TTSI.

Disclaimer. I am currently short LUADD and may add to my short or cover it at any time. No position in any other 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.