The Securities and Exchange Commission today announced charges against 16 defendants, located in the Bahamas, the British Virgin Islands, Bulgaria, Canada, the Cayman Islands, Monaco, Spain, Turkey, and the United Kingdom, for participating in multi-year fraudulent penny stock schemes that generated more than $194 million in illicit proceeds. The SEC investigations leading to these charges involved assistance from securities regulators and other law enforcement authorities in more than 20 countries and are associated, in part, with parallel criminal actions announced by the United States Attorney’s Office for the Southern District of New York.
“We allege that the defendants in these actions orchestrated some of the most complex microcap stock fraud schemes ever charged by the SEC,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “By locating their operations overseas, using encrypted messaging and operating through a convoluted network of offshore accounts, the defendants hoped to avoid detection of the massive frauds we allege they perpetrated on US markets and investors. However, investigative teams from three SEC offices doggedly kept on their trail, working across borders, and ended this alleged global scheme.”
The SEC’s complaints, filed in the United States District Court for the Southern District of New York, charge all of the defendants with violating the antifraud and registration provisions of the federal securities laws. The charges, contained in three separate complaints, allege that several defendants played a variety of roles to accumulate the majority of shares in penny stocks via difficult to unveil, offshore nominee companies. It is also alleged that some of the defendants frequently used encrypted text and phone applications to avoid detection by regulators, and arranged to buy and sell penny stocks from multiple offshore accounts, in furtherance of the fraud.
According to the complaints, once some of the defendants had amassed a significant majority of the shares of the stocks, certain defendants secretly funded promotional campaigns to promote the stocks to unsuspecting investors in the United States and elsewhere. As alleged, when those campaigns triggered increases in the demand for and price of the stocks, some of the defendants sold the stocks via trading platforms in Asia, Europe and the Caribbean for significant profits.
The SEC is seeking permanent injunctions, disgorgement of allegedly ill-gotten gains plus interest, and civil penalties against all the defendants; penny stock bars against all the individual defendants; conduct-based injunctions against 11 of the 15 individual defendants; and officer and director bars against eight of the individual defendants. On the emergency applications, the Court issued orders on April 12 and April 15 freezing and directing repatriation of the assets of six defendants.
The SEC’s investigations were conducted by Trevor Donelan, Alicia Reed, Michael Moran, David D’Addio, and Amy Gwiazda in the SEC’s Boston Regional Office; Benjamin D. Brutlag, Shipra G. Wells, Karaz S. Zaki, and J. Lee Buck II in the SEC’s Headquarters, with the assistance of Yongping Zheng of the Enforcement Division’s Office of Investigative & Market Analytics; and by Kristine Zaleskas, Michael Paley, and Judith Weinstock in the New York Regional Office. All of the investigations received assistance from the SEC’s Office of International Affairs, including Owen Granke, Matthew Greiner, Andrew Lewczyk, and Marlee Miller. The litigations will be led, respectively, by David London and Martin Healey; Kenneth W. Donnelly, David Nasse, and Frederick L. Block; and Paul Gizzi and Ms. Zaleskas.
The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority. The investigations also involved assistance from the following securities regulators and other government authorities: the Alberta Securities Commission, the Securities Commission of the Bahamas, the British Columbia Securities Commission, the Cayman Islands Monetary Authority, the Curaçao Korps Landelijke Politiediensten, the Cyprus Securities and Exchange Commission, the Financial Supervisory Authority of Denmark, the Guernsey Financial Services Commission, the Hong Kong Securities and Futures Commission, the Italian Commissione Nazionale per le Società e la Borsa, the Japan Financial Services Agency, the Jersey Financial Services Commission, the Latvia Financial and Capital Market Commission, the Liechtenstein Financial Market Authority, the Malta Financial Services Authority, the Mauritius Financial Services Commission, the Mexican Comisión Nacional Bancaria y de Valores, the New Zealand Financial Markets Authority, the Ontario Securities Commission, the Panamanian Superintendencia del Mercado de Valores, the Securities Commission of Serbia, the Québec Autorité des Marchés Financiers, the Royal Canadian Mounted Police, the Monetary Authority of Singapore, the Swiss Financial Market Supervisory Authority, the United Arab Emirates Securities and Commodities Authority, the Dubai Financial Services Authority, and the United Kingdom Financial Conduct Authority.
Defendants (in alphabetical order)
Antevorta Capital Partners, Ltd.
Craig James Auringer
Daniel Mark Ferris
Adam Christopher Kambeitz
Petar Dmitrov Mihaylov