ARTICLE
12 September 2018

SEC Charges Individuals And Associated Entities In "Pump-And-Dump" Schemes

CW
Cadwalader, Wickersham & Taft LLP

Contributor

Cadwalader, established in 1792, serves a diverse client base, including many of the world's leading financial institutions, funds and corporations. With offices in the United States and Europe, Cadwalader offers legal representation in antitrust, banking, corporate finance, corporate governance, executive compensation, financial restructuring, intellectual property, litigation, mergers and acquisitions, private equity, private wealth, real estate, regulation, securitization, structured finance, tax and white collar defense.
The alleged fraud substantially harmed retail investors who were left possessing worthless stocks.
United States Corporate/Commercial Law

The SEC charged a group of 10 individuals and 10 associated entities with fraud in three market manipulation "pump-and-dump" schemes. The alleged fraud substantially harmed retail investors who were left possessing worthless stocks.

According to the Complaint filed in the U.S. District Court of the Southern District of New York, the leader of the schemes arranged for others to (i) promote the stocks, (ii) engage in pre-release manipulated trading to generate a skewed picture of market interest, (iii) violate beneficial ownership reporting requirements by neglecting to divulge their group beneficial ownership of shares, and (iv) dump their shares into the inflated market. The defendants allegedly made a profit of approximately $27 million from the schemes.

The SEC is seeking disgorgement of all of the defendants' gains, payment of prejudgment interest and payment of additional civil penalties, and is asking that the defendants be barred from participating in future penny stock offerings.

Commentary

This is the most significant case to date brought by the SEC's Retail Strategy Task Force. The Task Force was formed last year as part of the Enforcement Division's increased focus on retail investors under Chairman Clayton. It is also noteworthy because of the SEC's allegations that billionaire Philip Frost participated in the fraud. Frost, the founder of OPKO Health and a well known philanthropist, released a statement saying that the SEC did not give Frost and OPKO advance notice of its intent to sue before filing the case and that the SEC's complaint contains "serious factual inaccuracies." This one will be worth watching as the litigation moves forward.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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