Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, November 14, 2007

SEC Distributes Funds to Investors in Pump and Dump Scheme

The SEC enjoys trumpeting its success with collecting and distributing funds to investors under the Fair Funds provision of SOX and here's one in which it can justly take pride.  It announced the mailing of checks totaling more than $2.7 million to 833 investors who were victims of the fraudulent promotion and sale of illegally issued shares of Bio-Heal Laboratories, Inc. The Fair Fund distribution represents a 100 percent return of the defrauded investors' money.

In April 2005, the Commission sued Bio-Heal, a publicly-held company that claimed to develop topical natural healing products in Nicaragua, and five other corporate entities that received the illegally issued shares and sold them in a classic pump and dump scheme.  It obtained an emergency asset freeze against Bio-Heal and the other entities, freezing their proceeds from the sale of the illegally issued shares.  The SEC's complaint against Bio-Heal alleged the company improperly issued 12 million shares of its stock to several entities without a restrictive legend based on a fraudulent attorney opinion letter claiming they were exempt from registration with the Commission. The complaint further alleged that two of those entities then dumped their Bio-Heal shares on the market at the same time as the stock was being fraudulently touted to investors over the Internet.

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