Securities Law Prof Blog

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

Thursday, February 7, 2008

SEC Settles Fraud Charges Against Attorney for Role in Pump and Dump Scheme

The SEC continues its crackdown on attorneys who facilitate microcap fraud.  Today it announced a settled enforcement action against California attorney Kenneth M. Christison for facilitating a multi-million dollar pump-and-dump scheme by issuing a series of bogus legal opinion letters. 

The SEC previously brought and settled charges against Michael Paloma and Lawrence Kaplan in an elaborate market manipulation scheme that involved unlawfully taking public seven microcap companies, inflating their share prices, and dumping millions of shares into the public market. They touted the companies' shares and netted nearly $3 million in ill-gotten gains by disseminating millions of false or misleading blast faxes and spam e-mails.  The SEC alleged that on four occasions between May 1 and Nov. 30, 2004, Paloma hired Christison to issue opinion of counsel letters warranting that certain offerings of securities were exempt from the registration provisions of the federal securities laws and that there were no restrictions on resale of the securities sold in those offerings. According to the Commission, in each instance, Christison knew or should have known that his opinion letter would contribute to Paloma's unregistered public distribution of securities through non-exempt transactions. The Commission further alleged that Christison, in fact, possessed documents and other information signaling Paloma's intent to conduct unlawful distributions by ultimately selling these securities into the public marketplace.  Without admitting or denying the accusations, Christison consented to the entry of an order directing him to cease and desist from committing or causing violations of Sections 5(a) and 5(c), the registration provisions, of the Securities Act of 1933.

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