Securities Law Prof Blog

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

Wednesday, July 16, 2008

SEC Files Two Microcap Manipulation Cases

The SEC filed two separate market manipulation enforcement cases involving microcap stocks: one involving Homeland Safety International, Inc. (originally incorporated as Sniffex, Inc.) and the other  involving three issuers — National Storm Management Group, Inc.("NLST"); Deep Rock Oil and Gas, Inc.("DPRK"); and Global Beverages Solutions ("GBVS. Mark B. Lindberg was charged in both cases and has settled them without admitting or denying the allegations in the two complaints. In the Sniffex complaint, the Commission also named Sniffex; its President Paul B. Johnson, and others as defendants.

Allegations in the Sniffex Complaint
The Commission's complaint filed in the Northern District of Texas alleges that from October 2004 through April 2006, defendants Mihaylov and Markov acquired control of Sniffex — and carried out a $32 million pump-and-dump fraud scheme in concert with the other defendants. They acquired Sniffex in 2004 as a "shell" company from defendant Lindberg who agreed to provide them 15 million shares of so-called "free-trading" stock. To do this, Lindberg, Mihaylov, Markov, and Johnson, Sniffex's President, participated in a sham SEC Rule 504 stock offering that ultimately resulted in scheme participants obtaining virtually all of the company's purportedly free-trading stock.

Allegations in the National Storm, Deep Rock, and Global Beverage Complaint
The Commission's complaint filed in the Northern District of Oklahoma alleges that defendant Lindberg and other members of a Shell Creation Group ("SCG") manipulated at least three penny stocks from 2004 through 2006, including NLST, DPRK, and GBVS. Lindberg and the other members of the SCG, including attorneys, stock promoters, and financiers, worked together to acquire unrestricted shares of the three issuers and to profit by selling these shares into the market while manipulating the price of the stock by means of distributing promotional materials and coordinated trading. The SCG reaped profits in excess of $20 million from the sale of NLST, DPRK, and GBVS stock, and Lindberg personally reaped over $6.2 million in ill-gotten gains from this illegal conduct.

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