Securities Law Prof Blog

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

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Wednesday, October 8, 2008

SEC Charges Stock Promoters with Market Manipulation

The SEC brought two separate actions against stock promoters charging them with market manipulation.  What is interesting is that both cases involve sting operations with undercover FBI agents acting as the purported representatives of undisclosed wealthy investors.

In SEC v. Grossman, the SEC charged four stock promoters, Glenn Grossman, Lawrence Steven Cohen, David Schmidt and John Zanic (the "Defendants"), with engaging in a fraudulent broker bribery scheme designed to manipulate the market for the common stock of Guyana Gold, Corp. ("GYGC").  The complaint alleges that beginning in at least April 2008,  the Defendants engaged in an undisclosed kickback arrangement with an individual who claimed to represent a group of registered representatives with trading discretion over the accounts of wealthy customers. Unbeknownst to the Defendants, the individual actually was an undercover FBI agent. The Defendants promised to pay a 30% kickback to the agent and the registered representatives he purported to represent in exchange for the purchase of up to $3 million of GYGC stock through the customers' accounts.

The complaint further alleges that from May 1-5, 2008, Zanic instructed the agent to purchase approximately 115,000 shares of GYGC stock for a total of approximately $72,000 through matched trades using detailed instructions concerning the size, price and timing of the purchase orders. Thereafter, the Defendants paid bribes of almost $14,000 to the agent.

In SEC v. Jadidian, the Commission charged a stock promoter with engaging in a fraudulent broker bribery scheme designed to manipulate the market for the common stock of Tecton, Corp. ("TTNC").  The complaint alleges that beginning in at least April 2008, Jason Jadidian engaged in an undisclosed kickback arrangement with an individual who claimed to represent a group of registered representatives with trading discretion over the accounts of wealthy customers. Unbeknownst to Jadidian, the individual actually was an undercover FBI agent. Jadidian promised to pay a 30% kickback to the agent and the registered representatives he purported to represent in exchange for the purchase of TTNC stock through the customers' accounts.

The complaint further alleges that on May 1, 2008, Jadidian instructed the agent to purchase approximately 80,000 shares of TTNC stock for a total of approximately $18,600 through matched trades using detailed instructions concerning the size, price and timing of the purchase orders. Thereafter, Jadidian paid a $5,000 bribe to the agent.

Both complaints charge the defendants with violating the antifraud provisions.

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