Securities Law Prof Blog

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

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Monday, July 13, 2009

SEC Charges Seattle Attorney with Pump & Dump Scheme for MitoPharm Stock

The SEC charged Seattle-based securities lawyer David Otto and several others with conducting a fraudulent “pump-and-dump” scheme in which they secretly unloaded more than $1 million in penny stock of a company touting non-existent anti-aging products.  The SEC alleges that a series of misleading press releases and Web profiles were used to tout purported beverages and nutritional supplements of Seattle-based MitoPharm Corporation and drove the stock up during the aggressive stock promotion campaign. However, the SEC alleges that MitoPharm’s products were not “available” as advertised and were still in the developmental stage.

The SEC’s complaint, filed in federal court in Seattle, charges Otto, his associate Todd Van Siclen of Seattle, and Houston-based stock promoter Charles Bingham and his company Wall Street PR, Inc. MitoPharm and its CEO Pak Peter Cheung of Vancouver were also charged.

According to the SEC’s complaint, the scheme began in late 2006 when Otto arranged to purchase a publicly traded shell company as a merger partner for MitoPharm. Otto and Van Siclen drafted false opinion letters to MitoPharm’s transfer agent to secure supposedly “freely tradable” stock certificates for individuals and entities secretly controlled by Otto.  The SEC’s complaint further alleges that the defendants embarked on an aggressive public relations campaign that centered on the misleading promotion of two key products — “Restorade” and “Stamina Solutions” — that did not exist. As the promotional campaign caused the stock price to rise above $2.30, Otto sold his shares for more than $1 million and Bingham netted an additional $300,000. The massive selling of the stock caused the price to fall to a nickel per share by November 2007.

The SEC’s complaint alleges that the defendants violated the antifraud and other provisions of the federal securities laws. The SEC seeks injunctive relief, disgorgement and financial penalties from the defendants as well as penny stock bars for Otto, Van Siclen, and Cheung, and an officer-and-director bar against Cheung.

http://lawprofessors.typepad.com/securities/2009/07/sec-charges-seattle-attorney-with-pump-dump-scheme-for-mitopharm-stock.html

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