Securities Law Prof Blog

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

Saturday, October 9, 2010

SEC Charges Penny Stock Promoters with Illegal Kickback Schemes

The SECcharged more than a dozen penny stock promoters and their companies with securities fraud for their roles in various illicit kickback schemes to manipulate the volume and price of microcap stocks and illegally generate stock sales. One of the schemes was perpetrated by Larry Wilcox, an actor who starred as a police officer on the long-running television show CHiPs.

The SEC worked closely with the U.S. Attorney's Office for the Southern District of Florida and the Federal Bureau of Investigation as the separate schemes were uncovered through FBI undercover operations conducted in such a way that no investors suffered harm. The U.S. Attorney today announced criminal charges against some of the same individuals facing SEC civil charges.

According to the SEC's complaints filed in U.S. District Court for the Southern District of Florida, the schemes generally involved the payment of kickbacks to purportedly corrupt pension fund managers or stockbrokers, who would use their clients' accounts to purchase the publicly traded stock of microcap issuers controlled or promoted by the individuals and companies charged today. What the promoters and insiders did not know was that the people with whom they arranged these illegal transactions were actually undercover FBI agents or confidential sources participating in undercover operations.

The SEC is seeking permanent injunctions and financial penalties against all defendants; disgorgement plus prejudgment interest against defendants that received ill-gotten gains; officer-and-director bars against the individuals who served as officers or directors of the microcap companies involved; and penny stock bars against all individual defendants.

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