Securities Law Prof Blog

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

Friday, January 14, 2011

SEC Charges Penny Stock Promoter with Pump and Dump Fraud

The SEC charged Christopher Wheeler, an upstate New York-based penny stock promoter, and his affiliated website with fraud for failing to disclose that he was paid by certain issuers to promote their stock while simultaneously liquidating millions of his own shares for profits of at least $2.95 million.

The SEC alleges that Wheeler received compensation at various times in 2007 and 2008 to promote several thinly-traded penny stocks on his website, Wheeler's website claimed to "have compiled a long list of successful stock picks" and to afford investors the opportunity to "make a fortune."

According to the SEC, Wheeler, after receiving millions of shares in undisclosed compensation from the issuers, featured the issuers' stock on, recommended that investors purchase the securities, and posted lofty price predictions for the stock without any reasonable basis for those projections. Wheeler's and's promotional efforts often resulted in dramatic, but temporary, increases in the volume of shares traded and the price of the issuers' securities. Once the prices were pumped in this manner, Wheeler simultaneously dumped shares from his personal brokerage account onto the market.  

The SEC's complaint seeks a final judgment permanently enjoining Wheeler and from future violations of the federal securities laws, and an order permanently barring Wheeler from participating in any offering of penny stock, requiring the defendants to pay financial penalties, and requiring the defendants and North Coast to disgorge all ill-gotten gains plus prejudgment interest.

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Penny stocks are stocks that are traded for $5.00 or less than that per share over the counter (OTC) and traders pick up these for their low absolute value.

Posted by: MarkBrown | May 10, 2011 5:43:06 AM

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