Securities Law Prof Blog

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

Thursday, February 24, 2011

SEC Alleges International Microcap Fraud

The SEC today charged two securities professionals, a hedge fund trader, and two firms involved in a scheme that manipulated several U.S. microcap stocks and generated more than $63 million in illicit proceeds through stock sales, commissions and sales credits.  According to the SEC, Florian Homm of Spain and Todd M. Ficeto of Malibu, Calif., conducted the scheme through their Beverly Hills, Calif.-based broker-dealer Hunter World Markets Inc. (HWM) with the assistance of Homm’s close associate Colin Heatherington, a trader who lives in Canada. They brought microcap companies public through reverse mergers and manipulated upwards the stock prices of these thinly-traded stocks before selling their shares at inflated prices to eight offshore hedge funds controlled by Homm. Their manipulation of the stock prices allowed Homm to materially overstate by at least $440 million the hedge funds’ performance and net asset values (NAVs) in a fraudulent practice known as “portfolio pumping.”

The SEC additionally brought administrative proceedings against HWM’s trader and chief compliance officer, who each agreed to settle the SEC’s charges against them.

According to the SEC’s complaint filed in the U.S. District Court for the Central District of California, Homm along with Ficeto and Heatherington conducted the scheme from September 2005 to September 2007. The SEC’s complaint charges Ficeto, Homm, Heatherington, HWM, and Hunter Advisors LLC with violating the antifraud provisions of the federal securities laws, and additionally charges HWM and Ficeto with violations of several broker-dealer recordkeeping provisions. The SEC seeks permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, and financial penalties. The SEC also seeks an order permanently barring Ficeto from participating in any penny stock offering or from serving as an officer or director of a public company.

The SEC instituted separate but related administrative proceedings against Ahn and HWM’s former chief compliance officer Elizabeth Pagliarini, who each agreed to settle their cases without admitting or denying the SEC’s findings. Ahn agreed to pay a $40,000 penalty, comply with certain undertakings, and be barred from association with a broker and dealer for five years. Pagliarini agreed to a $20,000 penalty and one-year suspension as a supervisor with a broker or dealer.

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