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

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Wednesday, June 5, 2013

SEC Charges Penny Stock Company and CEO with Illegal Stock Offering and Insider Trading

The SEC charged Laidlaw Energy Group, a microcap company whose stock was suspended from trading recently, and its CEO Michael B. Bartoszek, who allegedly profited from selling his shares while investors were unaware of the company’s financial struggles.  According to the SEC, Laidlaw Energy Group and its CEO Bartoszek sold more than two billion shares of Laidlaw’s common stock in 35 issuances to three commonly controlled purchasers at deep discounts from the market price. Laidlaw did not register this stock offering with the SEC, and no exemptions from registration were applicable. Bartoszek knew that the purchasers were dumping the shares into the market usually within days or weeks of the purchases to make hundreds of thousands of dollars in profits. Laidlaw’s $1.2 million in proceeds from these transactions was essentially the sole source of funds for the company’s operations during most of its existence. Laidlaw, which is based in New York City, purports to be a developer of facilities that generate electricity from wood biomass.

The SEC alleges that these transactions diluted the value of shares previously purchased by common investors in the market, who were not told about the huge blocks of cheap stock Laidlaw was selling. Investors also were not aware that Laidlaw relied on these transactions to fund its operations entirely. The SEC suspended trading in Laidlaw stock in June 2011.

According to the SEC’s complaint filed in federal court in Manhattan, Bartoszek violated insider trading laws when he personally sold more than 100 million shares of Laidlaw common stock from December 2009 to June 2011, and made more than $318,000 in profits. As a result of the volume of Bartoszek’s sales and the lack of current, publicly available information about the company, these sales also violated the registration requirements of the federal securities laws.

The SEC seeks disgorgement plus prejudgment interest, financial penalties, and injunctive relief, and is seeking penny stock and officer and director bars against Bartoszek.

http://lawprofessors.typepad.com/securities/2013/06/sec-charges-penny-stock-company-and-ceo-with-illegal-stock-offering-and-insider-trading.html

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