A forceful intervention by a federal judge has turned a $19 million Securities and Exchange Commission case against Panamanian broker-dealer Verdmont Capital for an international penny stock scheme into a $240,000 case.
In February, the SEC announced with great fanfare the halt of what it characterized as an international scheme to sell penny stocks in unregistered distributions and sham offerings.
The SEC filed its complaint and request for an emergency asset freeze in federal court in New York. Most of the press coverage surrounded the run on the bank and receivership caused by the SEC’s action against Cayman Islands based Caledonian Bank. But a lesser-noticed aspect of the SEC action is now coming to light involving Panamanian broker-dealer Verdmont Capital.
(Caledonian Bank and Verdmont Capital are not affiliated, but both entities were used in the penny stock scheme).
Initially, the SEC obtained a $19 million asset freeze against Verdmont, which was based on an incomplete SEC investigation and a number of incorrect assumptions by the SEC.
First, the SEC apparently did not understand that the funds subject to its emergency asset freeze belonged to Verdmont’s clients, not Verdmont.
Second, the SEC obtained its freeze under the mistaken belief that Verdmont had sold the securities in the unregistered distributions at issue for its own account rather than on behalf of customers.
Finally, the SEC incorrectly believed that certain entities had accounts at Verdmont. Of the three Verdmont clients named by the SEC, one was never a client, one had closed its accounts in October 2014, and one was a current client.