Among recent enforcement actions by the Securities and Exchange Commission were charges against a microcap oil company, its CEO and the author of a stock newsletter for defrauding investors; charges and an emergency asset freeze for a China-based trader for suspicious activity; and charges against a microcap promoter for illegal penny stock sales.
CEO of Microcap Oil Company Bilked Investors Through Spam, SEC Says
The SEC has charged Norstra Energy and its CEO, Glen Landry, with defrauding investors about reserve estimates and drilling plans, and Eric Dany, author of a stock-picking newsletter, for his part in a fraudulent promotional campaign pushing Norstra’s penny stock shares.
According to the agency, Landry began making false and misleading claims about business prospects on Norstra’s website as well as in press releases and SEC filings. Landry and Norstra Energy led investors to believe the company’s property was in a location that made wells look more promising, and also twice gave wrong dates for drilling to start, so that it would look as if oil would be struck quickly.
For his part, Dany’s promotional materials, sent via spam emails and a hard-copy mailer, claimed that “Norstra Energy could be sitting on top of as much as 8.5 billion barrels of oil!” and said the planned wells had a 99% chance of profitability. The combination of lies about property location and the prospects for prosperity made Norstra Energy’s stock price rise almost 600% over a three-month period. The SEC suspended trading in the stock in June 2013.
The SEC seeks final judgments ordering permanent injunctions, return of allegedly ill-gotten gains with interest, and financial penalties, as well as a bar on Landry serving as an officer or director of a public company or participating in a penny stock offering.
China-Based Trader Made $1 Million a Little Too Quickly, SEC Says
The SEC has gotten an emergency court order to freeze the assets of Haijian Luo of Guangzhou, China, after he made more than $1 million after trading in a U.S. brokerage account in advance of last week’s public announcement that China-based Qihoo 360 Technology Co. Ltd. had received a buyout offer at a significant premium from its CEO and a consortium of other affiliates.
According to the agency, Luo, who is head of a Chinese online gaming company, recently opened a brokerage account and had not previously used it to trade in Qihoo’s stock before betting that Qihoo’s stock price would rise in the short term. He bought about $700,000 of out-of-the-money call options before the buyout announcement, and once the stock price jumped, sold all the options and requested his brokerage firm to wire more than half of his $1 million proceeds to a foreign bank account.
“The suspicious timing and size of Luo’s trades spurred us to move swiftly to freeze his proceeds and ensure that potentially illegal profits cannot be siphoned out of this account beyond a U.S. court’s jurisdiction while our investigation continues,” Andrew Calamari, regional director of the SEC’s New York office, said in a statement.
The SEC is seeking a final judgment ordering disgorgement of ill-gotten gains with interest and penalties. The emergency court order freezes the assets in Luo’s brokerage account and also prohibits him from destroying any evidence. The investigation is continuing. Microcap Promoter Sells 83 Million Shares, Charged by SEC
Gregg Mulholland, a microcap promoter, was charged by the SEC with illegally selling more than 83 million penny stock shares that he bought secretly through at least 10 different offshore front companies.
According to the agency, Mulholland surreptitiously cornered the market on issued and outstanding shares of Vision Plasma Systems Inc., accumulating at least 84% of those shares. That gave him effective control of the company through majority ownership. He then liquidated his shares for proceeds of at least $21 million. No registration statement was filed or in effect covering Mulholland’s sales, and no exemption from registration was available.
In a parallel action, the U.S. Attorney’s Office for the Eastern District of New York has announced criminal charges against Mulholland.
It’s not the first time Mulholland has been in trouble with the SEC. According to the agency’s complaint, the promoter, who lives in Canada, was charged back in 2011 for the pump-and-dump manipulation of a sports drink company founded by Daniel “Rudy” Ruettiger, known for having inspired the motion picture “Rudy.” In 2013, the SEC got a monetary judgment against Mulholland for more than $5.3 million in disgorgement, prejudgment interest and penalties. But so far, Mulholland hasn’t paid up.
The investigation is continuing.
— Check out SEC Suspends Advisory Firm’s Ex-President for Failing to Heed CCO Pleas for Help on ThinkAdvisor.