Among recent enforcement actions by the Securities and Exchange Commission were charges against a New Jersey man and his company in a pump-and-dump scheme; against a soccer club accused of penny stock fraud; and a bar against a hedge fund advisor for false statements that caused a fund to collapse.
Soccer Club Charged With Boiler Room Scam
The SEC has charged a Florida-based penny stock company with fraud and won a court-ordered asset freeze against Oxford City Football Club Inc.
According to the agency, Oxford City’s CEO, Thomas Anthony Guerriero, used high-pressure tactics and a boiler room of salespeople to raise more than $6.5 million from naïve investors misled to believe the company was a thriving conglomerate of sports teams, academic institutions and real estate holdings when, in fact, the company was bleeding millions and making zero profits from its two lower-division soccer teams in the U.K.
Guerriero has been operating a classic boiler room scheme since at least August of 2013. Guerriero cloaked his operations in the guise of nominal legitimate businesses, through which millions of unregistered shares of stock were sold to investors who were lied to about the stock value and potential profits.
Guerriero’s salespeople sold Oxford City stock to the public based on leads lists he bought from third parties. Guerriero himself wrote scripts for the salespeople, who worked under aliases. They “offered” prospective investors a limited-time deal to purchase Oxford City shares at a deep discount from the publicly quoted price — but in actuality, Guerriero controlled that price.
Guerriero claimed to record phone conversations with potential investors using a “verbal verification system” that supposedly tied the stock “transaction” to their Social Security number and birthdate. But all he actually did was hit a random button on the phone to sound as if a recording were being initiated. If investors later refused to pay, Guerriero would threaten them with lawsuits based on their “recorded” verbal commitment.
Investors were promised a 50-cents-per-share dividend within a year from Oxford City, when the company was actually losing millions annually and was legally prohibited from paying a dividend.
Oxford City supposedly had $100 million in real estate holdings, as well as owning a radio broadcast network that projected profits of almost $20 million. In actuality, Oxford City’s total assets amounted to about $1 million and it never owned a radio station; it just bought an hour of air time a week.
It also claimed to own an online university, with students already enrolled, and projected profits of $495 million for the upcoming five-year period. No such university existed—nor did the students or revenue. In addition, Oxford City claimed it would earn more than $238 million over five years from existing and new sports-related facilities, when it owned no more than a minority interest in a lower division English soccer club, which generated a small amount of revenue but never turned a profit.
The SEC’s investigation is continuing.
New Jersey Man and Company Charged in Pump-and-Dump Scheme
The SEC has charged a New Jersey man, Samuel DelPresto, and his company with raking in $13 million in a pump-and-dump scheme.
According to the agency, DelPresto teamed up with others to get control of substantially all the available stock in four microcap companies, BioNeutral Group (BONU), NXT Nutritionals Holdings (NXTH), Mesa Energy Holdings (MSEH) and Clear-Lite Holdings (CLRH).
He hid his actions in scooping up the shares, and in concert with the others, managed coordinated trading that made it look as if the stocks were in demand and were liquid. Once investors were sucked in through promotional campaigns to buy the stock at inflated prices, DelPresto dumped his shares.
The SEC seeks a permanent injunction, disgorgement of ill-gotten gains along with prejudgment interest, financial penalties and a penny stock bar. In a parallel action, the U.S. Attorney’s Office for the District of New Jersey has announced criminal charges against DelPresto.
Hedge Fund Advisor Barred From Securities Industry
The SEC has barred hedge fund advisor Owen Li from the securities industry for false statements to investors and for ultimately causing a fund’s collapse. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York has announced criminal charges against Li, whose firm is Canarsie Capital LLC.
According to the SEC, Li was portfolio manager of a hedge fund called Canarsie Capital Fund Master LP. During a three-year period, he lied to investors and prospective investors about his personal investment in the fund, and kept them in the dark about his having depleted his personal assets through risky trading in his personal brokerage accounts.
Li lied about the fund’s performance, and provided phony explanations for delays in the fund’s monthly performance reporting. He also reported fictitious trades and made other false statements and omissions to the fund’s prime brokers to avoid margin calls and obtain more margin for the fund than they would otherwise have extended.
In January 2015, Li liquidated all the long positions in the long/short equity portfolio and invested virtually the entire portfolio in long, short-dated market index options. The fund lost approximately $56.5 million (nearly all of its assets) from Dec. 31, 2014, to Jan. 16, 2015.
Li and Canarsie consented to the SEC’s order. Monetary sanctions are expected to be ordered in the parallel criminal proceeding against Li. Canarsie Capital is censured, and Li is barred from associating with any broker, dealer, investment advisor, municipal securities dealer, municipal advisor, transfer agent or nationally recognized statistical rating organization (NRSRO).
— Check out Passive Funds Come With Own Fiduciary Risks on ThinkAdvisor.