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SEC Charges Stock Trading Webcast Host in Pump-and-Dump Scheme

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What You Need to Know

  • The stock trading webcast host and ex-broker allegedly spread more than 100 false rumors about public companies to generate illicit profits.
  • He agreed to cooperate with the SEC, pay disgorgement of $374,835, and be barred from the industry.
  • He recently pleaded guilty to the scheme as part of a parallel criminal action by the Justice Department.

The Securities and Exchange Commission has charged the host of a stock trading webcast with securities fraud, accusing him of spreading more than 100 false rumors about public companies in order to generate illicit profits as part of a two-year scheme.

According to the SEC’s complaint, filed Thursday in U.S. District Court for the Northern District of Georgia in Atlanta, former broker Mark Melnick, 41, of Marlboro, New Jersey, received advance notice of companies about which another scheme participant planned to spread false rumors, and then shared those firms’ names with subscribers to his online trading room.

Melnick, who had the title of director of trading psychology, allegedly told subscribers that he had taken positions in the companies, while other scheme participants also spread the false rumors via real-time financial news services, financial chat rooms and message boards. The false rumors caused the prices of the companies’ securities to rise temporarily, according to the SEC.

Between January 2018 and January 2020, Melnick allegedly spread or traded around the false rumors more than 100 times, generating more than $374,000 in illicit profits. The other scheme participants also traded around the false rumors, generating significant profits, according to the SEC.

The SEC’s complaint charged Melnick with violating the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934.

Melnick agreed to cooperate with the SEC Enforcement Division and consented to the entry of a judgment that, subject to court approval, will permanently enjoin him from violating the anti-fraud provisions of the federal securities laws, according to the SEC.

The agreement also requires Melnick to pay disgorgement of $374,835 plus prejudgment interest and a civil penalty in an amount to be determined later, the SEC said. Melnick also agreed to a penny stock bar and to be barred from the securities industry, according to the SEC, adding that its investigation is ongoing.

The SEC previously charged Barton Ross in connection with the same scheme, filing a complaint against Ross on Dec. 18 in the same court. Like Melnick, Ross is a former registered broker.

In a parallel action, the Justice Department filed charges against Melnick over the same scheme in the same court on Sept. 10, alleging he was guilty of conspiracy to commit wire fraud and securities fraud.

Just as Ross did last year after DOJ charged him, Melnick pleaded guilty to conspiracy to commit wire and securities fraud as part of a plea agreement on Sept. 17, court documents show.

As part of the agreement, Melnick will receive a maximum prison term of five years, with up to three years of supervised release. He will also pay a maximum fine of $250,000, along with full restitution to all his victims and a mandatory special assessment of $100, all due and payable immediately.

The U.S. attorney for the Northern District of Georgia also agreed not to bring further criminal charges against Melnick related to the crimes to which he is pleading guilty, or related to his securities trading between 2014 and 2019.

Melnick was ordered to appear in court on Dec. 16 at 9:30 a.m. for sentencing, court documents show.

Image: Adobe Stock