U.S. securities regulators and criminal authorities have charged several corporate officers, lawyers and a stock promoter alleging they used kickbacks and other schemes to trigger investments in various thinly-traded stocks.
The Securities and Exchange Commission, U.S. Attorney for the District of Massachusetts, and Federal Bureau of Investigation announced parallel cases filed in federal court. According to the charges filed in U.S. District Court, the schemes involved secret kickbacks to an investment fund representative in exchange for having the investment fund buy stock in certain companies; the kickbacks were to be concealed through the use of sham consulting agreements. However, the investment fund rep was actually an undercover agent for the FBI.
The SEC notes that the charges follow a year-long investigation focusing on preventing fraud in the micro-cap stock markets. “Fraud in the microcap stock markets is of increasing concern to regulators as such markets have proven to be fertile grounds for fraud and abuse,” it notes, adding that this is, in part, because accurate information about microcap stocks may be difficult for the average investor to find.
If convicted, the defendants charged with mail fraud and wire fraud each face up to 20 years in prison, to be followed by three years of supervised release and a $250,000 fine on each count. If convicted on the conspiracy to commit securities fraud charges, the defendants each face up to five years in prison, to be followed by three years of supervised release and a $250,000 fine on each count. In addition to the civil and criminal charges, the SEC suspended trading in seven microcap companies involved in the kickback schemes.
“The public has a right to invest in an honest and fair market. Companies that agree to pay illegal kickbacks harm investors and undermine fair competition in the markets,” said U.S. attorney, Carmen Ortiz. “Hard working Americans who invest their savings should not be subjected to backroom deals like those alleged today.”