The U.S. Securities and Exchange Commission filed fraud charges against the operators of what it alleges is a US$33 million international microcap stock scheme, involving the stocks of eight small U.S. companies headquartered variously in Canada, China and Israel.

In a complaint filed in U.S. District Court for the Eastern District of Michigan, the SEC charged three companies and eight individuals with engaging in unlawful spam e-mail campaigns to pump and dump securities of microcap companies. The SEC alleges that each scheme was primarily organized and devised by: a dual citizen of Hong Kong and Canada and the former CEO of China World Trade Corp., How Wai Hui (a.k.a. John Hui), along with two U.S. citizens, and a Hong Kong resident, the former CFO of China World Trade Corp. The SEC also charged several corporate insiders for their participation in the alleged pump-and-dump schemes, including a dual citizen of Canada and China.

The SEC alleges that at various times between January 2005 and December 2007, each of the defendants engaged in a scheme to pump up the price and volume of the securities of the companies by paying for spam e-mail campaigns. It says they then dumped millions of shares of these securities into the hyped market, reaping millions of dollars in profits. All eight companies’ stocks were dually quoted on the over-the-counter bulletin board and pink sheets.

The commission is seeking permanent injunctions, disgorgement and financial penalties against several defendants, an officer and director ban, and a penny stock ban against three of the defendants. Without admitting or denying the SEC’s allegations, several of the accused, including Hui, have agreed to settle the charges against them. The settlements are pending final approval by the court.

Hui agreed to a final judgment permanently enjoining him from violating securities rules, and agreed to pay disgorgement of US$681,117 and prejudgment interest of US$162,717. He also agreed to be barred from acting as an officer or director of a public reporting company and from participating in an offering of any penny stock.
Previously, in related criminal actions, Hui and another defendant pleaded guilty to conspiracy to commit wire fraud, mail fraud and to violate the CAN-SPAM Act, as well as to committing wire fraud and engaging in money laundering for their roles in the scheme to artificially inflate the prices of the securities of several companies, including China World Trade, the commission reports. They were each sentenced to 51 months in prison.

The investigation is continuing.

http://www.sec.gov/litigation/litreleases/2011/lr21833.htm