The U.S. Securities and Exchange Commission revealed a new twist on pump and dump scams with the filing of civil charges against telemarketers for leaving hundreds of thousands of fraudulent “wrong number” stock tip messages.

The messages, which were left on telephone voicemail recording machines throughout the country, were designed to make each recipient believe the caller had dialed the number by mistake, the SEC explained. Many of the messages were left by a woman calling herself “Debbie,” and sounded as if she had misdialed when calling a friend to pass along a hot stock tip.

The SEC filed a complaint in the District of Columbia that charges Michael O’Grady and two affiliated Augusta, Ga.-based telemarketing companies, Telephone Broadcast Company, LLC and Telephony Leasing Corporation, LLC, with broadcasting “wrong number” touts of at least six microcap stocks. The complaint alleges that the messages were part of a larger scheme enabling Houston-based stock promoters to sell approximately US$4.5 million of one of the touted stocks through a Tampa, Fla.-based broker-dealer. The scheme drove up the price of each of the touted stocks, temporarily inflating their combined market capitalization by approximately US$179 million.

In a separate complaint, the SEC charged David Whittemore of Dallas and his privately held corporation, Whittemore Management Inc., with broadcasting hundreds of thousands of similar fraudulent “wrong number” voicemail messages in a copycat scheme involving two microcap stocks. Also charged in that complaint were Peter Cahill of Houston, and Clearlake Venture Group, an entity Cahill controls.

None of the allegations have been proven in either case. Although O’Grady consented to a final judgment ordering him to pay $50,786 in disgorgement and prejudgment interest and a $25,000 penalty. He neither admitted or denied the allegations. He also pled guilty to one count of obstruction of justice.

The SEC’s complaint against O’Grady alleges that he was paid for broadcasting the messages in cash taken from a blue duffel bag during a trip to a Gulfport, Miss., casino and that he also used his knowledge of the campaign to profit by trading in three of the touted stocks. The complaint also alleges that “Debbie” is the wife of an Altamonte Springs, Fla.-based promoter who hired O’Grady and his companies to broadcast the messages.

“This ‘wrong number’ scam is the first of its kind to hit the microcap market and it generated more complaints from the public than any other microcap fraud in recent memory,” noted Peter Bresnan, associate director of the SEC’s Division of Enforcement. “The cases filed today demonstrate that even when fraudsters are resourceful and inventive in misusing new technologies, the commission can be equally resourceful and inventive when it comes to tracking them down and stopping them.”

“These actions are a clear signal that the commission is fully committed to the vigorous prosecution of those involved in the manipulation of the microcap market,” commented John Reed Stark, chief of the SEC’s Office of Internet Enforcement. “Those who harm investors through greed-driven frauds like this ‘vicemail’ scheme will be found, and they will be punished.”

In the actions against Whittemore, WMI, Cahill and Clearlake, the commission seeks permanent injunctive relief, disgorgement of illegal profits with prejudgment interest, and civil monetary penalties.

The SEC’s investigation is continuing.

An investor alert on the issue is at:
http://www.sec.gov/investor/pubs/wrongnumberscam.htm.