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SEC charges four insiders with fraudulent penny stock scheme
by Joseph Earnest December 21, 2012
Newscast Media WASHINGTON, D.C.—The Securities and Exchange Commission today charged four securities industry professionals with conducting a fraudulent penny stock scheme in which they illegally acquired more than one billion unregistered shares in microcap companies at deep discounts and then dumped them on the market for approximately $17 million in illicit profits while claiming bogus exemptions from the federal securities laws.
The SEC alleges that Danny Garber, Michael Manis, Kenneth Yellin, and Jordan Feinstein acquired shares at about 30 to 60 percent off the market price by misrepresenting to the penny stock companies that they intended to hold the shares for investment purposes rather than immediately re-selling them. Instead, they immediately sold the shares without registering them by purporting to rely on an exemption for transactions that are in compliance with certain types of state law exemptions.
However, no such state law exemptions were applicable to their transactions. To create the appearance that the claimed exemption was valid, they created virtual corporate presences in Minnesota, Texas, and Delaware. The SEC also charged 12 entities that they operated in connection with the scheme.
Click here to read or download SEC complaint. (pop-up)
The SEC’s complaint alleges that Garber, Manis, Yellin, Feinstein and the named entities violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933; Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The SEC’s complaint seeks a final judgment, among other things, ordering all of the defendants to pay disgorgement, prejudgment interest and financial penalties; permanently enjoining all the defendants from future violations of the securities laws; and permanently enjoining all the defendants from participating in penny stock offerings.
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