US Authorities Charge 16 in $194 Million “Pump & Dump” Plots

The U.S. Securities and Exchange Commission (SEC) uncovered on Monday a multi-year penny stock scheme that generated US$194 million in illicit proceeds, leading to charges against 15 individuals and one corporate consulting firm spanning three continents.

Pump and Dump"Pump and dump" schemes are premised on misleading information and inflated pricing, leading to the loss of significant investments from innocent investors. 16 defendants have been charged for their involvement in a $194 million scheme. (Photo: Austin Distel, Unsplash, License)Penny stock schemes, or ‘pump and dump’ plots, are a form of securities fraud. The perpetrators spread false information on certain stock, thereby creating a buying frenzy which ‘pumps’ up its value. They can then ‘dump’ their own shares at an overinflated price.

The ‘dump’ naturally causes the stock’s value to plummet. Once the dust settles, investors find that they have lost a significant portion of their investment.

"We allege that the defendants in these actions orchestrated some of the most complex microcap stock fraud schemes ever charged by the SEC," said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.

The defendants—spread out across the Bahamas, the British Virgin Islands, Bulgaria, Canada, the Cayman Islands, Spain, Turkey, and the U.K. — have been charged for their alleged involvement in a penny stock scheme spanning multiple years.

Each defendant is suspected of having accumulated the majority of their shares in penny stocks by funneling them through numerous offshore accounts.

The SEC investigation uncovered promotional campaigns supporting the penny stock schemes; authorities allege some of the accused secretly funded the campaigns that targeted unsuspecting investors across the globe.

Once enough investors had taken the bait, some of the defendants jumped on the opportunity to sell their shares on trading platforms in Asia, Europe, and the Caribbean, thereby walking away with a tidy profit, according to the SEC.

Investigators also determined that the defendants sent one another encrypted text messages in order to avoid detection from regulators.

“By locating their operations overseas, using encrypted messaging and operating through a convoluted network of offshore accounts, the defendants hoped to avoid detection of the massive frauds we allege they perpetrated on U.S. markets and investors,” said Grewal.

The SEC is seeking permanent injunctions against all 15 individual defendants — including penny stock bars and civil penalties — and the forfeiture of their alleged ill-gotten gains.