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Four industry professionals were charged by the SEC for a fraudulent penny stock scheme that produced around $17 million in illegitimate profits, all the while claiming false federal securities laws exceptions. The SEC defines penny stocks as low-priced (below $5), speculative securities of small companies that are generally quoted over the counter on the OTC Bulletin Board or in the Pink Sheets but may also be traded on the securities exchange.

The SEC press release alleged the four industry professionals acquired somewhere between 30 to 60 percent of the market price, more than one billion unregistered shares, in microcap companies at very deep discounts. Microcap companies are those smaller, public companies with a market capitalization under $250 million. The press release further alleges the four professionals charged told the companies they intended to hold the shares for investment purposes yet instead they quickly sold the shares unregistered. The SEC asserts that they did so claiming to rely on certain state law exceptions that would permit such a sell. The SEC further contends the four charged set up virtual corporations in numerous states to feign the appearance that the exception was valid.

The Director of the SEC’s New York Regional Office stated that the four charged allegedly, “repeatedly violated the registration provisions and in the process also committed securities fraud.” The penny stock scheme is said to have started in 2007 and went until 2010. The four charged had previously worked in the securities industry as registered representatives, providers of investment management or provided financial advisory services.


If you or someone you know has lost money as a result of a fraudulent investment, please contact Richard Frankowski at 205-747-1903 to discuss your potential legal remedies.