SEC Stops Microcap Fraud Scheme

More than a dozen international regulators helped unravel conspiracy.

The Securities and Exchange Commission (SEC) has filed an emergency action and obtained an asset freeze against two executives and their companies who were allegedly involved in a plot that generated more than $165 million of illegal sales of stock in at least 50 microcap companies.

SEC investigators said they needed the assistance of more than a dozen international regulators, and the expert analysis of nearly 400 bank and brokerage accounts, to bring down the scheme.

According to the SEC’s complaint, which was filed in federal district court in Boston, and unsealed earlier this week, Roger Knox of the UK, and his Swiss-based asset management firm, Wintercap SA, helped microcap securities holders evade federal securities laws that restrict sales by large shareholders.  Knox and Wintercap, formerly Silverton SA, allegedly helped sellers conceal their stock ownership, and provided anonymous access to brokerage accounts to sell the shares in the US market. 

“The allegations here should put investors on guard that spikes in trading volume may be a mirage produced by insiders secretly dumping their shares,” Paul Levenson, director of the SEC’s Boston Regional Office, said in a release.

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The SEC says Knox sold the stocks when their price and trading volume were inflated by promotional campaigns, and named Michael Gastauer as allegedly aiding and abetting the fraud by allowing Knox to use the bank accounts of several US corporations he established in order to disburse the proceeds of the illegal stock sales.

The SEC charged Knox and Wintercap with violating the antifraud and registration provisions of the federal securities laws, and with acting as unregistered broker-dealers. It also charged Gastauer with aiding and abetting Knox’s violations of the antifraud and registration provisions.  The SEC is seeking permanent injunctions, disgorgement of allegedly ill-gotten gains plus interest, penalties, and penny stock bars, in addition to the asset freeze and other temporary relief it already obtained.

In a parallel criminal case, the US Attorney’s Office for the District of Massachusetts announced criminal charges against Knox.

“With the timely and robust assistance of our foreign counterparts, we acted quickly to secure illegal profits abroad with the goal of returning assets to investors,” said Raquel Fox, director of the SEC’s Office of International Affairs. “Fraudsters must not be allowed to profit at the expense of retail investors by concealing the true nature of their interests and activities and trading through foreign countries.”


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