Martinas B.

SEC Cracks Down Pump-and-Dump Spammer

by Martinas B. February 11, 2008
pump_and_dump_spammer.pngThe Securities and Exchange Commission has announced a settlement with a lawyer in California they say helped assist a multi-million dollar fraud by issuing a series of bogus legal opinion letters used by fraudsters in spam-fueled pump-and-dump schemes.

In this case the SEC said attorney Kenneth Christison wrote opinion of counsel letters warranting that certain offerings of securities were exempt from the registration provisions of the federal securities laws and that there were no restrictions on resale of the securities sold in those offerings, the SEC said.

In 2007, the Commission settled charges that Michael Paloma and Lawrence Kaplan had perpetrated an elaborate market manipulation scheme in which they unlawfully inflated the share prices of public seven microcap companies, then dumped millions of shares into the public market. They allegedly netted nearly $3 million in ill-gotten gains by touting the companies' shares in millions of bogus fax blasts and spam e-mails before selling off their own shares.

To settle those charges, Paloma agreed to pay more than $2.5 million in disgorgement and prejudgment interest. Kaplan agreed to more than $700,000 in disgorgement and prejudgment interest. The duo also consented to permanent injunctions from securities violations and a barring from penny stock offerings. In addition they have plead guilty in federal court in Alexandria, Virginia to charges of securities fraud, and face sentencing later this year.

According to the commission, Christison knew - or should have known - that his opinion letter would contribute to Paloma’s unregistered public distribution of securities through non-exempt transactions. The Commission further alleged that Christison, in fact, possessed documents and other information signaling Paloma’s intent to conduct unlawful distributions by ultimately selling these securities into the public marketplace.

The SEC news follows last month’s bust of 11 people, including one of the top spammers in the world, for allegedly sending millions of unsolicited e-mails intended to inflate the price of Chinese penny stocks.

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