The U.S. Securities and Exchange Commission (SEC) recently barred several market participants from the penny stock industry for their roles in various sham initial public offerings (IPOs) of microcap stocks that defrauded investors.
In one case, California-based securities lawyer Michael J. Muellerleile authored false and misleading registration statements used in sham IPOs for five microcap issuers in order to transfer unrestricted shares of penny stocks to offshore market participants.
Muellerleile’s law firm, M2 Law Professional, also is charged, along with Lan Phuong Nguyen, an attorney who assisted Muellerleile by signing false and misleading attorney opinion letters, and Joel Felix, the chief financial officer of one of the issuers, for making false and misleading statements. The SEC has since suspended trading in that issuer, American Energy Development Corp.
Muellerleile agreed to pay $154,267 and Nguyen agreed to pay $13,039, while accepting penny stock bars and permanent suspensions from appearing and practicing before the SEC as attorneys, which includes representing clients in SEC matters including investigations, litigation or examinations and advising clients about SEC filing obligations or content. Felix agreed to a penny stock bar, officer-and-director bar and payment of $63,695.
In another case, Nevada-based stock transfer agent Empire Stock Transfer and its supervisor of operations, Matthew J. Blevins, transferred large blocks of several penny stock securities without restrictions to offshore nominees despite red flags indicating the shares were likely part of an illegal operation. The SEC previously charged several offshore entities behind the illegal sales of unregistered penny stocks made possible by Empire Stock Transfer and Blevins.
Empire Stock Transfer agreed to pay more than $154,000, and Blevins agreed to pay $20,000 and be permanently barred from the securities industry.
All the market participants named in these cases have agreed to settle the charges without admitting or denying the findings.
Stephanie Avakian, deputy director of the SEC’s Enforcement Division, commented:
These enforcement actions bar any further penny stock activity by these market participants, including attorneys and a transfer agent supervisor who betrayed the trust that investors place in gatekeepers to protect them in this highly risky market. The SEC is committed to combating microcap fraud through the investigative work of its Microcap Fraud Task Force, the initiatives of its Microcap Fraud Working Group, and repeated warnings to investors about the red flags of penny stock investing.
By more than one key metric, 2016 has been a dismal year for IPOs. Still, the stock market has improved and we have featured the 18 largest companies that may IPO in 2017.
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