In a massive micro-cap stock fraud sweep, the Securities and Exchange Commission charged 82 individuals and companies with fraud and ripping off investors.
“This fraud cost investors untold millions of dollars,” said Richard Walker, director of enforcement at the SEC, adding that the defendants in these cases walked away with $12 million in ill-gotten gains.
The SEC, which has stepped up its investigations of securities fraud under the reign of Chairman Arthur Levitt, will now try to recover that money through criminal and civil lawsuits against the stock fraud perpetrators.
“Today’s micro-cap sweep demonstrates that the commission will continue to bring maximum resources to bear in cleaning up the micro-cap market,” said Walker. “This market is too vital to allow it to be spoiled by a corrupt few.”
The sweep represents the SEC’s second nationwide crackdown on micro-cap fraud, which concerns low-priced, thinly-traded stocks that most often trade in over-the-counter markets or on pink sheets, but not on major exchanges.
The SEC said that since its first micro-cap fraud sweep last October, it has suspended trading in the stock of 19 micro-cap companies.
But the tough regulatory and enforcement actions taken to protect investors could be cut back if the SEC does not get the full funding it requested from Congress, Walker warned.
While the Senate Appropriations Committee agreed to give the SEC the full $370 million it requested for next year, the House allotted the agency only $320 million.
“That would obviously have an impact on our enforcement staff,” said Walker. “There would be a detrimental effect that could lead to staffing cuts though it is too soon to say what will happen. My hope is that in the conference between the Senate and the House, we will get some good news and be able to operate at full strength with the full budget we requested.”
Unlike last autumn’s micro-cap fraud sweep, when only stock promoters were targeted, the SEC said this sweep took aim at all the participants in micro-cap fraud.
Walker said the probe ranged “from the dealmakers who orchestrate manipulations to the salespeople in boiler rooms who help carry them out,” also citing issuers, directors, promoters, accountants, attorneys, broker-dealers, clearing firms and transfer agents.
While many of the cases are being pressed in other parts of the country, the SEC said one particularly onerous case of micro-cap stock fraud took place in New York.
In that case, 10 brokers working for W.J. Nolan, a registered broker-dealer headquartered in New York, churned and made unauthorized and unsuitable trades for 77 of their customers, including one 81-year-old retired man whose wife is suffering from Alzheimer’s.
The 77 customers are estimated to have lost more than $800,000 while the brokers collected more than $250,000 in commissions.
The defendants in this case are Kfir Barzilay, also known as Steven Steele; Eugene Beigelman, Yan Dikshteyn, a.k.a. Jon Dixon; Oleg Feldman, a.k.a. Alec Feldman; Boris Fidler, a.k.a. Brian Fidler; Stanslav Kaminsky; Lawrence Pross; David Rubinov, a.k.a. David Rubin; Ernest Salgan and Garri Zhigun.