Federal authorities suspended trading by seven firms and filed criminal charges Thursday against corporate executives, lawyers and stock promoters who allegedly used fraud to spur investments in small companies known as penny stocks.
The federal action was the latest is a yearlong investigation by the U.S. Attorney's Office in Boston to prevent fraud in stock markets for small publicly traded companies. Penny stocks are traded over the counter rather than on a major exchange.
The criminal case filed in U.S. District Court named 13 defendants from 10 states, accused of agreeing to pay kickbacks to an undercover FBI agent they believed was an investment fund representative in exchange for having his purported firm buy stock in certain companies. Most of those named face charges of mail fraud, wire fraud, and conspiracy to commit securities fraud.
In conjunction with the criminal case, the Securities and Exchange Commission suspended seven firms that allegedly participated in the kickback-for-investment scheme. Also, the SEC filed a lawsuit against four people the commission says engaged in securities fraud by using kickbacks to manipulate trading in "microcap," or penny stocks.
The seven firms suspended were: 1st Global Financial Inc. of Las Vegas, Augrid Global Holdings Corp. of Houston, ComCam International Inc. of West Chester, Pa., MicroHoldings US Inc. of Vancouver, Wash., Outfront Companies based in Florida, Symbollon Corp./Symbollon Pharmaceuticals Inc. of Medfield, Mass., and ZipGlobal Holdings Inc. of Hingham, Mass.
When asked for comment, Outfront Companies CEO Kevin Todd said he was trying to reach the SEC "to find out what's going on. That's all I can tell you." Officials with the other companies did not immediately respond to messages seeking comment.
In a joint statement, U.S. District Attorney Carmen Ortiz, FBI special agent Richard DesLauriers in Boston and SEC's Boston Regional Office Director David Bergers said fraud in the microcap stock markets have proven to be "fertile grounds for fraud and abuse."
"This is, in part, because accurate information about microcap stocks may be difficult for the average investor to find, since many microcap companies do not file financial reports with the SEC," they said.
The SEC filed a series of similar cases in October 2010 and June 2011 in which more than a dozen companies and penny stock promoters were charged for their roles in kickback-for-investment schemes.
The 13 defendants come from across the country. The resident states named were Arizona, California, Illinois, Maryland, Massachusetts, Ohio, Texas, Rhode Island, Washington and Wisconsin.
A conviction on mail or wire fraud carries a maximum penalty of 20 years in prison and a $250,000 fine. Conspiracy to commit securities fraud is punishable by a maximum five years in prison and a $250,000 fine.
Rodrique Ngowi can be reached at http://www.twitter.com/ngowi