Federal regulators say 11 people exploited a disastrous 2010 earthquake in Haiti to illegally sell stock in a U.S. company that they told investors would build homes in the devastated country.
The mastermind of the scheme was Kevin Sepe of Miami, the Securities and Exchange Commission said Wednesday. Sepe and five others agreed to pay a total $3.2 million to settle the SEC's civil charges. Charges are still pending against the remaining five people.
The SEC says the scheme netted about $1 million in profits. The agency says Sepe and the others promoted the stock of Recycle Tech, a small company they touted as having legally committed to build up to 50 container homes in Haiti after the January 2010 earthquake. But the SEC says that the company never had money to do such work.
Sepe agreed to pay a $185,000 civil fine and $1.5 million in restitution plus interest. He also was permanently barred from participating in any sales of penny stocks. Sepe and the other five individuals who agreed to settlements neither admitted nor denied the SEC's allegations.
"With neither admitting nor denying the SEC's allegations, ... Mr. Sepe opted to resolve this matter," said his attorney, David Chase.
The SEC alleged that Sepe and others, with help from Recycle Tech's CEO and two stock promoters who published newsletters, touted the company's stock from January to March 2010. They promoted the stock to drive up its price and later sell their shares at a profit, the SEC said. Investors can suffer heavy losses when stock prices tank in such a "pump and dump" scheme involving small-company stocks.
In addition, Sepe and the others sold shares in another small company, HydroGenetics, that weren't properly registered with the SEC, the agency said.
The schemes involving stock of Recycle Tech and HydroGenetics together netted illegal profits of about $3.5 million, according to the SEC.