(CN) - A group of alleged fraudsters is facing charges brought by the The Securities Exchange Commission accusing them of swindling more than a hundred victims out of more than $14 million through a cold-calling penny stock scam.
The lawsuit is filed in the U.S. District Court for the Eastern District of New York against 13 individuals and two companies, Power Traders Press and Elite Stock Research, which were allegedly used as "boiler rooms" to promote the scam. The lawsuit also names 27 individuals and companies as relief defendants.
According to the lawsuit, the genesis of the fraud began with the acquisition of large blocks of microcap shares by the defendants who then used the Long Island-based boiler rooms to "fraudulently promote or pump" the securities, regardless of customer need, through telemarketers by direct mail or phone.
Power Traders Press and Elite Stock Research artificially inflated the market prices and trading volumes of the securities, giving the false appearance of active trading then engaged in "large-scale promotional campaigns," aimed at elderly and unsophisticated investors, the SEC claims.
"These kinds of scams cause devastating harm to investors," said Stephanie Avakian, Co-Director of the SEC's Enforcement Division. "Investors must beware of the sort of conduct alleged in our complaint - things like unsolicited calls, high pressure sales tactics, and promises that a no-name stock is going to skyrocket."
The defendants allegedly contacted hundreds of people throughout the United States seeking out potential investors by using "high-pressure tactics" such as threats and bombarding them with emails and phone calls. A telemarketer on a typical phone call would instruct the investor to place trades, telling them how many to purchase and at what price. The defendants would in turn use the information to place opposing sell orders to dump their own shares at artificially inflated prices. The scam garnered the defendants more than $14 million in illegal profits while the investors lost millions, including retirement savings, the SEC alleges.
"The boiler room defendants fraudulently promoted these securities, soliciting victims to purchase them while failing to disclose that Elite Stock Research's and Power Traders Press's sole reason for aggressively soliciting investment in these securities was the boiler rooms' plans to profit from the victims' purchases," the SEC claims.
The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains, civil monetary penalties, and barring all defendants from participating in any penny stock offering.
Derek Bentsen, Matthew F. Scarlato, and James E. Smith of the Securities Exchange Commission in Washington, D.C.
Of counsel: Scott W. Friestad, Amy Friedman, Cecilia Connor and Andrew Elliott of the Securities Exchange Commission in Washington, D.C.