Attorney to Pay $4.6M Fine Over Microcap Fraud

A N.Y. securities attorney was charged with inflating the stock prices of some microcaps by using traders to engage in "manipulative matched trades."
Matthew HellerMay 26, 2015

A New York securities attorney who took private companies public through reverse mergers has agreed to pay $4.6 million to settle charges that he was the architect of three schemes to inflate the share price of microcap companies so he and his partners could sell the shares they controlled at a profit.

The settlement of the U.S. Securities and Exchange Commission’s charges against Adam S. Gottbetter, 47, coincided with his sentencing Tuesday to 1-1/2 years in prison in a related criminal case. He had pleaded guilty in September to conspiracy to commit securities and mail fraud.

“What I did mortifies me, and I’ll never do anything like that again,” Gottbetter told the judge at his sentencing hearing.

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According to the SEC, Gottbetter “played the central role of architect and facilitator” of three market manipulation schemes from 2007 to 2013, enlisting two Canadian stock promoters — Mitchell G. Adam and K. David Stevenson — to help him in the last of the schemes.

“As a securities lawyer, Gottbetter should have served as a gatekeeper and protected the capital markets and investors from fraudsters. Instead, he swung the gates wide open and illicitly profited at investors’ expense,” Andrew Ceresney, director of the SEC’s Division of Enforcement, said in a news release.

In all the schemes, the SEC alleged in a civil complaint, Gottbetter recruited “traders” to engage in manipulative matched trades to inflate the stock price of a microcap company and planned or approved promotional campaigns that hyped the company’s prospects to entice investors to buy the stock at the inflated price.

The first scheme generated about $12 million in profits by manipulating the stock of Kentucky USA Energy, the SEC said. The other schemes involved Dynastar Holdings and, most ambitiously, HBP Energy, on which Gottbetter collaborated with Adam and Stevenson.

At a meeting with the Canadians in September 2013, according to the SEC, Gottbetter complained about the difficulties of stock manipulation but conceded that robbing a bank was the only other way to make so much money so quickly.

Stevenson 55, pleaded guilty to criminal charges in December and is scheduled to be sentenced May 28. Adam, 47, faces charges including securities fraud.