Risk & Compliance

SEC Charges 34 Defendants With Microcap Fraud

Fifteen individuals and 19 firms allegedly participated in "pump-and-dump" schemes that netted $6.5 million in illegal profits.
Matthew HellerJuly 15, 2015

The U.S. Securities and Exchange Commission has charged 15 individuals and 19 firms with engaging in “pump-and-dump” schemes to manipulate penny stocks that generated about $6.5 million in illicit proceeds.

As part of the schemes, the SEC said Tuesday in a civil complaint, Costa Rica-based Moneyline Brokers and its founder Harold Bailey “B.J.” Gallison acted as unregistered broker-dealers catering to customers who sought to conceal their stock ownership and manipulate the market for microcap securities.

Gallison, 57, has been a longtime target of securities regulators. As the head of penny stock brokerage La Jolla Capital, he was convicted of defrauding investors of $2.5 million and sentenced in 2003 to five years in prison.

According to the SEC, Moneyline facilitated the manipulation of shares in two microcap issuers — Warrior Girl, a former shell company controlled by Carl Kruse Sr. of Miami and his son, and Everock, a Canada-based mining company that relocated to Nevada and sold sandwich spreads after reorganizing itself as Nature’s Peak in 2008.

Separately, the U.S. Attorney’s Office in Richmond, Virginia, filed criminal charges against Gallison, the Kruses and six other individuals.

“This case demonstrates the Commission’s resolve to relentlessly pursue the villains behind these microcap fraud schemes wherever in the world they may be hiding,” Andrew M. Calamari, director of the SEC’s New York regional office.

Both the SEC and the Department of Justice allege the defendants artificially “pumped” or inflated the trading volume and price of penny stocks by touting business activities and deceptive revenue forecasts, and by engaging in coordinated trading activity to create the appearance of increasing market demand. They then allegedly “dumped” or sold the securities at the inflated prices and laundered the proceeds from their scheme through bank accounts in the United States and overseas.

The Kruses are alleged to have generated $2.3 in illegal profits from the scheme involving Warrior Girl, whose purported business changed from hydroelectric power to extracting oil from tar sands to online education. The SEC said the Everock scheme produced more than $2.5 million in illicit proceeds.