SEC Obtains Freeze Order In Microcap Manipulation Action

Microcap fraud is an on-going enforcement priority of the Commission. In SEC v. Craven, Civil Action No. 15-cv-1820 (S.D.N.Y. Filed March 11, 2015), the Commission brought a manipulation action against a father and son team, David Craven and Alex Craven. Both are British citizens who reside in Switzerland.

In January 2011 American Energy Development Company filed a registration statement to raise $1 million. After the registration statement became effective the shares were acquired by over 25 investors, including a entity controlled by David Craven. Following a forward split of the shares that entity had about 87% of the outstanding stock in American Energy.

Beginning in October 2011, and continuing through February 2012, the father – son combination used controlled entities to engage in a series of wash sales. The purpose was to increase the share price. Transactions were executed at prices ranging from $0.85 per share to $1.57 per share.

Subsequently, the father-son team began a publicity campaign, touting the shares of American Energy. For example, a 16 page mailer was sent to about 1.2 million US. residents in April 2012. That effort was supplemented with e-mail blasts and a web site, all of which touted the stock.

As the PR campaign moved forward the two defendants sold 4.5 million shares at prices ranging from $0.85 to $1.20 or about $4 million in artificially inflated shares. The SEC’s complaint alleges violations of Securities Act Section 17(a) and Exchange Act Sections 9(a) and 10(b). The Court entered a temporary freeze order at the time the complaint was filed. The case is pending. See Lit. Rel. No. 23219 (March 12, 2015).