Penny stock frauds have long been a staple of SEC enforcement. Typically, these actions center on the trading of large numbers of penny stock which are not registered and may be manipulated as the sales take place. While the shares are often only valued at a few cents, the large volume of transactions often results in substantial profits for the defendants.

While there are so many of these cases they are almost “routine.” But the SEC’s most recent penny stock action has an unusual wrinkle – Mom or Mrs. Robinson. While son sold the unregistered shares to the unsuspecting public, he frequently got them from Mom who also became a relief Defendant. SEC v. Beck, Civil Action No. 2:22-cv-00812 (C.D. Cal.).

Named as defendant in the action is Michael Beck. Named as a relief defendant is Helen Robinson, or Mom.

Mr. Beck engaged in a fraud that centered on eight different penny stocks. Typically, Mr. Beck recommended the purchase of one or more of the stocks that he was involved with. In making that recommendation he did not tell investors that he intended to sell his shares at inflated prices to make a profit.

Mr. Beck repeatedly purchased large blocks of penny stocks and later tweeted that he would be selling them. He also would issue new stock recommendations to his followers – known as TeamBillionaire. That “team” would receive an email from Mr. Beck a few days before he emailed his stock recommendations. Select other parties also received the email. In some instances, Mr. Beck had third parties send an email to his followers.

Subsequently, Mr. Beck would begin selling his shares. He also sold Mom’s shares. During that process he would issue emails about the stock. Ultimately, Mr. Beck settled the action, consenting to the entry of a permanent injunction based on Securities Act Section 17(a) and Exchange Act Section 10(b). He was ordered to pay disgorgement, on a joint-and-several basis with Mrs. Robinson, in the amount of $572,270.00 and prejudgment interest in the mount of $112,062.32. Mr. Beck was, in addition, barred from participating in any penny stock offering for five years or trying to induce transactions in those shares. Mrs. Robinson was directed to pay disgorgement in the amount of $386,732 on a joint-and-several basis with her son, disgorgement in the amount of $386,732.00 and prejudgment interest in the amount of $75,730.14. See Lit. Rel. No. 26003 (May 13, 2024).

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Insider trading is one of the long time staples of the Commission. While the theories have evolved over time, and in some instances have been controversial, the core idea that insider trading is a form of fraud prohibited the securities laws has been a constant. One of the Commission’s most recent cases in this area is SEC v. Poerio, Civil Action No. 2:24-cv-700 m(W.D. Pa. Filed May 10, 20240

Defendant Frank Poerio, Jr. is a resident of Gibsonia, Pennsylvania. Dick’s Sporting Goods, Inc., a relevant entity, is a sporting goods retailer incorporated in Delaware. Its principal place of business is in Coraopolis, Pennsylvania. The firm’s shares are registered under Exchange Act Section 12(b) and traded on the New York Stock Exchange. Its options are listed on several exchanges.

Over a three-year period, beginning in 2019, Defendant traded shares of Dick’s Sporting Goods while in possession of material inside information about the company. He obtained the insider information by misappropriating it from Individual A. That person was employed by Dick’s Sporting Goods. His role at the firm included supporting internal operations and others. Individual A provided detailed analysis of in-store staffing and related business results. This person also used analytical tools and techniques to evaluate labor productivity to recommend the optimization of store labor investment. This position gave Individual A access to inside information.

Defendant repeatedly misappropriated inside information from Individual A, a friend. Defendant and Individual A had repeated phone calls prior to quarterly announcements by the company. For example, before the August 26, 2020 earnings announcement the two had a series of telephone calls. Defendant increased his position in Dick’s Sporting Goods prior to the announcement by purchasing $637,450 worth of stock and options. This gave him 24,811 shares on August 26, 2020, the day of the earnings announcement. On that day Dick’s Sporting Goods announced earnings of $3.12 per share, an amount that significantly exceeded expectations. During the run up to the announcement Defendant repeatedly chatted with his friend, Individual A. The complaint alleges violations of Exchange Act Section 10(b).

Defendant agreed to a settlement following the entry of a preliminary injunction against him. He agreed to the entry of a permanent injunction and to pay disgorgement, prejudgment interest and a civil penalty in amounts to be determined by the Court. The U.S. Attorney’s Office for the Western District of Pennsylvania announced parallel criminal charges. See Lit. Rel. No. 26002 (May 10, 2024).

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