by T. GormanPosted on Posted in SECActions

 

Penny stock scams have long been a target of the SEC’s Enforcement division. These cases frequently focus on the issuance of millions of shares of unregistered stock coupled with the concealment of the person who is actually behind the scheme.  The latter is a key point in the penny stock fraud action filed this week, SEC v. Rosenbaum,  Civil Action No. 3:25-cv-01716 (N.D. Tex. Filed July 1, 2025).

 

Named as defendants in this action are: Keith A. Rosenbaum, William A. Justice, Randell R. Torno; and Brian D. Shibley. Defendants Justice, Shibley and Torono were each the CEO of a penny stock firm (collectively the “CEOs”) in an earlier action. Mr. Rosenbaum is a disbarred California attorney. Each person was charged earlier by the Commission for their role in an alleged $112 million pump-and-dump scheme orchestrated by Philip Verges.

 

The action here centered on June 2017 through June 2022. During that period Mr. Verges directed the CEOs to sign, or to permit their signature to be signed, on  incomplete disclosure statements published on a penny stock trading platform. Those materials, among other things, concealed the role of Mr. Verges and his directive regarding the false disclosure papers — the papers were executed without taking reasonable steps to ensure they were accurate.   Mr. Rosenbaum is also alleged to have executed 17 attorney opinion letters for one of the nominees  after being suspended from practicing law in California.  Subsequently, he executed 73 more opinion letters. The complaint alleges violations of each subsection of Securities Act Section 17(a) and Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5.

 

Defendants resolved the action.  Each of the CEOs consented to the entry of injunctions based on the statutes cited and an officer-and-director bar along with the payment of disgorgement totaling  $22,398.08 plus prejudgment interest of $2,011.92;  Defendants Torno and Shibley were each directed, in addition, to pay a penalty of $35,000.  Mr. Rosenbaum consented to the entry of a consent judgment based on the antifraud provisions as well as an order regarding the payment of disgorgement, prejudgment interest,  civil penalties and a penny stock bar, all to be resolved at a later date. See  Lit. Rel. No. 26344 (July 10, 2025).

 

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by T. GormanPosted on Posted in SECActions

Offering fraud actions are typically one of the largest groups of cases brought by the Commission as we have often noted.  These cases are frequently centered on a scheme crafted and selected by those in charge of the offering to attract investor interest. The attraction to the investors is often key the scheme since if it fails the scheme fails.  In the Commission’s most recent case in this area the attraction was sports and specifically having been a member of or player with those involved with the Harvard University football team. SEC v. Palazzo,  Civil Action No. 5:24-6602 (ND. Ca.).

 

Defendants in this action are:  Nicholas Palazzo, a graduate of Harvard University where he played football and stayed in touch with former teammates and others who later joined the team;  4TA Sports, Inc. a firm controlled by Defendant Palazzo who was the firm CEO; NP Ventures Holdings, LLC, another firm controlled by Defendant Palazzo; and Play Caller Sports Gaming, LLC, also a defendant that was controlled by Defendant Palazzo.

 

Beginning in October 2019,  and continuing until the end of 2023,  Mr. Palazzo and his controlled entities  raised funds from investors.  During the period he focused on two schemes.  First, what the complaint calls the STACK scheme raised about $900,000 from three investors. Those solicited  were told the offering proceeds would be used to raise money to repurchase the assets of STACK Media, Inc. — a sports media entity.  Defendant Palazzo had previously sold in the firm. Supposedly Mr. Palazzo had, or shortly would have, $5 million to facilitate the repurchase process.

 

The claims were false.  The money raised was spent on personal items for Mr. Palazzo, not to reacquire an interest in STACK.

 

Second, is the Play Caller Scheme. Beginning in September 2020,  and continuing through the end of December 2023, Mr. Palazzo raised about $2.1 million.  Investors were told that their money would be used to develop and launch a sports betting operation.  Instead, the funds were used for other interests of Mr. Palazzo, including vacations, paying himself fees and to settle a lawsuit.   The complaint alleges violations of Securities Act Sections 17(a) and Exchange Act Section 10(b)(5) and Rule 10b-5 and Section 20(a).

 

Mr. Palazzo and the entity Defendants settled the litigation, each consenting to the entry of permanent injunctions based on the provisions cited in the complaint. Mr. Palazzo was also directed to pay disgorgement of $2,648,132.72 along with prejudgment interest with the corporate entities being liable for their part of that amount.  Mr. Palazzo also paid a civil penalty of $150,000. The final judgment also bars Mr. Palazzo from serving as a corporate officer for director for five years or from participating in the issuance, purchase and offer or sale of any security for a period of five years other than for his own account. See  Lit. Rel. No. 26343 (July 9, 2025).

 

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