SEC Continues to Focus On Microcap Stock Manipulation
Microcap stock manipulations continues to be a key area of focus for SEC Enforcement with the filing of two new cases involving the CEOs of two firms of manipulating the share price of their firms. In SEC v. Forum National Investments Ltd., Civil Action No. 5:14-cv-02376 (C.D. Cal. Filed November 18, 2014) the Commission brought an action against the company, its CEO Daniel Clozza and three others who assisted with the manipulation — Robert Dunn, William Anguka and Ahmad Ghaznawi. In SEC v. Noel, Civil Action No. 3:14-CV-5054 (N.D. Cal. Filed November 17, 2014) the Commission charged the CEO of YesDTC Holdings, Inc., Joseph Noel, with manipulating the share price of his firm.
Forum National, based in Toronto, Ontario, initially sold memberships in a travel club and chartered its yacht. Subsequently, the company entered the life settlement business, purchasing six life insurance policies for about $1.8 million with a face value of $31 million. In 2011 the firm offered a convertible debenture secured by two of the life insurance policies that had a combined face value of $9 million. Each unit entitled the buyer to $450,000 of benefits Forum would receive when the policies matured.
By September 2011 Forum was experiencing significant financial difficulties after selling only a few of the units. In November Mr. Clozza sought introductions to internet promotional companies. He was introduced to defendant William Anguka, who promotes stocks through internet based media, along with three of his associates. One of those associates was defendant Robert Dunn. Mr. Anguka stated that he charged $70,000 to $80,000 per month for his services. Eventually he was retained with an initial payment of $15,000. Mr. Anguka then retained Ahmad Ghaznawi, also a defendant, to assist. Mr. Ghaznawi does business under the name Skylab Global Investments.
Subsequently, Messrs. Anguka and Ghaznawi disseminated web pages and internet news letters touting Forum’s business prospects. Despite the fact that there was no basis for the claims, the stock price, quoted in the pink sheets, climbed rapidly from about $0.35 in May 2012 to over $2.00 per share in June 2012.
Mr. Dunn, along with relatives and associated of Mr. Clozza, sold more than one million shares of Forum stock, profiting from the inflated, artificial price. The Commission’s complaint alleges violations of Exchange Act Sections 10(b) and 13(a) and Securities Act Section 17(b). The Commission also initiated an administrative proceeding against Forum under Exchange Act Section 12(j). The actions are pending. See Lit. Rel. No. 23135 (November 19, 2014).
The SEC’s complaint against Mr. Noel also centers on a claimed stock manipulation. In February 2009 Mr. Noel formed Sonoma Winton, LLC and appointed his daughter as the sole member, although he continued to control the entity. Later that year he incorporated YesDTC, Inc. That company entered into a reverse merger with a public shell which had no meaningful assets. As a result of a stock split, about 94 million restricted shares and 44 million non-restricted shares became outstanding. Mr. Noel retained about 40 million shares. When those shares were combined with others held by Sonoma, Mr. Noel controlled about 65% of the outstanding shares. The name of the firm was changed to YesDTC Holdings, Inc.
During 2011 Mr. Noel is alleged to have conducted two pump-and-dump schemes. In each of the schemes Mr. Noel prepared and had issued false and misleading press releases touting the business of the firm which supposedly specialized in direct-to-consumer marketing. In each instance the share price spiked upward significantly. In each instance Mr. Noel secretly sold shares through Sonoma. Overall he netted about $300,000 in profits from the two schemes.
The complaint alleges violations of Exchange Act Sections 10(b) and 16(a), and Securities Act Sections 5(a), 5(c) and 17(a). The action is pending. See Lit. Rel. No. 23134 (November 17, 2014).