SEC Files Two Microcap Fraud Actions
The Commission’s focus on the retail investor is well illustrated by two cases involving microcap frauds first announced at the end of last week. One centered on a penny stock manipulator known as the “Mailman” and involved the efforts over twenty regulators in this country and around the globe in the investigation. SEC v. Sodi, Civil Action No. 5-18-cv-00313 (N.D. Ala. Filed Feb. 26, 2018). A second centers a recidivist law violator and a potential manipulation. In the Matter of Robert Joseph Ritch, Adm. Proc. File No. 3-18396 (March 9, 2018).
Sodi: The Mailman is Brian, Robert Sondi, a one time big four auditor known for his direct-mail penny stock promotions. He is named as a Defendant in the action along with Capital Financial Media, LLC and List Data Solutions, LLC, both Florida based penny stock promotion houses controlled by Mr. Sondi. The manipulative actions at the center of this case took place in 2013 and involved the shares of microcap OTC traded issuer Southern USA Resources Inc., a firm that owns a gold mine, and the subsidiary of Goff Corporation, which owns properties in Colombia’s gold country. The registrations of both firms have been terminated.
Beginning in January 2013 Mr. Sondi had his two firms mail promotional materials regarding SUSA to investors. The materials recommended that investors hastily purchase shares of the gold mine firm to achieve quick profits of a much as 3,293%. Trading volume increased rapidly. The share price increased to a high of $1.66. Mr. Sondi was able to quickly take advantage of the market movements of the stock, selling at least 239,000 shares through his Swiss bank account to secure significant profits.
What Mr. Sondi did not disclose was the fact that he owned a block of SUSA stock and that he had been paid for running the touting campaign in company shares. He also failed to file any Schedule 13D with the Commission.
Beginning in March 2013 Mr. Sondi also ran a promotional campaign regarding Goff shares. Again he used his two penny stock publishing firms to distribute promotional materials on the firms. Again the promotional materials predicted huge profits. Prior to the campaign the shares had been at $0.13. During the campaign those same shares reached a closing price of $0.5852.
What Mr. Sondi did not disclose is that just before the tout he purchased 500,000 shares of Goff through his Swiss account. During the campaign Mr. Sondi was able to sell shares yielding profits of at least $116,000. After realizing these profits he then purchased another 100,000 shares which he later sold during a renewed campaign for a profit of an additional $7,000. The complaint alleges violations of Securities Act sections 5(a), 5(c), 17(a) and 17(b) and Exchange Act sections 10(b) and 13(d). The case is pending.
Mr. Rich has been convicted of a number of crimes including several felonies for obtaining property by false pretenses. Mr. Rich is the author of a blog and a website in which he claims to operate a number of businesses including one the specializes in M&A transactions and another that offers business loans and financial guarantees. He is also the president and sole employee of Manzo Pharmaceuticals, Inc., an OTC traded stock. The primary source of information about the company is Mr. Rich’s website.
On his website Mr. Rich repeatedly boasted about his business acumen. For example, he claimed to have founded, built and exited four successful multi-million business; to have been involved with and/or managed over $1 billion in transactions; that he could not disclose information about a settlement with the State of North Carolina regarding his criminal past; and that he had a college degree. All of these claims are false.
What Mr. Rich did have was about 1 million shares of Manzo which he touted as a mini-Berkshire Hathaway. During the period of Mr. Rich’s posts, from January 2017 through August 2017, the volume of trading in Manzo increased dramatically, although there was no current information available about the company except from him. The Order alleges violations of Exchange Act section 10(b).
To resolve the proceedings, Respondent consented to the entry of a cease and desist order based on the section cited in the Order. He also agreed to be barred from serving as an officer or director of any issuer and to a penny stock bar. He also agreed to pay a penalty of $50,000.
Program: Insights Into SEC Enforcement, is roundtable discussion of the Former Directors of the SEC’s Division of Enforcement that will be held on April 3, 2018 beginning a 4:30 p.m. at Georgetown University Law School. The program will be followed by a reception. Registration is available here without charge. The program is sponsored by the SEC Historical Society, the Federal Bar Association, and the Association of SEC Alumni.