Trying To Get Listed on NASDAQ By Marking-the-Close
The goal was to get the pink sheets traded firm listed on NASDAQ. A key requirement is that the share price be at or above $2.00 for ninety consecutive trading days. Two former and one current registered representative schemed to get the listing, recording their plans in emails. The plans for the most part involved “marking-the-close” – placing trades at or near the close to push up the closing price. Many days the goal was achieved. SEC v. Cedrone, Civil Action No. 17-cv-8099 (S.D. Fla. Filed August 31, 2017).
The Defendants are Richard Cedrone, at one time a registered representative but now a convicted felon who bribed an undercover FBI agent to trade for his customer accounts; Steven Ferris, also a former registered representative; and George Thoreson, a registered representative at the time of the transactions here.
Abakan, Inc. is a Nevada corporation whose shares are registered with the Commission. It is a penny stock. By early 2012 the firm planned to apply for a listing on NASDAQ. Defendants Ferris and Cedrone were working as investor relations consultants to the firm. When they learned of the listing goal Mr. Thoreson was contacted. He immediately began buying Abakan stock.
During the scheme the three men carefully monitored the share price of Abakan. Defendant Thoreson conducted most of the trading, buying about 629,675 shares at a total cost of over $1.3 million. Many of the purchase transactions were manipulative “mark-the-close” trades. For example, at 3:30 p.m. on July 12, 2012 the most recent trade in Abakan had executed about two hours earlier at $1.93. Between 3:31 and 3:50 p.m. Mr. Thoreson placed 4 orders to buy a total of 4,800 shares at market prices. Each filled within one minute. The last execution was for 600 shares at $2.00. Four minutes later Mr. Thoreson emailed the other two Defendants, stating “I just brought it back to $2 for the close today, which is July 12 IE: 90 days.” The three men thought the ninety day period had ended. It had not.
Both before and after the July 12 transaction, other similar efforts were made to sustain the share price. For example, on September 26, 2012 Mr. Thoreson emailed his confederate, Richard Cedrone, stating that “I’m over 420,000 shares now. We need to paint this at the close at at (sic) least $2 to get the NASDAQ thing going. Once we are listed I can solicit the stock . . .” The next day Abakan’s share price closed above $2 where it remained until mid-October.
Abakan also needed cash to pay its expenses and move its technology toward commercialization. To aid the company Mr. Ferris began selling shares of the firm’s unregistered stock in August 2012. The stock was obtained from undisclosed affiliates who were financing the firm. In several instances the undisclosed affiliates paid consulting fees to Mr. Ferris in unrestricted Abakan shares. The complaint alleges violations of Securities Act Sections 5 and 17(a) and Exchange Act Sections 9(a), 10(b) and 15(b)(6)(B)(i).
To resolve the action each defendant consented to the entry of a permanent injunction prohibiting future violations of each of the Sections cited in the complaint except Section 15(b)(6)(B)(i) which was included in the order as to Mr. Cedrone. The order also prohibits each defendant from placing orders to buy or sell securities during the last 60 minutes of any trading day. Mr. Cedrone will pay disgorgement of $5,013.00, prejudgment interest and a penalty of $150,000. That penalty considered the fact that he violated an earlier Commission order. Mr. Thoreson agreed to pay a penalty of $75,000 and to be barred from the securities industry and penny stock offerings. Determination of any penalty against Mr. Ferris is deferred until the terms of his cooperation agreement are completed. See Lit. Rel. No. 23928 (Sept. 5, 2017).