Defending Against Fraudulent Stock Selling Charges
The SEC filed an enforcement action against two individuals, Joseph Padilla and Kevin Dills, alleging they perpetrated an illegal scheme to sell shares in numerous microcap companies to the investing public. The SEC further alleged that Dills joined Padilla’s scheme to defraud by using the stock of a company he controlled on an undisclosed basis.
In its complaint, the SEC contended that Padilla carried out a fraudulent securities scheme to enrich himself and others who compensated Padilla to facilitate their illegal securities sales. The SEC complaint also asserts that those individuals shielded their true identities by liquidating shares via offshore accounts under names that Padilla concocted. Padilla himself traded in his securities account, as well as in accounts of friends and family, to illegally profit in concert with the scheme, as well as to engage in stock manipulation to prop-up the stock prices, the SEC claims. Padilla apparently did not stop there, as he also — the SEC alleges — recruited a securities trader at a broker-dealer to help further the fraud. Padilla’s alleged stock manipulation was effectuated by timing the securities sales with the release of stock promotions and the issuance of public announcements designed to generate a buzz in the investing public and interest in the stocks.
Concerning Defendant Dills, the SEC claims he secretly controlled one of the companies that was part of the illegal stock scheme, and specifically gave Padilla shares of that stock to dump on the unsuspecting investing public. Padilla then sold the shares and allegedly, through a web of foreign financial accounts, kicked back around $20 million of the proceeds to Dills. The SEC also claims that Padilla and Dills liquidated Dill’s company shares while a number of press releases were issued in order to create a bullish optic for investors, a classic pump and dump technique.
The SEC charged Padilla and Dills with violating the antifraud sections of the federal securities laws, namely Sections 17(a)(1) and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c) thereunder, and that they also violated Sections 5(a) and (c) of the Securities Act — the registration provisions of the federal securities laws. The SEC is seeking, among others, civil penalties, injunctions, disgorgement and a penny stock bar.
Given the egregious securities fraudulent conduct alleged, it is no surprise that the federal authorities joined the fray and filed criminal charges against the pair.
Of particular interest in this case was the extent of international cooperation involved in the SEC investigation. In its litigation release, the SEC acknowledged and thanked the assistance of several foreign regulatory authorities ranging from the Bermuda Monetary Authority to the Central Bank of Hungary. No doubt that this critical foreign regulatory assistance to the SEC was crucial in its ability to trace and recover the approximate $20 million in stock proceeds that were alleged to have been funneled through foreign financial institutions.
David Chase, Esq. of the Law Firm of David R. Chase, a SEC investigation law firm, is now a SEC subpoena attorney and represents individuals and businesses in SEC investigations nationwide. You may contact him toll-free at: 800-760-0912 or e-mail at: david@davidchaselaw.com, and can visit the Firm’s website for more information and content at: www.davidchaselaw.com.
