Agency Releases White Paper on Risks of Penny Stock Investing
The Securities and Exchange Commission (SEC) today barred several market participants from the penny stock industry for their roles in various sham initial public offerings (IPOs) of microcap stocks that defrauded investors.
In one case, Newport Beach, California-based securities lawyer Michael J. Muellerleile authored false and misleading registration statements used in sham IPOs for five microcap issuers in order to transfer unrestricted shares of penny stocks to offshore market participants. Muellerleile’s law firm M2 Law Professional Corp. also is charged along with Lan Phuong Nguyen, an attorney who assisted Muellerleile by signing false and misleading attorney opinion letters, and Joel Felix, the CFO of one of the issuers, for making false and misleading statements. The SEC today suspended trading in that issuer, American Energy Development Corp.
In another case, Nevada-based stock transfer agent Empire Stock Transfer and its supervisor of operations Matthew J. Blevins transferred large blocks of several penny stock securities without restrictions to offshore nominees despite red flags indicating the shares were likely part of an illegal operation. The SEC previously charged several offshore entities behind the illegal sales of unregistered penny stocks made possible by Empire Stock Transfer and Blevins.
Stephanie Avakian, Deputy Director of the SEC’s Enforcement Division, commented:
These enforcement actions bar any further penny stock activity by these market participants, including attorneys and a transfer agent supervisor who betrayed the trust that investors place in gatekeepers to protect them in this highly risky market. The SEC is committed to combating microcap fraud through the investigative work of its Microcap Fraud Task Force, the initiatives of its Microcap Fraud Working Group, and repeated warnings to investors about the red flags of penny stock investing.
All of the market participants named in today’s cases have agreed to settle the charges without admitting or denying the SEC’s findings.
Muellerleile agreed to pay $154,267 and Nguyen agreed to pay $13,039 while accepting penny stock bars and permanent suspensions from appearing and practicing before the SEC as attorneys, which includes representing clients in SEC matters including investigations, litigation, or examinations and advising clients about SEC filing obligations or content. Felix agreed to a penny stock bar, officer-and-director bar, and payment of $63,695.
Empire Stock Transfer agreed to pay more than $154,000, and Blevins agreed to pay $20,000 and be permanently barred from the securities industry.