Financial Crime Weekly: SEC Unravels Microcap Pump-And-Dump; $16M Penalty Ordered On Medsis Securities Fraud

The U.S. Securities and Exchange Commission filed two litigation releases this week — charging three individuals with running a microcap pump-and-dump scam targeting retail investors, and levying a $15 million penalty on two others who operated an unregistered securities fraud scheme.

County Line Energy Microcap Fraud

On Tuesday this week, the SEC charged Jonathan Farber of New York, Aarif Jamani of British Columbia, Canada and Brian Keasberry of Nevada, with running a microcap fraud scheme.

The scheme allegedly involved the defendants gaining control of the shares of County Line Energy CYLC, a small publicly-traded company based in California, and fraudulently created the appearance of active trading in the stock.

“In the first half of 2018, before the defendants allegedly launched their scheme, there was little (and sometimes no) trading in that stock,” the SEC said in Tuesday’s filing.

The SEC alleged Farber and Jamani gained control of County Line, buying and selling stock in accounts they controlled to give the appearance that it was being actively traded. They then promoted the company in an online campaign that would appeal to retail investors.

“Throughout their scheme, defendants allegedly concealed from investors their control and involvement in County Line's management that should have limited the amount of stock they could sell under the federal securities laws,” the SEC alleged.

The defendants then sold a large amount of the stock they accumulated to retail investors, netting them around $5 million in profits.

Charging the three defendants under various sections of the Securities Act and Exchange Act, the SEC said it was seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgment interests, civil penalties, and penny stock bars and officer-and-director bars to all three.

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Medsis Securities Offering Fraud: $16M Penalty Levied

The SEC announced on Tuesday that its complaint against Medsis International, a technology start-up, had been upheld, with the U.S. District Court of Massachusetts entering a final judgment and ordering the company to pay $15.9 million in disgorgement, prejudgment interest and civil penalties.

Co-defendents Joshua Dax Cabrera and Paul Hess were charged with fraudulently raising around $13 million from more than 150 U.S. and foreign investors, offering unregistered securities in Medsis between 2015 and the end of 2020.

Cabrera and Hess made multiple misrepresentations and misleading statements to investors regarding Medsis and its existing and forecast revenues and business operations, claimed the SEC.

CFTC Fictitious Sales Scheme

The Commodity Futures Trading Commission (CFTC) this week filed a complaint in the U.S. District Court for the Central District of California against Yueyu Bao, a Chinese citizen, for engaging in a fictitious sales scheme.

The regulator alleged that in October-November 2021, the defendant entered a series of illegal transactions on the Chicago Board of Trade’s Globex system alongside his cousin, named only as Trader A in the CFTC filing.

Working in tandem, the two closely coordinated their trading and synchronized their fictitious sales by communicating in real-time about their bids and offers. Through this scheme, the CFTC alleges Trader A successfully transferred around $160,000 to his cousin’s account.

“Bao intentionally engaged in this trading activity that lacked both price competition and market risk for the sole purpose of passing funds from Trader A's account to Bao's account. By engaging in this conduct, he violated the fictitious sales provisions of the CEA and CFTC regulations,” the CFTC said.

The CFTC said it was seeking restitution, disgorgement of ill-gotten gains, civil penalties and permanent trading bans.

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