On behalf of Mihalek Law posted in Securities Law on Friday, October 10, 2014.
In our last post we wrote about activities that might constitute securities fraud. In this post we build on that topic with an example of how such a case might be resolved.
A promoter who, along with his company, was accused of making omissions and misrepresentations to investors, on behalf of his clients regarding penny-stocks, recently learned what the consequences would be for those alleged actions. He was ordered to pay $727,000.
According to the Securities and Exchange Commission the omissions and misrepresentations appeared in a publication created by the man’s company, National Financial Communications Inc., called “OTC Special Situations Reports.’’ The promoter and his business were accused of including information regarding the finances of companies they represented, without validating that the information was in fact true. The catalyst for those omissions and representations was allegedly to increase the share prices for the companies the man’s business represented. The companies have stock that trades for pennies.
Of the $727,000 the man was ordered to pay, $50,000 was a civil penalty. The largest chunk, $605,262, was labeled as disgorgement, and $71,767 was interest. A disgorgement is the repayment of funds or profits that a business receives as a result of unethical or illegal business transactions.
Most investors rely upon others to guide them in their investments. Accordingly, where certain individuals are concerned there is a duty to be truthful and disclose all material information regarding a recommended investment. When an individual omits or misrepresents information, that individual may be held responsible. As this case illustrates, among other things, an investor may be able to get back the money invested, with interest.
Those seeking to pursue this would likely benefit from working with a lawyer who handles matters related to securities.
Source: The Boston Globe, “Penny-stock promoter fined in SEC fraud case,” Beth Healy, Oct. 08, 2014