Many people enjoyed watching Leonardo DiCaprio portray the frenzied rise and fall of the corrupt, drug addicted Jordan Belfort in “The Wolf of Wall Street.” However, according to the Securities and Exchange Commission, 15 individuals and 19 firms thought the movie sounded like a pretty good idea, acting out the notorious “pump-and-dump” schemes in real life.
On Tuesday, July 14, the SEC charged those 15 individuals and 19 firms with generating $6.5 million in illegal profits from manipulating the price of so-called penny stocks. According to a civil complaint filed by the SEC, Moneyline Brokers and its founder Harold Gallison operated out of Costa Rica as unregistered brokers, illicitly working with customers who wanted to hide their financial activities. As part of the scheme, Moneyline Brokers would help manipulate the market for microcap securities.
Microcap stocks (sometimes stylized as micro-cap) are the stock of publicly traded U.S. companies with a market capitalization between $50 million and $300 million. Penny stocks are what investors call stocks that trade for less than $5 per share. Because these stocks are so cheap, they are vulnerable to a type of scam known as the pump-and-dump. A scammer buys large amounts of a penny stock (or gets someone else to), then illegally manipulates the price. When the stock price goes up, they sell their own shares at a profit — an illegal profit.
The SEC claims that Moneyline and its employees accepted transfers of microcap stocks on behalf of their customers. The stocks were then reissued under Moneyline’s name. SEC investigators have been targeting Moneyline and Gallison for years, ever since he was previously convicted of fraud in 2003.
“This case demonstrates the Commission’s resolve to relentlessly pursue the villains behind these microcap fraud schemes wherever in the world they may be hiding,” said Andrew M. Calamari, the Director of the SEC’s New York Regional Office.
The commission says that of the 34 defendants in the claim, nine will face criminal charges.