The SEC has announced its largest set of enforcement actions relating to stock touting schemes in which it charged 27 individuals and entities. These parties misled investors by posting research reports on investor websites for which the writers had been paid. In some of the reports, the writers disclosed that they had not been compensated for their views while others provided no disclosure about compensation at all, both of which violated the securities laws. Seventeen of those charged have entered into settlements in which they agreed to pay disgorgement and penalties. The remaining 10 cases are being litigated. In addition to the enforcement actions, the SEC released an alert to warn investors about research posted on investment websites. The alert warns that the information may not be unbiased and may be part of an undisclosed paid stock promotion.
In the news release announcing the enforcement actions, the SEC reported that fraud charges were brought against three public companies, seven stock promotion or communications firms, two CEOs, six individuals at the firms, and nine writers. The respondents that settled with the SEC did so without admitting or denying the allegations and consented to the entry of cease-and-desist orders.
Promotional services firms. Lidingo Holdings, LLC, which was dissolved in 2014, provided promotional services to issuers. The company hired writers who provided over 400 articles to investment websites. Lavos, LLC also provided promotional services to issuers and worked with Lidingo. The operator of Lavos served as the president and CEO of two publicly traded companies, Lion Biotechnologies, Inc. and ImmunoCellular Therapies, Ltd., all of whom were charged in the enforcement actions. Lavos’s operator was barred from the penny stock industry for five years, prohibited from serving as an officer or director for five years, and ordered to pay disgorgement of $1.75 million, prejudgment interest of $151,677, and a penalty of $1 million.
An operator of a group of investor relations companies, including the DreamTeam Group, LLC, also paid writers to promote the securities of their publicly-traded clients. The writers hired by the DreamTeam also published blog posts without disclosing that the articles were part of a paid promotion. The operator of DreamTeam and his companies agreed to a number of undertakings in addition to the payment of disgorgement of over $45,000 with interest, and a penalty of $75,000.
The writers. One of the stock touters wrote his own articles and also paid other freelance writers for articles that he sold to Lidingo. This writer published under a number of pseudonyms, and Lidingo published some of the articles under its own pseudonyms. In some instances, the writer did not disclose that the articles were paid promotions and in others he misrepresented that he did not receive compensation. The writer was ordered to disgorge $16,100 plus prejudgment interest of $2,105 and to pay a penalty of $20,000. Another writer hired by Lidingo agreed to pay disgorgement of $9,600, prejudgment interest of $858, and a penalty of $20,000, and another who published under a pseudonym was ordered to pay $19,500 in disgorgement plus interest and a penalty of $25,000.
A writer for both investor relations firm Dunedin, Inc. and Lidingo agreed to pay over $38,000 in disgorgement and prejudgment interest and a penalty of $24,000. The principal of Dunedin paid disgorgement and prejudgment interest of over $20,000 and a penalty of $30,000. Another writer for both DunedIn and Lidingo was ordered to pay disgorgement of $2,200 but was not ordered to pay a penalty based on his sworn representations in his statement of financial condition.
The issuers. Lion Biotechnologies paid a penalty of $100,000 for commissioning articles and emails that purported to be independent when they were actually paid promotions. ImmunoCellular was not ordered to pay a penalty based on the company’s Form 10-K for fiscal year 2015 that included a going concern opinion from its independent auditor.
Galena Biopharma, Inc. and its then-CEO also engaged Lidingo Holdings and the DreamTeam to promote the company without disclosing that the writers had received compensation. In addition, some of the articles and postings constituted unlawful prospectuses transmitted while Galena was preparing to offer its securities. The company and the CEO violated the anti-fraud provisions, caused violations of the anti-touting provisions, and engaged in improper gun-jumping, according to the SEC’s order. The CEO received an O&D bar for five years and was ordered to pay disgorgement of $677,250, prejudgment interest of $67,181, and a civil money penalty of $600,000.
In a separate action, CytRx Corporation drafted articles that were forwarded to potential investors by a third party. The SEC found that the articles, a report, and emails were attributable to CytRx because of its involvement in their generation and based on its approval of the articles that were emailed to potential investors. These publications and emails constituted written offers to sell CytRx’s securities and violated the Securities Act. CytRx was ordered to pay a money penalty of $75,000.
Stock touting focus. Acting Enforcement Director Stephanie Avakian said during a media briefing that these actions should serve as a warning and advised that this is an area on which the division continues to focus.
Companies: Lidingo Holdings, LLC; Lion Biotechnologies, Inc.; ImmunoCellular Therapies, Ltd.; DreamTeam Group, LLC; Dunedin, Inc.; CytRx Corporation
MainStory: TopStory FraudManipulation DirectorsOfficers Enforcement
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