June 24, 2013 — The Securities and Exchange Commission (SEC) whistleblower program put into place by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) of 2010 gives whistleblowers a convenient way to notify the government about fraud in the securities industry. Investment and brokerage firm insiders who become aware of schemes to defraud investors can use the whistleblower program to pass on unique information to the SEC about financial crimes. Tipsters may be rewarded with as much as thirty percent of the amount recovered by the government as a result of the tip, provided the recovery is greater than $1 million.
Former Dallas Broker Receives Prison Term for Part in Stock Manipulation Scheme
Joshua Wayne Lankford, a former Dallas stock broker, has been sentenced for his part in a “pump-and-dump” stock manipulation scheme. Overall, the scheme victimized more than 17,000 investors, resulting in over $43 million in illicit proceeds. Lankford received an 84-month prison sentence and was ordered to forfeit $250,000, which will be used for the partial restitution of victims.
Lankford and his co-defendants, the Department of Justice alleged, created a scheme to manipulate penny stocks traded on the over-the-counter market, as opposed to the national exchanges. The companies they targeted included National Storm Management Group Inc. of Glen Ellyn, an Illinois company, and Global Beverage Solutions Inc. (formerly called Pacific Peak Investments) and Deep Rock Oil & Gas Inc., both Oklahoma corporations.
Lankford and his co-defendants acquired a majority of the free-trading shares of a company — sometimes through deceptive or fraudulent means — and then removed any trading restrictions on the stock they acquired. The conspirators then “parked” their shares with relatives, friends or other entities controlled by the conspirators. Later, they traded those shares all at the same time to make it appear as though an emerging market existed for the stocks. To dupe investors into purchasing shares, the conspirators then sent email blasts to millions of people, advertising the stocks’ potential for growth without revealing that the conspirators intended to dump their own shares as soon as they secured a sufficient number of innocent investors. When the conspirators and their friends and family dumped their shares after artificially driving up the stock price, the sell-off resulted in stock price declines. Innocent investors were left holding the bag.
Lankford pleaded guilty to laundering $250,000 in illicit proceeds from the pump and dump scheme.
Schemes to Manipulate Markets Often Discovered by Industry Insiders
Industry insiders who discover that investors are being defrauded by market manipulation can use the SEC’s whistleblower program to put an end to the misconduct. Before collaborating with the SEC, however, informants need to learn their own rights. The whistleblower attorneys with Waters & Kraus have the experience to protect the interests of insiders who are brave enough to come forward. Contact us by email or speak with our securities fraud lawyers at 855.784.0268 to learn how we can assist you.