April 25, 2014 — Penny stock promoters are not immune from the same securities laws that govern others in the securities industry. To protect potential investors, promoters are required to disclose their own interests in the stocks they are peddling. To ensure that they do, and to deal with microcap promoters who don’t, the U.S. Congress initiated a whistleblower program as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) of 2010. Informants who notify the Securities and Exchange Commission (SEC) about stock promoters’ misleading information may be rewarded for their willingness to collaborate with the government. Whistleblowers may be eligible for compensation of up to thirty percent of the amount the government receives, so long as that amount tops $1 million.
SEC Obtains Emergency Freeze of Assets Owned by Penny Stock Promoter Charged in Alleged Scalping Scam
The SEC has charged John Babikian with using AwesomePennyStocks.com and PennyStocksUniverse.com to engage in “scalping.” The APS microcap stock promotion websites sent 700,000 emails in one afternoon to recommend the penny stock America West Resources Inc. Before the promotional emails went out, America West’s stock was not heavily traded, but after the email blitz, close to eight million shares were traded in an hour and a half and the stock hit a record high share price. When America West’s price per share spiked, Babikian immediately began selling off his own 1.4 million shares of the stock — shares he had not disclosed in the promotional emails. In 90 minutes, Babikian made over $1.9 million in ill-gotten gains he would never have generated without the misleading promotional email campaign.
Babikian allegedly attempted to liquidate his assets in the U.S. by wiring the proceeds offshore. To preserve the assets for jilted investors, the SEC obtained an emergency asset freeze order that also restrains Babikian temporarily from further similar misconduct. Babikian’s assets include two properties in Los Angeles, one in Oregon and the proceeds from the sale of an airplane owned jointly, which proceeds Babikian was trying to wire to a foreign bank at the time of the freeze.
Tipsters Notify SEC about Misleading Promotional Materials
Insiders who discover a company’s misleading promotional materials should understand the Dodd-Frank whistleblower program before notifying the SEC. The qui tam lawyers at Waters & Kraus have the experience necessary to safeguard tipsters’ interests in cases of fraud involving penny stocks. Contact us by email or phone our securities fraud attorneys at 855.784.0268 to discuss how we can help you.
