Dubious Penny Stocks Under Trading Suspension

Jack Humphrey, Regulatory journalist
June 08, 2011 /

A total of 17 microcap stocks whose market capitalizations were questionable in terms of publicly available information have been suspended by the US Securities and Exchange Commission.

The suspension is part of the SEC’s approach to detecting and deterring fraud involving microcap securities. These penny stocks traded in the over-the-counter (OTC) market.

Several SEC regional offices collaborated to bring these companies to halt, including offices in Los Angeles, Miami, New York, and Philadelphia; its Office of Market Intelligence; and its new Microcap Fraud Working Group.
Last week, the SEC had similarly suspended Uniontown Energy Inc. (UTOG), based in Henderson, Nevada, and Vancouver, Canada.

SEC’s enforcement division director Robert Khuzami said in a statement: “They may be called ‘penny stocks,’ but victims of microcap fraud can suffer devastating losses. The SEC’s new Microcap Fraud Working Group is targeting the insiders and promoters, as well as the transfer agents, attorneys, auditors, broker-dealers, and other “gatekeepers” who flourish in the shadows of this less-than-transparent market.”

The companies suspended include, among others, American Pacific Rim Commerce Group in Citra, Fla.; Anywhere MD, Inc. in Altascadero, Calif.; Calypso Wireless Inc. in Houston; Cascadia Investments, Inc. in Tacoma, Wash; CytoGenix Inc. and Emerging Healthcare Solutions Inc. in Houston; Kore Nutrition Inc. in Henderson, Nevada; and Montvale Technologies Inc. in Montvale, N.J.

According to George Canellos, Director of the SEC’s New York Regional Office, investors did not have accurate or adequate information about these penny stocks to use in making informed investment decisions.

“Nonetheless, stock-touting websites, twitter users, and often anonymous individuals posting to Internet message boards have hyped many of these companies, and these promotional campaigns have been followed by spikes in share price and trading volume.”

Calypso Wireless Inc., for example, failed to file periodic reports since February 2008, when it filed a report for the period ending Sept. 30, 2007.

Despite that, the company’s share price rose from 4 cents on Sept. 21, 2010 to an intra-day high of 17 cents on September 24, 2010, over which same period the trading volume jumped to nearly six million shares, up from 376,000 shares.

On September 24, 2010, a stock-promoting website encouraged investors to continue buying Calypso Wireless shares, saying, “Over the week, CLYW stock has been running wild … This CLYW stock rush happened just like that, on no company’s news and on old, well known SEC filings, done for the investment community.”

The Microcap Fraud Working Group is a joint initiative of the SEC’s Division of Enforcement and Office of Compliance Inspections and Examinations combating microcap fraud by focusing on recidivists and insiders, and on the attorneys, auditors, broker-dealers, transfer agents and other gatekeepers that facilitate a large volume of the fraud in this sector.

It consists of staff from the SEC’s headquarters in Washington D.C., each of its 11 regional offices, and from the Office of Market Intelligence, Division of Corporation Finance, Division of Risk, Strategy, and Financial Innovation, Office of General Counsel, Division of Trading and Markets, and the Division of Investment Management.

 

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