SEC Sues E-Lionheart Associates in Penny Stock Scheme

Kimberly Watson, Editor in Chief
August 22, 2012 /

The US Securities and Exchange Commission has charged a New York-based firm and its owner with operating a penny stock scheme in which they bought billions of stock shares that they resold in the public market.

The SEC alleges that Edward Bronson and E-Lionheart Associates LLC illegally profited more than $10 million from selling shares they bought at deep discounts from approximately 100 penny stock companies. On average, Bronson and E-Lionheart earned almost twice the price at which they had acquired the shares.

Bronson and E-Lionheart failed to register the shares they resold to the investing public, the SEC said.

“By violating the registration provisions of the securities laws and dumping billions of unregistered shares into the over-the-counter market, Bronson deprived investors of important information about the companies in which they were investing,” said Andrew M. Calamari, Acting Director of the SEC’s New York Regional Office.

Bronson lives in Ossining, N.Y. E-Lionheart, also known as Fairhills Capital, is located in White Plains. Acting at Bronson’s direction, E-Lionheart personnel systematically “cold called” penny stock companies quoted on the OTC Link to ask if they were interested in obtaining capital. If the company was interested, E-Lionheart personnel would offer to buy stock in the company at a rate that was deeply discounted from the trading price of the company’s stock at that time.

Typically, Bronson and E-Lionheart immediately began reselling the shares to the investing public through a broker within days of receiving the shares from the company.

Bronson and E-Lionheart alleged that they are covered by an exemption from registration rules since they comply with certain types of state law exemptions. However, no such state law exemptions were applicable to these transactions, according to the SEC.

The particular Delaware state law exemption claimed by Bronson and E-Lionheart is not an exemption that meets the specific requirements of the said law. As a result, investors purchasing these shares did not have access to all of the information that a registration statement would have provided, including in many instances important information concerning the issuance of millions of new shares by the company to Bronson and E-Lionheart.

The SEC’s complaint charges E-Lionheart and Bronson with violations of the registration provisions of the federal securities laws, and seeks disgorgement of more than $10 million in ill-gotten gains, penalties. The SEC also seeks penny stock bars against E-Lionheart and Bronson.

The complaint also names another entity owned and controlled by Bronson – Fairhills Capital Inc. – as a relief defendant for the purpose of recovering the illegal proceeds it received.

 

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