SEC Charges 18 with Microcap Securities Scheme

Traditional “Pump and Dump” schemes involve stimulating investor interest in low-cost (typically less than $1 per share) stock using press releases, cold calls, and social media advertising to spread false or misleading information about the issuing company. As the U.S. Securities and Exchange Commission (“SEC”) warns on its “Investor.gov” website, “fraudsters typically …[seek] to create a buying frenzy that will ‘pump’ up the price of a stock and then ‘dump’ [i.e. sell] …their own shares at the inflated price.” See my July 25, 2022, blog “Mony a Mickle Maks a Muckle: SEC Charges Foreign Nationals with Two Microcap Frauds,” where the prices of the low-priced stock (generally called “microcap” securities or “penny stock”) were inflated because of undisclosed promotional campaigns, followed by carefully organized selling operations at the peak prices by the miscreants. Now comes a major technological innovation to such a scheme (the “Hack Attack”), where there is only limited need to expend the time, money, or efforts on a promotional campaign to raise the stock price; the retail investors do not have to be induced to actually buy the “dumped” stock.

On Monday, August 15, 2022, the SEC filed a Complaint (the “Complaint”) in the Federal Court for the Northern District of Georgia, Atlanta Division, charging 13 individuals, five entities, and two relief defendants with i) illegally accessing at least 31 retail brokerage accounts in the U.S. in late summer of 2017 and in early 2018; and ii) causing those accounts to purchase the securities of two microcap securities: Lotus Bio-Technology Development Corp., a Nevada corporation based in Port Coquitlam, British Columbia, Canada, after moving from Point Roberts, Washington (“LBTD”); and Good Gaming, Inc., f/k/a HDS International Corp., also a Nevada corporation based in Kennett Square, Pennsylvania (“GG”). The stock of each company is quoted on the OTC Link operated by OTC Markets Group, Inc. For a detailed description of the OTC Market Group, Inc., and the OTC Link, see my Oct. 29, 2020, Blog “Keeping Securities Disclosures in the Pink: Amendments to SEC Rule 15c2-11.” LBTD…