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Federal Agencies Focus on South Florida Securities Fraud

In December 2010, several federal government agencies began cooperating with each other to combat securities fraud. Known as the “Southern District of Florida Securities and Investment Fraud Initiative,” or just “the Initiative,” this effort has had tremendous success in the last three-and-a-half years. Recently, the Initiative reported that eighty-five defendants have been charged since its inception, efforts that have resulted in over $1.5 billion in restitution for victims.

South Florida is now second in the nation for investigations and prosecutions of securities fraud. And, according to the Sun Sentinel, our region outpaces even New York and Los Angeles for convictions.

The Initiative pools resources and intelligence from a wide array of agencies, including the FBI, the Securities and Exchange Commission, the U.S. Attorney’s Office, and the Internal Revenue Service. The Initiative seeks to root out fraudulent activity like Ponzi schemes, false bankruptcies, and other attempts to take advantage of innocent investors.

Penny Stock Schemes in South Florida

In the last two years, the Initiative’s investigations have been targeting fraudulent schemes involving penny stocks. These are often called “pump and dump” schemes, and generally involve promoters and owners of low-cost stocks manipulating the market to their advantage. They undertake activity that creates the appearance of interest in their stock where little or none actually exists.

Penny stock schemes come in different forms. On the more obvious end, promoters can provide false or misrepresentative information to investors or the media, in efforts to hype up a stock. This undue attention, then, leads innocent investors to purchase a security that does not represent the value they believe it to represent.

More often—like in the five federal complaints brought by the SEC in May 2014—the scheme is more involved. In this complex web of fraud, promoters provide bribes or kickbacks to third party “investors” to buy up shares of their penny stock. Then, when innocent investors see the price rising, they purchase the security. When these stocks artificially rise in value, the promoters make money. But if the promoters eventually sell and the market corrects itself, the innocent investors are left holding securities of minimal value.

In Miami alone, the SEC has brought penny stock-related charges against 48 individuals and 25 companies since 2010. Often, as was the case with the investigation against Larry Wilcox, the “investors” to whom the penny stock promoters pay the kickbacks are, in fact, undercover government agents. Wilcox—former star of the television show CHiPs—pled guilty to conspiracy to commit securities fraud. He was involved with falsely manipulating a stock that had risen from less than a penny to three cents per share.

The U.S. Attorney’s Office has stated that it wants these investigations and convictions to be about more than holding guilty parties responsible. Public awareness of the government’s efforts to reign in securities fraud can lead to greater caution when investing. Independent research into the soundness of an investment can be of tremendous value.

“If something sounds too good to be true,” the U.S. Attorney’s Office says, “it usually is.”

Contact a Securities Fraud Attorney

It can be devastating to lose money in one of these schemes. But if you have been the victim of a penny stock scheme in Florida, contact Gregory Tendrich, P.A. for an initial consultation to learn how you may be able to recover.

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