The US Securities and Exchange Commission has charged eight individuals, including Adam Kambeitz, a Canadian living in the Cayman Islands, for participating in a long-running stock fraud scheme that generated more than US$145 million from unlawful sales of penny stocks.
Those charged operated from various onshore and offshore countries – Antigua and Barbuda, Bahamas, Belize, British Virgin Islands, Bulgaria, Canada, the Cayman Islands, Chile, Croatia, Denmark, France, Germany, Hungary, Italy, Monaco, Spain, Switzerland, Turkey, the United Kingdom, and the United States.
According to the SEC’s complaint, UK resident Ronald Bauer and various combinations of his associates Craig James Auringer, Kambeitz, Alon Friedlander, Massimiliano Pozzoni, Daniel Mark Ferris, Petar Dmitrov Mihaylov, and David Sidoo engaged in the scheme between 2006 and 2020.
The SEC said the group fraudulently unloaded their shareholdings in at least 17 microcap stocks quoted on US markets onto unsuspecting retail investors, during pump-and-dump schemes.
The defendants allegedly coordinated and funded misleading promotional campaigns to drive up the price of the shares and then surreptitiously sold large quantities of each stock. The illicit proceeds from those illegal sales were then sent through multiple networks of offshore shell companies and financial accounts.
The SEC claims that Cayman Islands resident Kambeitz coordinated materially misleading promotional campaigns urging investors to buy the stocks that London-based Bauer, Auringer, and Friedlander sold, while concealing both their ownership and the fact they were acting in concert.
The complaint said Kambeitz routinely established and retired various offshore front companies that each served as the purported paying party for promotional campaigns.
‘Deceptive conduct’
Kambeitz also allegedly engaged in deceptive conduct as part of the scheme by routing payments to media companies through two different offshore accounts he controlled and by making material misrepresentations to foreign banks.
Before engaging in the scheme, Bauer and Mihaylov had already been subject to SEC penny stock fraud enforcement actions and, by consent, been permanently enjoined from such conduct.
According to the complaint, the defendants over time operated in various combinations and played varying roles. For example, Monaco-resident Ferris and Spain-resident Pozzoni initially served as figurehead CEOs of issuers whose stocks were fraudulently unloaded by their accomplices, and later assumed more senior roles in the scheme.
The SEC is seeking permanent injunctions, conduct-based injunctions, disgorgement of allegedly ill-gotten gains plus prejudgment interest, civil penalties, penny stock bars, and officer and director bars for each defendant.
The US Attorney’s Office for the Southern District of New York announced parallel criminal charges against Bauer, Auringer, Ferris and Mihaylov.
Pump-and-dump schemes like the ones alleged in this case follow a typical pattern. First the perpetrators of the scheme amass control of most of the publicly traded stock of a small company.
They then manipulate the price and the trading volume of the stock to give the impression of active trading in, and demand for, the company’s shares.
This is often accompanied by hyped-up press releases about the company, its operations and performance.
Once this practice has sufficiently inflated the stock price, the stock is sold to unsuspecting buyers. The stock price subsequently collapses and leaves investors holding shares in companies that are essentially worthless.
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