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Pump and Dump: not going away any time soon

BIScom Subsection: 
Editorial Staff

With the superficial attitudes of commentators on all sides of the media divide pushing risk and compliance professionals in the direction of their fashion-driven topics, it's useful to remind readers that while they are focussed on the next big thing, past big things remain a threat. Pump and dump is an example of market manipulation and, of course, a predicate crime for money laundering or, even, funding future crime including, possible, terrorist activity. What is even more surprising is that the same names crop up repeatedly but they never go to jail.


The SEC's old and new logos.

Eric T Landis "falsely claimed to third party media buyers for microcap companies that he would distribute promotional materials for the stocks via email lists with tens of thousands of subscribers," says the USA's Securities and Exchange Commission in its announcement of civil litigation (which it erroneously calls "charges") in the US District Court for the District of Massachusetts.

What Landis actually did, the SEC alleges, was to trade, in his own name, in the names of third parties and through companies under his control, shares in the companies that he was supposedly promoting.

To generate trading volume and create the false impression that he was drumming up investor interest, the SEC alleges that Landis traded thousands of microcap shares himself using brokerage accounts in his own name, in the name of an entity he controlled, Ridgeview Capital Partners LLC, and in the names of several third parties. Altogether, the SEC alleges that Landis placed thousands of manipulative trades over three years, including approximately 1,300 "matched trades," which involved simultaneously selling and buying stocks in the microcap companies he was paid to promote.

Landis is a name known to World Money Laundering Report: we reported on his involvement in a market manipulation scheme in 2003. That report is no longer available on this platform but the SEC's litigation release is still available at https://www.sec.gov/litigation.... That announcement referred to "recidivist stock promoters." That wasn't his first brush with regulators: in 1999 NASDAQ suspended his brokerage licence for one year and levied a penalty for market manipulation.

The fact that the SEC sues, not charges, market manipulators is significant. It means that Landis and people like him receive financial or other regulatory penalties but do not go to jail in the USA. In other jurisdictions, where market manipulation is a criminal offence investigated and prosecuted in the criminal courts, jail is a very real risk.

This case is at an early stage and it is not known whether Landis intends to contest the allegations. The SEC seeks a permanent injunction against future breaches, surrender of ill-gotten gains plus pre-judgment interest, monetary penalties and a ban from trading in penny stocks.