Florida advisor sentenced to 9 years for securities fraud scheme

A securities fraud trial against a Florida man and former chief executive officer of a penny-stock operation concluded with a nine-year prison sentence. At trial, government prosecutors claimed that the man had defrauded thousands of investors in a $20 million pump-and-dump scheme.

A securities fraud operation is called a pump-and-dump scheme because of its premise: Investors are lured into purchasing stock to drive its price up, at which point the scheme organizers can sell their own shares at a profit. The stock may be advertised or promoted using misleading statements about its worth.

Of course, a stockbroker always owes a fiduciary duty to disclose material stock information to his or her clients. For shares in publicly traded company, that information may be easier to obtain. Even investors might be able to perform some independent research about such companies.

In this case, however, the shares were in penny stocks, which the U.S. Securities and Exchange Commission defines as a security by characteristics including a trading price below $5 per share and that it is not listed on a national exchange.

Such stocks may be harder to research, which, in turn, could provide obstacles to independent research. In fact, investors may wonder whether any losses they sustained were the result of general market conditions, instead of stockbroker misconduct. To answer that question, a consultation with a securities fraud attorney may be necessary. An attorney that specializes in securities fraud lawsuits may have the tools to investigate the loss and determine its true cause.

Source: Money News, “Florida Man Gets Nine Years for $20 Million ‘Pump and Dump’,” Jan. 24, 2013