Posted in: "Pump and Dump" Schemes | Risky Investments |
A former attorney for the Fort Worth office of the SEC was convicted last week for securities fraud and participating in a stock manipulation scheme, with a possible sentence of up to 20 years in prison.
Federal officials say Phillip Offill had worked as a securities lawyer from 1984 to 1999, including as branch chief of enforcement for the SEC, and used his knowledge of the agency’s laws to defraud investors.
“As a former SEC lawyer, Mr. Offill knew the law—and he intentionally broke it and tried to hide his crimes,” U.S. Attorney Neil MacBride told the Fort Worth Star-Telegram. “He and his co-conspirators made millions while innocent investors were left with stock in worthless companies.”
Offill was accused of planning and executing a “pump and dump” scheme along with his co-conspirators. The goal of “pump and dump” frauds is to buy up shares of near-worthless penny stocks, artificially inflating the share price through misleading internet or phone advertising, and then quickly dumping the shares to profit on the overvalued price.
These schemes are alarmingly simple to operate, and can potentially cost investors millions.
“Pump and dump” schemes gained extra notoriety in 2000 when the SEC prosecuted 15-year-old Jonathan Lebed, who at the time lived in his parents’ house outside Newark, New Jersey. When he wasn’t attending high school, Lebed promoted numerous penny stocks on message boards using anonymous names. He would eventually make hundreds of thousands of dollars, after starting with just $8,000 that he received from a cashed-in savings bond from his parents.
While the SEC was happy to throw the book at Offill, they had trouble prosecuting a minor for the first time in a securities fraud case. Lebed eventually settled with the SEC, saw no jail time, and was only forced to surrender only a portion of his profits. Lebed continues to promote stocks with his daily newsletter.
Despite his agency experience, Offill’s scheme shared striking similarities with Lebed. To manipulate stock prices, Offill promoted companies through misleading news releases, and spam e-mails sent to millions of addresses.
As part of his sentence, Offill is ordered to surrender $15 million in assets, including a 2001 Harley Davidson motorcycle and a 1972 Porsche 911.
In addition to harming investors, “pump and dump” schemes account for a high number of the world’s e-mail spam. In August 2008 the SEC tagged it as one of the most common internet frauds, costing investors billions of dollars each year.
When penny stocks, or “pink sheet” stocks, are advertised in this fashion, the promoters often claim to have insider information about a company’s development, or claim to have developed some sort of fool-proof formula that determines which stocks are on the rise. “Pump and dump” fraudsters eventually sell their stake in penny stock companies, the rest of the investors are stuck with near-worthless stocks.
If you have been manipulated by a “pump and dump scheme” which resulted in losses, contact us for a free evaluation for your case.
