U.S. files fraud charges against stock brokerages and individuals here

The U.S. Securities and Exchange Commission has charged Costa Rican stock brokerage companies and individual listed as living here with fraud, manipulative trading, touting, and with registration violations.

The criminal allegations say that the companies and individual engaged in a pump-and-dump operations to boost the price of stock shares with the purpose of selling them. It said they made many millions of dollars.

The complaint alleges that Costa Rica-based Moneyline Brokers and its founder Harold Bailey “B.J.” Gallison II unlawfully operated as a broker-dealer for U.S.-based customers who engaged in pump-and-dump schemes to artificially inflate a stock’s price and then sell their own shares, said the federal agency.  According to the complaint, Moneyline and certain of its employees routinely accepted transfers of  stocks from the U.S. customers and had stock certificates reissued in Moneyline’s name to conceal the true owners of the shares, the agency said.

In addition to Moneyline, the complaint alleges that two Costa Rica-based firms, Sandias Azucaradas CR, S.A. and Vanilla Sky, S.A., and three Nevada-based firms, Bastille Advisors, Inc., Club Consultants, Inc., and Jurojin, Inc., operated as unregistered broker-dealers.  Employees of the firms who were charged are: Roger G. Coleman, Sr., of Las Vegas, Ann M. Hiskey of Costa Rica, Robin M. Rushing and David K. Rushing, both of Costa Rica and Spokane, Wash., and Michael J. Randles, of Costa Rica, said the agency.

The case involves the sale of what are known as microcap stocks, which sometimes are referred to as penny stocks.

The Security and Exchange Commission said that the over-the-counter market for securities, often referred to the microcap market, is designed for and comprised of companies with small amounts of assets and low stock prices. More than 10,000 companies have shares that trade on the over-the-counter market, including what is known as the pink sheet. While companies that trade their stocks on major exchanges undergo a formal application process and must meet minimum listing standards, companies quoted on over-the-counter markets do not have to apply for listing or meet any minimum financial standards, the agency noted.

In all, 14 individuals and 19 entities were charged by the  Securities and Exchange Commission. Some of the individuals appear to have had prior involving with the agency’s enforcement division.

Carl H. Kruse Sr. and Carl H. Kruse Jr., both of Miami, conspired with Moneyline and others to manipulate trading in Warrior Girl, a former shell company that the Kruses controlled, said the allegation.  Warrior Girl’s purported business changed from hydroelectric power in 2008 to extracting oil from tar sands in 2009 to online education in 2010, and the Kruses engaged in multiple manipulations to profit from promotions to inflate the stock’s price, said the agency. As a result of the various campaigns the Kruses are alleged to have obtained illegal profits estimated to total $2.3 million, the agency said.

Another scheme involved trading in Everock, Inc., a Canada-based mining company that relocated to Nevada and sold sandwich spreads after reorganizing itself with Nature’s Peak in 2008, said the Security and Exchange Commission.

A concerted campaign promoting the mining-turned condiment company included videos and Facebook postings and produced more than $2.5 million in profits for defendants, the agency said.

The case is in the  federal district court in Manhattan, New York.

The activities of the Costa Rican companies were well known to some who follow the microcap market. There were reports about  Moneyline Brokers going back to 2009 and listing the prior activities of the principals.

The Securities and Exchange Commission is seeking to bar the individuals from working in stock sales and also to require them to surrender money.

Usually in cases like this the U.S. Justice Department steps in and files additional charges.

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