A Vancouver business and its CEO were sued by federal regulators Thursday for allegedly paying illegal kickbacks to a hedge fund and manipulating penny stock trades.
In a civil suit filed in the U.S. District Court of Massachusetts, the U.S. Securities and Exchange Commission accused Camas resident James Wheeler, chief executive officer of MicroHoldings US Inc., of violating federal securities laws.
Wheeler, 51, was also charged in criminal court with mail fraud and conspiracy to commit securities fraud. If convicted, he faces up to 20 years in prison and a $250,000 fine for the mail fraud charges, and up to five years in prison and a $250,000 fine on each count on the securities fraud charges.
Wheeler and other officials at MicroHoldings US Inc. did not respond to messages left at the company’s registered phone number and submitted through its website.
In its civil action, the SEC accused Wheeler of paying kickbacks to induce a hedge fund official to invest in MicroHoldings, in an effort to illegitimately drive up the stock’s trading price and enrich himself. The purported Boston-based hedge fund representative was actually an undercover FBI special agent.
After the hedge fund purchased
$18,000 in MicroHoldings shares in May, Wheeler allegedly paid $9,000 to a shell company set up to hide the kickbacks, the SEC said in court filings. In June, the hedge fund then bought $30,000 in MicroHoldings, according to the SEC, at which point Wheeler allegedly kicked back $15,000 to the shell company.
In its complaint, the SEC asked the court to order Wheeler and MicroHoldings to “disgorge the ill-gotten gains they received as a result of their violations of the federal securities law,” and to also pay interest and unspecified financial penalties. The SEC also asked the court to bar Wheeler from participating in any future penny stock offerings or serving as officer or director of any public company.
The criminal charge documents were not made immediately available on Thursday.
Wheeler was one of 13 individuals accused of criminal kickback-for-investment schemes, and MicroHoldings was one of seven companies suspended from trading by the SEC. The companies and individuals accused came from a number of states across the U.S.,
The cases do not appear to be related.
Thursday’s charges follow a series of similar proceedings filed by the SEC, which in October 2010 and June 2011 charged more than a dozen companies and penny stock promoters in kickback-for-investment schemes.
Penny stocks, shares in small public companies that trade for less than $5 per share — usually less than $1 — are vulnerable to manipulation because they receive far less scrutiny than shares in larger companies traded on exchanges like Nasdaq and the New York Stock Exchange, according to The Motley Fool investing education website.