The ex-CEO of Riot Blockchain has reached a multimillion dollar settlement with the U.S. Securities and Exchange Commission (SEC) over an alleged pump and dump scheme involving penny stocks.
John O’Rourke III is among individuals to reach agreement with the U.S. regulator over the allegations, which run to a total of $3.5 million in disgorgement, prejudgment interest and civil penalties.
As part of the settlement, none of the individuals will accept or deny the accusations, which were levelled by the SEC back in 2018. O’Rourke and co-accused John Stetson will pay penalties of $1.15 million each, while a third, Michael Brauser, is set to pay $1.7 million.
Along with individual bans, companies belonging to O’Rourke (ATG Capital) and Brauser (Grander Holdings) will be permanently excluded from engaging in penny stock activity. Stetson and his company each face bans for a period of 10 years.
The case was first brought against 10 individuals and 10 companies, concerning three different alleged pump-and-dump penny stock schemes. Described by the SEC as “brazen market manipulation,” the scams are reported to have netted $27 million from investors caught up in them.
The schemes were allegedly the brainchild of Riot investor Barry Honig. He is reported to have acquired bulk penny stocks at a discount, before engaging in “illegal promotional activity and manipulative trading to artificially boost each issuer’s stock price and to then give the stock the appearance of active trading volume.” The accused would then “[dump] their shares into the inflated market”.
According to the SEC, the scheme left investors holding on to “virtually worthless stock”, with the regulator accusing the individuals and companies involved of “fleecing” unexpected investors.
The settlement brings to an end the investigation and enforcement action into O’Rourke and the other individuals and companies settling.
It comes as the latest reminder of the need for caution when investing in penny stocks or digital assets against a backdrop of growing levels of fraudulent activity and scams.
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