Earlier this month, seven people - including two California men - were arrested for their involvement in a massive penny stock fraud and advance fee scheme. Two other people have also been indicted for the $140 million scheme, but they remain at large.
The conspiracy involved scamming investors across the world in a "pump and dump" scheme. The prices of worthless penny stocks were allegedly pumped up by the defendants, and then dumped on unsuspecting investors. The defendants also allegedly ran fraudulent call centers, which were used to persuade investors to pay fees to sell their penny stock shares - in reality, the fees were collected and no services were provided.
As U.S. attorney Loretta E. Lynch has explained: "They cheated, lied, and swindled investors into buying billions of shares of worthless stock, then turned around and used a second scam to cheat those investors again."
The arrests culminate one of the largest ever international penny stock investigations performed by the FBI and the Department of Justice.
In total, the nine defendants are facing 24 counts of securities fraud, false personation of Internal Revenue Service employees and wire fraud.
The mastermind of the schemes is presumed to be hiding in Thailand, according to the U.S. attorney's office.
One of the California residents who has been arrested is accused of promoting the penny stocks through a public relations firm that he owned. The other California defendant allegedly purchased and sold penny stocks in order to manipulate the share price.
The FBI believes that investors were victimized in as many as 35 countries.
This case should remind California residents that if they lose money in an investment, market forces are not always to blame. In many cases, securities fraud or stockbroker malpractice is actually the root cause. When California residents are harmed by intentional securities fraud or malpractice, they are often entitled to compensation for their losses. It is important to seek legal counsel to learn how to seek justice and obtain compensation.
Source: www.fbi.gov, "Nine Individuals Indicted in One of the Largest International Penny Stock Frauds and Advance Fee Schemes in History," Aug. 13, 2013