Source: Securities and Exchange Commission
The Securities and Exchange Commission today announced a settled enforcement action against attorney Kenneth M. Christison of Mill Valley, Calif., for facilitating a multi-million dollar fraud by issuing a series of bogus legal opinion letters used by fraudsters in spam-fueled pump-and-dump schemes.
"Today's action demonstrates that even after we stop those who profit from fraudulent schemes, we continue to pursue other individuals, especially attorneys and other gatekeepers who are enablers behind the scenes," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "Christison's connivance set the stage for swindlers to carry out an egregious fraud against investors."
Cheryl Scarboro, Associate Director of the SEC's Division of Enforcement, added, "Christison's opinion letters not only caused registration violations, but were an essential part of the scheme to get purportedly 'free trading' shares into the hands of fraudsters intent on using spam to fuel pump-and-dump schemes."
The SEC previously brought and settled charges in September 2007 against Arizona-based traders Michael Paloma and Lawrence Kaplan in an elaborate market manipulation scheme that involved unlawfully taking public seven microcap companies, inflating their share prices, and dumping millions of shares into the public market. They touted the companies' shares and netted nearly $3 million in ill-gotten gains by disseminating millions of false or misleading blast faxes and spam e-mails. The duo also has pleaded guilty in federal court in Alexandria, Va., to charges of securities fraud, and face sentencing later this year.
The Commission alleges that on four occasions between May 1 and Nov. 30, 2004, Paloma hired Christison to issue opinion of counsel letters warranting that certain offerings of securities were exempt from the registration provisions of the federal securities laws and that there were no restrictions on resale of the securities sold in those offerings. According to the Commission, in each instance, Christison knew or should have known that his opinion letter would contribute to Paloma's unregistered public distribution of securities through non-exempt transactions. The Commission further alleged that Christison, in fact, possessed documents and other information signaling Paloma's intent to conduct unlawful distributions by ultimately selling these securities into the public marketplace.
Without admitting or denying the accusations, Christison consented to the entry of an order directing him to cease and desist from committing or causing violations of Sections 5(a) and 5(c), the registration provisions, of the Securities Act of 1933.
The Commission has sought to combat fraud in the microcap realm by suing lawyers responsible for issuing opinion letters such as Christison's, which not only cause registration violations, but enable fraudsters to profit by dumping purportedly unrestricted shares into spam e-mail and blast fax-fueled artificial markets. See SEC v. Integrated Services Group Inc., James L. Rowton and David M. Loev, Civ. Action No. 4:05CV04071 (S.D. Tex., final judgment entered Nov. 29, 2005) (attorney Loev consented to entry of an order permanently enjoining him from violating the Securities Act's registration provisions and directing him to disgorge over $25,000 in profits and pay a $25,000 civil penalty); and SEC v. Peter W. Fisher, N. Tyler Fisher, David B. Stocker, Phillip W. Offill, Jr., and Collective Thought Holdings, Inc., Civ. Action No. 2:07CV12552 (E.D. Mich., filed June 14, 2007).
The Commission acknowledges the assistance of the Federal Bureau of Investigation, the U.S. Attorney's Office for the Eastern District of Virginia, the U.S. Postal Inspection Service, and the Financial Industry Regulatory Authority (FINRA).