Recent Events Portray Importance of Conducting Proper Due Diligence Prior to Investing in Securities

Recently, the Securities and Exchange Commission (“SEC”) charged a penny stock promoter, David F. Bahr of Rancho Santa Fe, California, with fraudulently arranging the purchase of over $2.5million worth of shares in a penny stock company in an attempt to generate the false appearance of market interest and induce other investors to purchase stock.  In doing so, Mr. Bahr allegedly violated Section 17(a)(1) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  According to the claim, Mr. Bahr conspired with a purported business man with access to a network of “corrupt brokers” to artificially increase the trading price and volume of the company. In a twist worthy of Hollywood however, this businessman was actually an undercover FBI agent, who was gathering evidence against Mr. Bahr, and prevented the execution of the fraudulent plan.

The case against Mr. Bahr came on the heels of letters issued last week by the SEC and the Financial Industry Regulatory Authority (“FINRA”), warning investors about a sharp increase in e-mail linked “pump-and-dump” schemes.  In such schemes, sham promoters profit by selling their shares of a stock after that stock price has been “pumped” up by a buying frenzy which is artificially created through a mass e-mail push.  Once the fraudulent parties “dump” their shares, they stop hyping the stock, and those investors who were lured into buying are left with worthless, or near worthless, stock.

These are simply two recent examples of how one may be duped into purchasing equity ownership in companies under false pretenses.  It is vital that proper due diligence is conducted prior to purchasing any ownership interests.  Investment strategies and policies should be developed to filter these types of equities prior to investing.

For further information on this, or other related topics, please contact us at info@jackolg.com or (619) 298-2880. 

Advertisements

Leave a comment

Filed under Investment Advisers

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s