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SEC Continues to Crack Down on Microcap Stock Fraud

The Securities and Exchange Commission ("SEC") has just charged seven people, including Abraxas Discala, ex-husband of former "Sopranos" star Jamie-Lynn Sigler, for allegedly participating in a "pump-and-dump" scheme (also known as microcap stock fraud). This is the third charge the SEC has made this week against alleged microcap stock fraud.

A "pump-and-dump" scheme involves manipulating share prices to inaccurately high marks and then selling them to make a profit. Such schemes usually involve the heavy purchase of the "penny stocks" that are usually traded "Over-the-Counter," meaning in some way other than a formal exchange. This type of trading is regulated less than formal exchanges. There is usually limited information on these small public companies, oftentimes obscuring the real value of such companies and making it difficult to accurately assess the share price.

With CodeSmart Holdings Inc. ("CodeSmart"), Discala and his co-conspirators allegedly "flooded the market with shares over about six months in 2013. Shares of the company reached nearly $7 at one point before collapsing back to $2.19." Continuing to tout good news about the company and showing its riding stock price, they allegedly created the allusion that CodeSmart was a legitimately successful and growing company. Currently the company stock is trading for less than $0.01.

The conspirators, however, sold their stock at the inflated value, to profit by at least $3 million. In addition to CodeSmart, they also allegedly manipulated the share price of several other small market-cap companies that also left investors with huge losses after low demand caused share prices to plummet. The total scheme is said to be worth $300 million (http://www.nydailynews.com/new-york/nyc-crime/ex-husband-jamie-lynn-sigler-arrested-alleged-pump-dump-stock-scheme-article-1.1870350).

The SEC warns investors to be skeptical when investing in microcap company shares. If the news about a company and its potential seems too good to be true, there is likely cause for concern. The SEC recommends performing extensive research on the opportunity to verify stock promoters' claims and to be wary of pitches that promoters claims are only available for a limited amount of time. (http://www.sec.gov/rss/your_money/pump_and_dump.htm)

The SEC continues to investigate "pump-and-dump" schemes aggressively. The legal team at SFMS has a great deal of experience in litigating against such schemes and continues to work with the SEC to protect investors against microcap stock fraud.

Individuals with information regarding microcap stock fraud also should be mindful that, under the Dodd-Frank Wall Street Reform and Financial Protection Act, a whistleblower who knows of potential securities law violations can assist the SEC the receive a monetary award for reporting such information. The range for awards is between 10% and 30% of the money collected by the SEC if more than $1 million is recovered. SFMS attorneys have substantial experience representing clients in connection with Dodd-Frank whistleblower proceedings. http://www.sfmslaw.com/Qui-Tam-False-Claims-Whistleblower-and-Qui-Tam-Claims/Dodd-Frank-Whistleblower-Provisions.shtml.

If you have any questions regarding this subject or this posting, please contact James E. Miller (jmiller@sfmslaw.com), Rose F. Luzon (rluzon@sfmslaw.com) or Michael Ols (mols@sfmslaw.com). We can also be reached toll-free at (866) 540-5505.

Shepherd Finkelman Miller & Shah, LLP is a law firm with offices in California, Connecticut, Florida, New Jersey, New York, Pennsylvania and Wisconsin. SFMS also maintains an affiliate office in London, England, and is an active member of Integrated Advisory Group (http://www.iaginternational.org), which provides the firm with the ability to provide our clients with access to excellent legal and accounting resources throughout the globe.

Sources:

http://www.law360.com/securities/articles/558553?nl_pk=b06bd97f-0a36-43ef-ada3-0037e9bf1d58&utm_source=newsletter&utm_medium=email&utm_campaign=securities

http://www.law.cornell.edu/wex/investor_protection_guide_micro-cap_stock_fraud_pump_and_dump

http://www.sec.gov/investor/pubs/microcapstock.htm#WhatIf

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