SEC Charges Individual and Businesses for Unlawfully Engaging in Convertible Notes Business

The SEC charged an individual and his businesses for failing to register as a dealer in connection with "convertible notes businesses."

According to the SEC's Complaint, filed in the United States District Court, Southern District of New York, the individual and his companies engaged in the business of purchasing convertible securities from penny stock issuers, converting those securities into common stock at a large discount from the prevailing market price and selling the newly issued shares into the market for a profit. The SEC alleged that the individual and his companies purchased nearly 2,000 convertible securities from about 325 microcap stock issuers, converted the securities into more than 100 billion newly-issued shares of common stock, sold the newly issued shares into the market and generated millions of dollars in revenues and profits. As alleged, the individual and his companies were not registered as dealers with the SEC or associated with a registered broker-dealer, as their activities required them to do.

The SEC charged the individual and his companies with violating Exchange Act Section 15(a)(1) ("Registration and regulation of brokers and dealers") and also alleges the individual is liable as a control person of his companies pursuant to Exchange Act Section 20(a) ("Liability of controlling persons and persons who aid and abet violations").

The SEC is seeking (i) a permanent injunction, (ii) disgorgement of ill-gotten gains plus prejudgment interest, (iii) civil penalties, (iv) a penny stock bar and (iv) other equitable relief.