US Securities and Exchange Commission - VALIC

SEC Halts Microcap Fraud Scheme Orchestrated Through International Accounts

SECWashington D.C., Oct. 3, 2018 — The Securities and Exchange Commission has filed an emergency action and obtained an asset freeze against two individuals and their companies Microcap Fraud scheme that generated more than $165 million of illegal sales of stock in at least 50 microcap companies.  SEC investigators unraveled the multi-year scheme with the assistance of more than a dozen international regulators and sophisticated analysis of nearly 400 bank and brokerage accounts.

According to the SEC’s complaint unsealed today, U.K. citizen Roger Knox and his Swiss-based company Wintercap SA helped microcap securities holders evade federal securities laws that restrict sales by large shareholders.  The complaint charges that Knox and Wintercap, formerly Silverton SA, helped sellers conceal their stock ownership and provided anonymous access to brokerage accounts to sell the shares in the U.S. market.  For three specific issuers detailed in the complaint, Knox sold the stocks when their price and trading volume were inflated by promotional campaigns.  Michael T. Gastauer allegedly aided and abetted the fraud by establishing several U.S. corporations and allowing Knox to use their bank accounts to disburse the proceeds of his illegal stock sales.

Paul Levenson
Paul Levenson

“Investors can help protect themselves from microcap fraud by using the tools and resources on,” said Paul Levenson, Director of the SEC’s Boston Regional Office.  “The allegations here should put investors on guard that spikes in trading volume may be a mirage produced by insiders secretly dumping their shares.”

“Fraudsters must not be allowed to profit at the expense of retail investors by concealing the true nature of their interests and activities and trading through foreign countries,” added Raquel Fox, Director of the SEC’s Office of International Affairs.  “With the timely and robust assistance of our foreign counterparts, we acted quickly to secure illegal profits abroad with the goal of returning assets to investors.”

The SEC’s complaint, filed in federal district court in Boston, charges Knox and Wintercap with violating the antifraud and registration provisions of the federal securities laws and with acting as unregistered broker-dealers, and charges Gastauer and his entities with aiding and abetting Knox’s violations of the antifraud and registration provisions.  The complaint also names as relief defendants two family members of Gastauer and a U.K. entity Gastauer controlled.  In addition to the asset freeze and other temporary relief obtained yesterday, the SEC seeks permanent injunctions, disgorgement of allegedly ill-gotten gains plus interest, penalties, and penny stock bars.

In a parallel criminal case, the U.S. Attorney’s Office for the District of Massachusetts today announced criminal charges against Knox.

The SEC’s investigation was handled by Trevor Donelan, Jonathan Allen, Eric Forni, J. Lauchlan Wash, Rebecca Israel, David Scheffler, and Amy Gwiazda in the Boston Regional Office with assistance from Paul Hopker in the Miami Regional Office, Alex Lefferts in the Office of Market Intelligence, and staff in the Office of International Affairs and the Microcap Fraud Task Force.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Massachusetts, Federal Bureau of Investigation, Financial Industry Regulatory Authority, Argentinian Comisión Nacional de Valores, Alberta Securities Commission, British Columbia Securities Commission, Ontario Securities Commission, Royal Canadian Mounted Police, Cyprus Securities and Exchange Commission, Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), Hong Kong Securities and Futures Commission, Latvian Financial and Capital Market Commission, Malta Financial Services Authority, Mauritius Financial Services Commission, Mexican Comisión Nacional Bancaria y de Valores, New Zealand Financial Markets Authority, Panamanian Superintendencia del Mercado de Valores, Monetary Authority of Singapore, Dubai Financial Services Authority, UAE Securities and Commodities Authority, and Liechtenstein Financial Market Authority.