Investing and risk go hand-in-hand, especially with the limited information on microcaps. Therefore, detailed analysis and in-depth research are critical to making intelligent choices about these investments.
The wrong microcaps and poorly vetted resources can lead to measurable losses. The lowdown on the latest penny stock SEC violations reveals how far microcap madness can go and the importance of verified assessments.
All information was compiled from public records maintained by the SEC.
Microcap True or False
On Feb. 22, 2023, Alan A. Tucker, 59, of Thomasville, GA, entered an Offer of Settlement for an SEC Order. The regulator accused Tucker of signing and certifying materially false and misleading statements about a company in which he acquired a controlling shareholder interest, and posting opinion letters related to the reports signed by two attorneys.
The SEC determined Tucker violated federal securities laws early in 2021 after acquiring a controlling shareholder interest and being named sole officer and director of Enviro Impact Resources, then known as Industry Source Consulting (INSO).
INSO posts annual and quarterly disclosure statement reports through a public website maintained by OTC Markets Group. Under Tucker’s direction, the reports on the OTC site included financial statements he represented he prepared, signed, and certified. Tucker also directed INSO to post opinion letters related to the reports, signed by two attorneys.
In Feb. 2021, Tucker purchased one share of INSO Series A preferred stock from INSO’s sole officer, director, and controlling shareholder, constituting a controlling interest. The seller retained substantial shares of other INSO stock. Around Mar. 1, 2021, the seller resigned as INSO’s sole officer and director, and Tucker took over as sole officer and director, according to the SEC.
On or around Mar. 31, 2022, Tucker sold the Series A stock back to the seller and resigned as sole officer and director. The SEC found Tucker was not licensed as a Certified Public Accountant. INSO, a microcap public company based in Georgia, had a long corporate history releasing unaudited reports provided misleading information during these stock transfers, the SEC said.
The SEC order bars Tucker from any offering of a penny stock and requires him to pay a civil penalty of $75,000.
Rumor Has It in a Pump-and-Dump Scheme
On Feb. 16, 2023, the SEC charged Milan Vinod Patel of Cumming, GA, with spreading over 100 false rumors about public companies to generate more than $1 million in illicit trading profits. The SEC previously charged four others for their roles in this pump-and-dump scheme, including Barton Ross, Mark Melnick. Anthony Salandra, and Charles Parrino.
According to the SEC, from about Dec. 2017 to Jan. 2020, Patel received false rumors from these four individuals, such as corporate mergers or acquisitions of publicly-traded companies. He spread these rumors on message boards, chat rooms, and financial news services to his contacts. Patel also disseminated the rumors to Melnick, host of a stock trading webcast, who shared the rumors with his webcast subscribers.
As a result of these rumors, Patel could sell his holdings in the described securities and generate over $1 million. Joseph G. Sansone, Chief of the Enforcement Division’s Market Abuse Unit, said, “Out of the five individuals involved in this scheme, we allege that Patel played the central role of using his contacts to repeatedly spread the false rumors via the internet, generating more than $1 million in illicit trading profits.”
While the Patel charges are pending, the SEC has ruled against the other pump-and-dump participants. As a result, Patel is the last one left in the pump-and-dump scheme to face penalties, with the others paying disgorgements and barred from any offering of a penny stock.
These microcap cases reveal the importance of getting information from reliable sources. Depending on the wrong news sources and self-proclaimed experts can lead to serious losses.
Investing in the right penny stocks is a viable way to diversify. Stay tuned for more updates about when and how microcaps go awry.