The Securities and Exchange Commission today charged the executive chairman of a Massachusetts-based medical diagnostics company and two others with conducting a pump-and-dump scheme that was ultimately thwarted when the SEC suspended trading in the company’s securities before the secretly controlled shares could be dumped on unsuspecting investors.
The SEC alleges that Edward Withrow III became chairman of the new board of directors at Endeavor Power Corp. in late 2012 after a penny stock company he controlled merged with another controlled by Marco Babini, a Canadian citizen. Withrow and Babini schemed with Samuel Brown, a stock promoter in Idaho, to use Endeavor Power as a vehicle for shaping and carrying out their pump-and-dump scheme.
“We allege that Withrow exploited his executive position to facilitate an elaborate pump-and-dump scheme with Babini and Brown,” said Paul G. Levenson, Director of the SEC’s Boston Regional Office. “The SEC is always on the lookout for penny stock company officers and directors attempting to manipulate company stock to line their own pockets, and we will continue working closely with our law enforcement partners to detect and punish such misconduct.”
In a parallel action, the U.S. Attorney’s Office for the District of Massachusetts announced criminal charges against Withrow and Babini. Brown previously pled guilty to charges that included making false statements to the SEC during its investigation.
According to the SEC’s complaint filed in federal court in Boston:
- Withrow and Babini used a Swiss trustee and foreign accounts to conceal their control over approximately 40 million shares of Endeavor Power stock, which they planned to dump into the market after hiring others to send blast e-mails touting the company.
- Prior to promoting the stock, Babini and Brown engaged in manipulative trading to artificially inflate or “walk up” Endeavor Power’s share price from 7 cents to 25 cents.
- Once the misleading touting campaign was underway, Babini attempted to lure additional investors by arranging to have his trades essentially reported twice in order to greatly exaggerate the demand for Endeavor Power’s stock being reported to the public.
- Before most of the covertly owned shares could be sold into the market, the SEC suspended trading in Endeavor Power’s securities on March 8, 2013, due to concerns about the accuracy of assertions in the company’s public filings and press releases.
The SEC’s complaint charges Withrow, Babini, and Brown with violating the antifraud provisions of the federal securities laws and related rules. Withrow also is charged with failing to file the requisite reports with the SEC disclosing his ownership of Endeavor Power stock. The SEC seeks a final judgment ordering Withrow, Babini, and Brown to pay disgorgement of ill-gotten gains plus prejudgment interest and penalties. The SEC also is seeking permanent injunctive relief, penny stock bars against all three men, and an officer-and-director bar against Withrow.
The SEC’s investigation was conducted by Andrew J. Palid and Mark Albers of the Boston Regional Office and supervised by Michele T. Perillo. The SEC’s litigation will be led by Martin F. Healey. SEC attorney Eric A. Forni has been appointed a Special Assistant U.S. Attorney in the parallel criminal case. The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Massachusetts, Federal Bureau of Investigation, and Financial Industry Regulatory Authority.