Commentary November 19, 2021 at 07:44 AM Share & Print
What You Need to Know
- The SEC accepted the former broker’s settlement offer and is now moving to bar him from the industry.
- The ex-broker also pleaded guilty to conspiracy to commit wire and securities fraud as part of a plea agreement in a separate DOJ action.
- He was accused of spreading or trading on false rumors, generating more than $374,000 in illicit profits.
The Securities and Exchange Commission has now barred the host of a stock trading webcast that it previously charged with securities fraud, alleging he spread more than 100 false rumors about public companies in order to generate illicit profits as part of a two-year pump-and-dump scheme.
Since the SEC charged former broker Mark Melnick, 41, of Marlboro, New Jersey, a judgment was entered by consent against him on Nov. 5, permanently enjoining him from future securities violations, it said.
In anticipation of the institution of these proceedings, Melnick submitted an offer of settlement that the SEC said it decided to accept.
In an order instituting administrative proceedings that was filed on Thursday, the SEC said that, as a result of Melnick’s actions, it is “appropriate and in the public interest to impose the sanctions agreed to” in Melnick’s offer.
The SEC, therefore, ordered that Melnick be barred from association with any broker, dealer, investment advisor, municipal securities dealer, municipal advisor, transfer agent or nationally recognized statistical rating organization. The SEC also barred him from participating in any offering of a penny stock.
“Any reapplication for association by the Respondent will be subject to the applicable laws and regulations governing the reentry process, and reentry may be conditioned upon a number of factors,” including, but not limited to, any funds he must return to his victims, the SEC said.
Ex-Broker Spread False Stock Rumors
According to the SEC’s original complaint, filed Sept. 30 in the Northern District of Georgia in Atlanta, Melnick received advance notice of companies about which another scheme participant planned to spread false rumors, and then shared those firms’ names with subscribers to his online trading room.
Melnick allegedly told subscribers that he had taken positions in the companies whose stock he was trying to push, while other scheme participants also spread the false rumors via real-time financial news services, financial chat rooms and message boards. The false rumors caused the prices of the companies’ securities to rise temporarily, according to the SEC.
Between January 2018 and January 2020, Melnick allegedly spread or traded around the false rumors more than 100 times, generating more than $374,000 in illicit profits. The other scheme participants also traded around the false rumors, generating significant profits, according to the SEC.
The agreement also required Melnick to pay disgorgement of $374,835 plus prejudgment interest and a civil penalty in an amount to be determined later, the SEC said, adding that its investigation is ongoing.
The SEC previously charged Barton Ross in connection with the same scheme, filing a complaint against Ross on Dec. 18 in the same court. Like Melnick, Ross is a former registered broker.
Parallel DOJ Action
In a parallel action, the Justice Department filed charges against Melnick over the same scheme in the same court on Sept. 10, alleging he was guilty of conspiracy to commit wire fraud and securities fraud.
Just as Ross did last year after DOJ charged him, Melnick pleaded guilty to conspiracy to commit wire and securities fraud as part of a plea agreement on Sept. 17, court documents show.
As part of the agreement, Melnick will receive a maximum prison term of five years, with up to three years of supervised release. He will also pay a maximum fine of $250,000, along with full restitution to all his victims and a mandatory special assessment of $100, all due and payable immediately.
Melnick was ordered to appear in court on Dec. 16 at 9:30 a.m. for sentencing, court documents show.
(Pictured: SEC headquarters in Washington; Photographer: Andrew Harrer/Bloomberg)