When it comes to penny stocks, the importance of knowing with whom you’re doing business was brought home recently when the Securities and Exchange Commission charged E-Lionheart Associates LLC and the firm’s owner, Edward Bronson, with selling unregistered securities to the public. All securities that are offered or sold to the public in the U.S. must be registered by filing a registration statement with the SEC. Among other things, registration helps give prospective investors access to important information that could affect their investment decisions, such as, in this case, information about recently issued new shares.
Specifically, the complaint filed by the SEC says that E-Lionheart personnel systematically cold-called various penny stock companies and asked if they were interested in obtaining capital. If the company was interested, E-Lionheart personnel would offer to buy stock in the company, but at a rate that was deeply discounted from the current trading price. Once the purchase was completed, E-Lionheart and Bronson would immediately begin reselling the shares to the investing public through a broker. The final sales price to the public was approximately double the purchase price, and eventually generated, according to the complaint, more than $10 million in unlawful profits, involving shares from roughly 100 penny stock companies.
Bronson and E-Lionheart purported to rely on an exemption from registration under Rule 504(b)(1)(iii) of Regulation D, which exempts transactions that are in compliance with certain types of state law exemptions. However, no such state law exemptions were applicable to these transactions.
The complaint charges E-Lionheart and Bronson with violations of the registration provisions of the federal securities laws, and seeks disgorgement of more than $10 million in ill-gotten gains, penalties. The SEC also seeks penny stock bars against E-Lionheart and Bronson. In addition, the complaint names Fairhills Capital Inc., another entity owned and controlled by Bronson, as a relief defendant for the purpose of recovering the illegal proceeds it received.
For additional information on the case, visit http://dtg.fm/eIl6
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