Securities Law Blog

A Canadian couple and the two companies they controlled have been charged with four counts of fraud for using their Penny Stock Chaser Web site and social media sites to tout penny stocks. The Securities and Exchange Commission (SEC) filed its complaint against Carol McKeown and Daniel F. Ryan on June 29, 2010 in the U.S. District Court for the Southern District of Florida. Although the couple resides in Canada the SEC is pursuing the case in Florida because many of the trades were made in Boca Raton.

The complaint states that McKeown and Ryan allegedly used their web site www.pennystockchaser.com to invite investors to sign up for daily stock alerts through email, text messages, Facebook and Twitter. The couple residing in Montreal, Canada allegedly used all modern methods to promote a half-dozen companies’ stocks, while failing to properly disclose to investors that they were regularly selling shares in those same companies, in a process known as “scalping”, according to the SEC.

The SEC stated in its complaint that the statement on the Penny Stock Chaser website was insufficient disclosure because of the “massive” and regular quantities of stock the couple sold. The statement from the website said that Penny Chaser Stock “may be selling shares of stock at the same time the profile is being disseminated to potential investors; this should be viewed as a definite conflict of interest and as such, the reader should take this into consideration.”

Penny Stock Chaser began peddling the stocks of at least 65 American companies in the spring of 2009. The couple allegedly used two entities they controlled, Meadow Vista Financial and Downshire Capital to sell those same stocks. Six of the companies mentioned in the complaint that Penny Chaser fraudulently touted are Converge Global, Biocentric Energy Holdings, Bluewave Group, Avro Energy, Atlantic Wind & Solar, and MSE-Enviro-Tech. The SEC alleges that the scalping scheme related to these companies alone netted the pair at least $2.4 million in profit.

According to the SEC, the scheme prospered as a result of McKeown and Ryan buying shares of stocks they would then tout. The penny stocks would go up as a result of investor demand, and the couple would then allegedly sell their shares and receive their profit.

The Penny Stock Chaser operation caught the eye of regulators when shares in General Motors inexplicably kept rising despite their filing for bankruptcy and splitting itself into two companies in 2009.

The SEC is charging McKeown, Ryan, Downshire Capital Inc. and Meadow Vista Financial Corp. with violating federal securities laws. The regulator seeks disgorgement of ill-gotten gains plus prejudgment interest and the imposition of a financial penalty, penny stock bars against the individuals and the repatriation of assets to the United States.