Anatomy of the FLD

[scion]

The Commission’s complaint alleged, among other things, that during 2010, Williams perpetrated a fraudulent scalping scheme involving the stock of Green Oasis Environmental, Inc. (“Green Oasis”). As part of the fraudulent scheme, Williams told the USHPF that he would apply a trading strategy, called a “Float Lock Down,” while trading for the benefit of the Fund. According to Williams’ Float Lock Down strategy, certain market participants, specifically market makers, routinely engaged in “naked short selling” of penny stock companies – i.e., selling short stocks without having arranged to borrow the stock needed to cover their short position. Williams claimed that by purchasing all the outstanding shares of a company (the “float”) whose stock the market makers had sold short, they could create a “short squeeze” that would force the market makers to eventually cover their short position at prices dictated by those who had accumulated the float. In fact, the purported Float Lock Down strategy was simply a pretext for Williams to drive up the share price of a stock so that he could sell his personal holdings of the stock at higher prices.

From July 7, 2010 through August 11, 2010, as the investment adviser to the USHPF, Williams purchased over 2.6 million shares of Green Oasis stock for the Fund. Green Oasis’ share price, which had been trading at around $0.24 per share for several days, rose to $0.31 per share by the close of trading on July 7, 2010. Williams continued to purchase additional shares for the USHPF through August 11, 2010, and the share price rose to over $0.72 per share, often trading well above $0.60 per share. As the Green Oasis share price rose, Williams sold his personal holdings of Green Oasis stock for $78,844, realizing profits of approximately $36,000. Williams never disclosed to the USHPF, its trustee, or investors in the Fund, that he was selling his personal holdings of Green Oasis stock while simultaneously purchasing large amounts of Green Oasis stock for the USHPF. As a result, Williams defrauded the USHPF, its trustee, and investors in the Fund.

Extract -
http://www.sec.gov/litigation/admin/2014/ia-3781.pdf