SEC fines Global Sentry $375,000 (U.S.)
2011-09-09 13:50 ET - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
Also Street Wire (U-CNEX) Cannon Exploration Inc
Also Street Wire (U-IMGR) Infinity Medical Group Inc
by Mike Caswell
The U.S. Securities and Exchange Commission has levied a $375,000 administrative penalty against Global Sentry Equity Transfer Inc., a Mississauga transfer agent, for record-keeping failures related to three pink sheets pump-and-dumps. (All figures are in U.S. dollars.) The SEC claimed that Global Sentry issued stock certificates for free-trading shares in three companies to Christopher Wheeler, a New York man. Mr. Wheeler then sold the shares as part of a $2.95-million pump-and-dump scheme, the regulator said.
In addition to levying the $375,000 fine, the SEC has revoked Global Sentry's registration as a transfer agent. It has also entered an order barring future violations of the U.S. Securities Act.
The case against Global Sentry came one month after the SEC launched a civil suit against Mr. Wheeler and his on-line touting service, OTCStockExchange.com. The regulator said he secretly sold shares of four pink sheets companies while he touted them on his site. The stocks he sold included two Toronto-based listings, Cannon Exploration Inc. and Infinity Medical Group Inc.
The penalty against Global Sentry, which stems from a series of record-keeping violations, is contained in a three-page order handed down by Administrative Law Judge Carol Foelak on Sept. 8, 2011. Judge Foelak found that the firm issued stock certificates to Mr. Wheeler in 2008 for 3.5 million free-trading shares, and then failed to keep the cancelled certificates and other required records. Transfer agents must keep such records for six years. The firm also refused a subsequent on-site examination by the SEC.
As Global Sentry did not respond to the case, the judge adopted the SEC's allegations as fact. She said it was necessary for the protection of investors to revoke the firm's registration. The judge gave Global Sentry 21 days to pay its fine.
SEC's complaint against Wheeler
While the SEC has now secured a fine for Global Sentry, the regulator is still pursuing Mr. Wheeler in court. That case began on Jan. 14, 2011, when the SEC filed a civil complaint against him and his company, OTCStockExchange, in the Southern District of New York. According to the complaint, he promoted four pink sheets companies by predicting lofty prices that had no basis in reality.
One of the promotions the complaint described was that of Cannon Exploration, a company that was exploring for gold in Ontario. On May 1, 2008, Mr. Wheeler received one million shares of Cannon as payment for promotional work. Two weeks later, his website recommended the stock as a buy and predicted it would hit $10. He sold 774,000 shares in the following four months, making $1.3-million, according to the SEC.
He carried out a similar promotion in July, 2007, with Infinity Medical Group, the SEC said. With that company, he received 1.3 million free-trading shares in June and August, 2007. He then recommended the stock as a buy and predicted it would hit $18. According to the SEC, he sold 380,000 shares into the ensuing demand, making $1-million. The stock, which was at $1.20 before the promotion, last traded at 0.01 cent.
The SEC said that Mr. Wheeler's website failed to disclose that he would be selling the stocks he was promoting. It only had a general disclaimer, which stated that OTCStockExchange "may make purchases or sales in such securities featured on [its] website." The other two stocks listed in the complaint were Solei Systems Inc. and China Jiangsu. According to the SEC, Mr. Wheeler made $254,000 and $56,000 selling shares of those two companies.
The complaint sought appropriate civil penalties, disgorgement of ill-gotten gains and a permanent penny stock ban. In filing the case, the SEC acknowledged the assistance of the RCMP and the Ontario Securities Commission.
Mr. Wheeler has not filed an answer to the case. He is seeking to have it stayed while the government completes a criminal investigation into his conduct. As he sees it, he may have to plead the Fifth Amendment in the SEC case in order to protect himself in any criminal case. Making such a plea, however, could result in an adverse finding in the SEC case. A hearing for the matter is set for Sept. 29.
In addition to his troubles with the SEC, Mr. Wheeler is facing an asset forfeiture case, in which the government is seeking possession of his New York home and several high-end vehicles as the proceeds of illegal pump-and-dumps. The vehicles include a 2003 Ferrari Modena 360, a 2007 BMW M6 and a 2008 Hummer H2. Mr. Wheeler has not yet answered that case.
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