Blotter

Pump and Dump Shut Down:

A U.S. District Court in Florida ruled in January against two individuals accused of running a penny-stock manipulation scheme that netted more than $25 million in profits. The SEC had brought the case against David Oehmke of Kalamazoo, Mich., and Bryan Kos of Montreal, Quebec, in February 2005. In the suit, the SEC alleged that the two men created phony demand for two pink-sheet stocks — Concorde America and Absolute Health — through fraudulent methods, including hiring stock promoters to send out fake press releases, mass emails and automatic voice-mail messages. The bogus claims stated the stock price was expected to jump from $3 to $30 within the year. And while both stocks were virtually worthless at that time, through diligent “pumping,” the men inflated the price of the shares in both companies more than twofold.

Between June and December 2004, the two men promoted and dumped the shares, Oehmke netting more than $20 million from the sale of his shares and Kos netting more than $6 million. The illicit profits were then sent to offshore accounts under other names, according to the SEC's complaint. The final judgment against the men is comparably insignificant: Oehmke will pay roughly $1.4 million in total fines and Kos will pay approximately $650,000. Both men are barred from participating in pink-sheet or unregistered stock offerings.

Those Pesky Emails Again:

The North American Securities Administrators Association (NASAA) is reviewing the $15 million settlement that Morgan Stanley struck with the association, as well as the SEC and the NYSE in May regarding the firm's role in the 2003 stock-research and investment-banking scandal. The firm paid $15 million in May 2006 for its part in the scandal, which implicated 10 firms and resulted in $1.4 billion in total fines.

During initial investigations into conflicts of interest between the research and investment-banking units, Morgan Stanley failed to provide requested emails from the time period under investigation, insisting that it did not have them. Since then Morgan Stanley has uncovered millions of emails from that time and admitted that others had been destroyed.

Joe Borg, president of NASAA, has stated in published reports that he is seeking more information from the SEC and Morgan Stanley about those emails and may pursue another settlement or file charges if the emails are deemed relevant to the initial investigation. Morgan Stanley believes the matter has been settled but is cooperating with regulators.