SEC Takes Action Over 'Pump And Dump' Scheme

by Glen Shapiro, LawAndTax-News.com, New York

16 April 2007

The US Securities and Exchange Commission last week announced the institution of administrative and cease-and-desist proceedings against the Park Financial Group, Inc. and its principal, Gordon Cantley.

The SEC's Division of Enforcement alleged that Park and Cantley aided and abetted and caused a pump-and-dump scheme involving the securities of Spear & Jackson, Inc., and additionally failed to file Suspicious Activity Reports (SARs) reporting suspicious transactions, in violation of the firm's record-keeping obligations.

The Commission has already obtained injunctive relief against Dennis P. Crowley, the former chief executive officer of Spear & Jackson, for violations of the antifraud, registration and reporting provisions of the federal securities laws in connection with his role in the pump-and-dump scheme.

The SEC Order revealed that between February 2002 and July 2003, Park, a registered broker-dealer with a disciplinary history, and Cantley executed numerous trades in Spear & Jackson stock, despite obvious red flags, for three companies located in the British Virgin Islands (BVI Companies), which Crowley secretly controlled.

Specifically, on several occasions, Crowley gave Park and Cantley sell orders for the BVI Companies' accounts. Park and Cantley filled these orders even though each of these foreign-based accounts, which were rare for Park, required the written approval of at least two authorized individuals before any transaction could occur, and Crowley was not an authorized signatory.

Moreover, Park and Cantley executed Crowley's trades knowing that he was the chief executive officer of Spear & Jackson and that the BVI Companies' accounts traded exclusively in Spear & Jackson stock, often buying and selling shares on a daily basis. Park and Cantley also knew that the BVI Companies were transferring large amounts of Spear & Jackson stock to a stock promoter, which was actively promoting Spear & Jackson, and Spear & Jackson's stock price was sharply increasing.

During the relevant time period, Park and Cantley executed more than 200 trades in Spear & Jackson stock for the BVI Companies' accounts, which generated approximately $2.5 million in proceeds.

Linda Chatman Thomsen, Director of the SEC's Division of Enforcement, stated that:

"The Commission's examination program has for several years highlighted the importance of anti-money laundering procedures. A broker-dealer should not be surprised that its failure to file required SARs would lead to an enforcement action."

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