Orchestrator of Microcap Fraud Scheme Barred from Penny Stock Offerings
This week, the orchestrator of a microcap fraud scheme who defrauded investors by directing the issuance of false press releases about the microcap company’s prospects and hiding his secret control of the company has been barred by a federal court from participating in penny stock offerings and ordered to pay an $80,000 penalty.
In October 2017, the SEC charged John Madsen with masterminding a pump-and-dump scheme involving Nevada-based penny stock company, Andalusian Resorts and Spas, Inc. and with recruiting a strawman CEO, Bernard Fried, to conceal Madsen’s secret control of the issuer and his prior guilty plea to mail fraud. Fried, who pled guilty in a parallel criminal case, settled the SEC’s charges by consenting to the entry of a final judgment on January 11, 2018, which enjoined him from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, barred him from serving as an officer or director of public companies or from participating in penny stock offerings, and ordered him to disgorge $3,311 in ill-gotten gains plus interest. The SEC obtained a default judgment against Andalusian on May 10, 2018 that enjoined it from violating the antifraud provisions of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
On March 12, 2018, Madsen agreed to the entry of a judgment that enjoined him from violating the antifraud provisions of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, barred him from participating in penny stock offerings, and provided that the court would determine whether to impose a civil penalty based on the SEC’s motion. The court entered a final judgment on October 17, 2018 that imposed an $80,000 penalty. The court’s entry of judgment against Madsen concludes the SEC’s litigation.
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