SEC Charges Nine Individuals and Companies for Roles in Microcap Scheme
On March 11, 2019, the Securities and Exchange Commission announced charges against nine individuals and companies in a multi-million dollar stock distribution and market manipulation scheme involving two microcap companies, NanoTech Entertainment, Inc. and NanoTech Gaming, Inc.
The SEC’s complaint alleges that David R. Foley, the founder of the NanoTech companies, orchestrated a scheme to manipulate trading in their stock and perpetrated some aspects of the scheme while serving out a prison sentence in two unrelated cases. As part of the scheme, Foley allegedly hired Bennie L. Blankenship, who promoted the NanoTech companies on Twitter, YouTube, and to an investor group he cultivated on social media, and engaged in manipulative trading with Foley. Foley also allegedly prepared false quarterly financial statements for the NanoTech companies.
According to the SEC’s complaint, from February 2014 through October 2016, Foley acquired more than a billion shares of the NanoTech companies’ stock through the conversion of notes issued to himself, and then sold the stock to River North Equity LLC, a securities trading company, in a series of unregistered transactions. River North and its president, Edward M. Liceaga, then allegedly sold these shares to the public. Michael A. Chavez, a River North employee, acted as an unregistered broker for these sales. David Foley’s wife, Lisa, completed over half of the sales of stock to River North, with the assistance of Jeffrey Foley, David’s brother, and Chavez. David and Lisa Foley funneled some of their profits from these stock sales back to the NanoTech companies.
The SEC’s complaint, filed in federal district court in Chicago, charges River North, Liceaga, David Foley, Lisa Foley, Jeff Foley, Blankenship, NTEK and NTGL with violating the registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933. The complaint also charges River North, Liceaga, and Chavez with violating the broker-dealer registration provisions of Section 15(a) of the Securities Exchange Act of 1934 and David Foley and Blankenship with violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of Exchange Act and Rule 10b-5 thereunder. The complaint seeks equitable and monetary relief.
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