View Full Version : Sometimes stocks go up for the wrong reasons

12-03-2005, 12:22 PM
Tiny Cameron
Takes Wild Ride
In Stock Market
SEC Starts Penny-Stock Probe,
Freezes U.S. Assets of Swiss Firm;
Mr. Wright Insists on Full Price
December 3, 2005; Page B1

In late August, an investor called his Merrill Lynch & Co. broker with a big order to buy stock in a tiny California marketing company called Cameron International, which had been trading over the summer for pennies a share.

The investor, a California-based accountant named Steven Wright, said he wanted to buy 10,000 shares at $1 apiece, regulatory officials say. The broker replied that he could get the shares cheaper, but in an unusual move, Mr. Wright allegedly insisted on paying a full dollar a share. Within 40 minutes, another investor placed 10,000 shares on the market, through another broker -- priced at 95 cents.

Thus began what federal regulators say could be the most spectacular rise of a small stock in history. Just a few weeks later, by early November, Cameron -- a minuscule company with just one client and virtually no revenue -- was trading for $90 a share. Mr. Wright's attorney didn't return calls for comment. A Merrill Lynch spokesman declined to comment.

The Securities and Exchange Commission suspended trading of the stock and began analyzing every single trade on the trajectory. What it found was a window into an old-fashioned penny-stock manipulation, one that had apparently gone better than even the alleged perpetrators had hoped.

On Friday, the SEC obtained an emergency court order freezing $1.4 million in assets in the U.S. brokerage account of the British Virgin Islands subsidiary of a Geneva, Switzerland, company called Socius Holdings Ltd. The SEC contended that these were ill-gotten gains from the scam. Hillary Richard, a lawyer representing Socius, declined to comment.

The emergency action by the SEC this week was brought in the U.S. District Court for the Southern District of New York.

The classic penny-stock scam is the "boiler room" operation, in which stockbrokers simply pitch shares in companies that are essentially bogus. In this case, a different type of scam was allegedly taking shape through maneuvers called "washed" and "matched" trades, according to the SEC.

A wash sale occurs when a shareholder buys or sells a stock, then essentially jumps to the other side of the trade through another broker. In a matched trade, a holder buys or sells, knowing full well that an accomplice is waiting to sell or buy on the other end at his price. By "washing" and "matching," the SEC alleges, shareholders of Cameron created the impression that the stock was independently rising -- otherwise known as manipulation.

Cameron International, a company with virtually no assets, began trading on the Over-the-Counter Bulletin Board, a stock-quote service run by Nasdaq, in January. But its stock, according to the SEC, didn't budge until July 11, when 10,000 shares were sold for five cents a share. It was relatively quiet again until Aug. 29 -- when the order came in from Mr. Wright, who is vice president of a Nevada-based company called International Solutions.

The SEC says the name was familiar to regulators. In 2003, the agency says it filed a lawsuit against Mr. Wright in the Northern District of Texas, Dallas, for running what it calls a "shell factory" -- a business that buys and sells shell companies, which are essentially dormant public firms that have little or no assets.

According to that complaint, which is pending, from 1998 to 2002, Mr. Wright manufactured and sold 18 public shell companies. According to the complaint, he would take control of all the stock of dormant companies, install officers and directors, and the companies would submit falsified documents to regulators, making them eligible on paper to trade on the OTC Bulletin Board. That scheme generated $7.5 million in ill-gotten profits, the SEC alleges.

Mr. Wright's order on Aug. 29 was filled with Cameron shares by Shawn Casius, president of a firm called Logics' Consulting, according to the SEC. A lawyer for Mr. Casius, who also is named in the complaint, didn't respond to requests for comment.

The SEC alleges Mr. Casius received the shares from Mr. Wright's stepson.

For two weeks, Cameron's stock sat. Then, a flurry of "washed" and "matched" trading continued -- among many of the same people, the SEC says. The stock inched up to $4.60 by the end of October.

Mr. Wright again approached his Merrill Lynch broker, this time with an unusual request: Would the broker route a $4.60 order to a specific trader at Tradition Asiel Securities Inc., a New York-based trading firm. "The broker advised Wright that he had never heard of such a request," the SEC alleged. Mr. Wright responded that he didn't want the shares to "fall into unfriendly hands." The broker, the SEC says, "quickly alerted his office manager to what he considered highly suspicious trading activity."

A representative of Tradition referred questions to the company's attorney, who didn't return a call.

The next day, the stock more than quadrupled to $20.05, as the director of Socius, Peter Jessop, and another affiliated investor allegedly bought and sold. An attorney for Mr. Jessop declined to comment.

"From November 1 to November 3, 2005, several other suspicious trades sustained Cameron's share price at levels above $70 per share," the SEC says. It finally hit $90, as it apparently began to ensnare people unaffiliated with the scam, the SEC alleges.

12-03-2005, 02:04 PM
Scary how gullible people are. Interesting article!


12-03-2005, 02:22 PM
thanks for the post, i remember seeing them when it happened and wondered what was going on behind the scenes. reminded me some of mtoh...


12-05-2005, 08:58 PM
wonder how often this happens in reverse to good companies...

its a sick game

12-10-2005, 11:55 PM
Basically never.

It only works on super low volume stocks. On stocks with lots of ownership, the price would quickly be brought to equilibrium.