SEC cracks down on Spear & Jackson pump-and-dump scheme

The SEC has begun administrative and cease-and-desist proceedings against the company and its principal. It has already obtained injunctive relief against Dennis Crowley, the former chief executive officer of Spear & Jackson, for violations of the anti-fraud, registration and reporting provisions of the federal securities laws in connection with his role in the pump-and-dump scheme in 2005.

A pump-and-dump scheme, also known as hype and dump manipulation, involves the touting of a company's stock through false and misleading statements to the market-place. After pumping the stock, fraudsters make huge profits by selling their cheap stock into the market.

The cease-and-desist order alleges 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 authorised individuals before any transaction could occur, and Crowley was not an authorised signatory.

Moreover, Park and Cantley executed Crowley's trades knowing 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.

Park also failed to report suspicious transactions in Spear & Jackson stock by filing SARs with the Financial Crimes Enforcement Network, as required by regulations implementing the Bank Secrecy Act.