SEC Stops Penny Stock Scheme by NIT Enterprises

SEC Stops Penny Stock Scheme by NIT Enterprises

Dec 4, 2019

The Securities and Exchange Commission recently announced an emergency action to stop a South Florida-based penny stock investment fraud. This scheme affected over 100 retail investors nationwide and in Canada.  According to the recently unsealed SEC complaint Defendants NIT Enterprises, Inc., NIT’s CEO Gary R. Smith, Jason M. Ganton, and James E. Cleary, Jr., made misrepresentations in order to raise $4.9 million from investors. Many of the investment fraud victims were seniors. Defendants Ganton and Cleary were previously barred by the SEC from acting as brokers and offering penny stocks to investors. As alleged by the SEC in its complaint, NIT consists of three entities: NIT Delaware, NIT Enterprises, and NIT Florida, NIT’s principal place of business is in Palm Beach Gardens, Florida. Until March 2016, NIT Delaware was majority owned by a Florida public microcap issuer. The SEC complaint alleges that the defendants represented that NIT was raising money to fund the company’s development of radiation protection products for medical and military use, which would generate significant investment returns. Instead, according to the SEC’s complaint, Smith misappropriated $1.25 million or 25% of total investor proceeds to pay his personal expenses. The SEC also alleges that  NIT and Smith have paid 25% of the  proceeds as undisclosed commissions. The SEC’s complaint further alleges that the defendants falsely promised NIT’s future profitability and told investors that there would be a soon to come initial public offering (“IPO”). The Defendants allegedly told the investors that they  could “double or triple” their investment. Defendants Ganton and Cleary also allegedly concealed their regulatory disciplinary histories and prior SEC actions and bars, in part done through Ganton’s use of an alias name when soliciting investors. The SEC’s complaint charges all defendants with violating the anti-fraud and registration provisions of the federal securities laws and also charges the individual defendants for, either directly or indirectly, acting as unregistered broker-dealers and violating past Commission orders. According to the SEC, the term “penny stock” generally refers to a security issued by a small company that trades at less than $5 per share. Penny stocks generally are quoted over-the-counter, such as on the OTC Bulletin Board . Penny stocks may, however, also trade on securities exchanges, including foreign securities exchanges. Penny stocks may trade infrequently, which means that it may be difficult to sell penny stock shares once you own them creating a liquidity problem for investors who need access to their money. .Moreover, because it may be difficult to find price quotations for certain penny stocks, they may be difficult, or even impossible, to accurately price. For these, and other reasons, penny stocks are generally considered speculative investments. Because of their speculative nature, Congress prohibited broker-dealers from effecting transactions in penny stocks unless they comply with the requirements of Section 15(h) of the Securities Exchange Act of 1934 (“Exchange Act”) and the rules thereunder. These SEC rules provide, among other things, that a broker-dealer must (1) approve the customer for the specific penny stock transaction and receive from the customer a written agreement to the transaction; (2) furnish the customer a disclosure document describing the risks of investing in penny […]

Read more
Investment Fraud Attorneys

How Do You Select the Right Investment Fraud Attorney?

Nov 11, 2019

You have been the victim of investment fraud.  What do you do now?   Without question, your first order of business is to retain the services of an experienced, qualified attorney to handle your investment fraud matter.  Yet, having suffered loss at the hands of an investment “professional,” it is perfectly understandable that you may be a little reluctant to start wading through an endless choice of lawyers to prosecute an investment fraud case.  Indeed, it can be difficult to know who might be the best investment fraud lawyer for you under the circumstances. In this blog, we hope to assuage some of those fears. While selecting any type of attorney is always a subjective process that relies on your own judgment and preferences, we will discuss a few important tips to help you be better prepared to select the investment fraud attorney who is right for you. Tip #1 – Do Your Research, Avoid Snap Decisions There is a phrase that goes back to the children’s stories we all remember:  “Slow and steady wins the race.” Yes, to garner a little wisdom from the old Tortoise and the Hare story, faster is not always better.  More to the point, do not jump at the first attorney you meet. Take your time – slow and steady – to speak with several attorneys before making a decision. While that advice is good for the selection of an attorney in any field, it is vital when you are pursuing a case against a person who purported to be a “financial professional.”  That is because you need to find an attorney who is both seasoned in dealing with the complexity of investment fraud cases and is someone with whom you feel comfortable.   Accordingly, in the research phase, you want to start by getting some personal referrals.  Ask friends, colleagues, and neighbors for recommendations. You may be surprised that you will get the names of a few attorneys right away.    Then, check with state bar associations and, of course, do your online research to find the investment fraud attorneys in your area.   Once you have compiled a list of attorneys who you think would be able to help you, then move into the evaluation phase.  That is what the next series of tips is all about. Tip #2 – Experience, Experience, Experience The number one consideration in selecting an investment fraud attorney is – you guessed it – experience.  There are attorneys and firms that focus on a number of legal fields, and there are others that specialize in only one. It is very possible that a law firm with a more diverse practice could still effectively help you when acting as your investment fraud attorney.  Yet, all things being equal, you might be better off with an attorney who focuses solely on investment fraud matters. Why is that?  That is because a person laser-focused on investment fraud cases will have seen every possible fact pattern that could come up in an investment fraud case.  Thus, an attorney who has, so to speak, “seen it all,” will be that much better at knowing how […]

Read more

Boca Raton Based Summit Brokerage Services Fined For Broker’s Excessive Trading

Jul 5, 2019

Boca Raton Based Summit Brokerage Services Fined For Broker’s Excessive TradingFINRA announced this week that it fined Summit Brokerage Services, Inc. approximately $880,000 for supervisory failures, including about $558,000 in restitution to customers whose accounts were excessively traded by a former broker of the firm barred by FINRA. FINRA Press Release FINRA found that between January 2012 through March 2017, Summit, which had over 700 brokers, failed to review certain automated trade alerts used to identify excessive trading. One representative identified as “CJ,” was singled out by FINRA for excessively trading securities in the accounts of 14 customers. Most egregiously, FINRA found that CJ placed 533 trades for a retiree over a three-year period, causing her to pay more than $171,000 in commissions. FINRA also fined Summit for inadequate supervision of its brokers. Although CJ’s trading for 14 customers generated more than 150 alerts for potentially excessive trading,  FINRA found that Summit did not review them. Summit agreed to pay restitution to affected customers in the amount of the commissions they were charged as a result of the excessive trading in their accounts. FINRA previously barred CJ in a separate disciplinary action. In the  FINRA AWC   FINRA found that from June 2015 through March 2018, Summit failed to reasonably supervise its representatives’ use of “consolidated reports,” documents provided to customers summarizing the customer’s financial holdings, including assets held away from the firm. FINRA found that one such report sent by a registered representative of the firm to a customer materially misstated the value of the customer’s investment. FINRA Rule 2111 and its predecessor, NASD Rule 2310, require brokerage firms and their brokers to have a reasonable basis to believe that a recommended securities transaction is suitable in light of the customer’s investment profile. Recommended securities transactions may be unsuitable if, when taken together, they are excessive, the level of trading is inconsistent with the customer’s investment profile, and the registered representative exercises control over the customer’s account. No single test defines when trading is excessive, but factors such as the turnover rate and the cost-to-equity ratio are considered in determining whether a member firm or associated person has violated FINRA’s suitability rule. If you believe your brokerage account has been excessively traded or that unsuitable investments have been sold to you or a loved one, you may have a claim for damages. Please call us at 888-768-2499 or complete our contact form for a free consultation. Former Wall Street Attorney Melanie S. Cherdack represents investors in the United States and the Caribbean in claims against brokers and brokerage firms for wrongdoing.  

Read more