In mid-2017, Cardinal reportedly lost control of its interest in two oil-and-gas leases that accounted for nearly all (approximately 90%) of the company’s revenue, according to the SEC’s complaint. However, according to the SEC complaint, instead of revealing these issues, Cardinal and Crawford filed quarterly reports with the SEC that misrepresented to investors that the leases were still expected to be part of the company’s future business plans.

During this period, while allegedly concealing the setback to the business, Cardinal also allegedly raised additional money from investors, misreported stock ownership, and failed to make the required disclosures that its Crawford had sold millions of shares of Cardinal stock.

Cardinal is what is sometimes referred to as a penny stock- a publicly traded company with a low stock price per share and low market capitalization. Penny stocks, also known as microcap stocks, in general have a history of involvement with fraud and market manipulation. Penny stocks are securities issued by a small company that trade for less than $5/share. Penny stocks are always a risky investment, as there may not be enough publicly available information concerning the companies for investors to make a proper investment (due to their relatively small nature and most likely new status), and the stocks often trade in a relatively illiquid market. Penny stocks in general have historically been subject of manipulation scheme such as so-called “pump and dumps.”

Cardinal was formed in 2014 for the purpose of purchasing, developing, and operating oil and gas leases. Cardinal touts itself as an environmentally responsible oil and gas company focused on “reclaiming the vast, remaining reserves from our Nation’s producing oil fields.” The company trades over-the-counter under the ticker “CEGX” and had a last reported price of $0.0009 a share.

Brokerage firms have a duty to ensure that their business activities surrounding speculative low-priced securities are conducted in accordance with a reasonable compliance system which includes specific written supervisory procedures. Further, any recommendation by a financial advisor to invest in a speculative penny stock must conform to NASD Rule 2310 and FINRA Rule 2111 – the so-called suitability rule – which is premised on the brokerage firm and financial advisor obtaining information about the customer in order to ascertain that investor’s profile, including the investor’s age, other investments, financial situation and needs, tax status, investment experience and risk tolerance. In instances when brokerage firms fail to adequately supervise their registered representatives, they may be held liable for losses sustained by investors.

Investors in speculative microcap and nanocap securities may have arbitration claims to be pursued before FINRA, in the event that the recommendation to invest lacked a reasonable basis, or if the nature of the investment, including its risk components, was misrepresented to the investor. Both FINRA and the SEC have issued ample guidance with regard to the numerous risks associated with investing in speculative microcap (or “penny”) stocks, including the potential for fraudulent schemes and market manipulation due to the lack of public information concerning the companies’ underlying business and management, as well as verifiable financials.

Attorneys at Law Office of Christopher J. Gray, P.C. have successfully resolved many cases on behalf of investors who have sustained investment losses, including losses associated with fraud and manipulation, microcap stocks and unsuitable investment recommendations. Investors who wish to discuss a possible claim may contact a securities arbitration attorney at Law Office of Christopher J. Gray, P.C. via the contact form on this website, by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation.

Investors in speculative microcap and nanocap securities may have arbitration claims to be pursued before FINRA, in the event that the recommendation to invest lacked a reasonable basis, or if the nature of the investment, including its risk components, was misrepresented to the investor. Both FINRA and the SEC have issued ample guidance with regard to the numerous risks associated with investing in speculative microcap (or “penny”) stocks, including the potential for fraudulent schemes and market manipulation due to the lack of public information concerning the companies’ underlying business and management, as well as verifiable financials.

In certain instances, broker-dealers who transact business in the penny stock arena may expose themselves to regulatory scrutiny and related liability. For example, Aegis Capital Corp. (“Aegis”) (CRD# 15007) has come under considerable regulatory scrutiny by both the SEC and FINRA with respect to its activities concerning low-priced securities transactions. Formed in 1984 and headquartered in New York, New York, Aegis is a mid-sized, full service retail and institutional broker-dealer. As of March 2017, Aegis employed approximately 415 brokers in its sixteen branches, with the bulk of its workforce centered in New York City and Melville, NY.

According to FINRA BrokerCheck, Aegis’ regulatory history includes a total of thirty (30) disclosure events, a number of which involve penny stocks. For instance, in August 2015, Aegis entered into a settlement with FINRA, pursuant to which the broker-dealer agreed to pay $950,000 in sanctions over allegations of improper sales of unregistered shares of penny stocks, as well as certain AML violations. In connection with that regulatory event, two of Aegis’ compliance officers were suspended for 30 and 60 days, and ordered to pay fines of $5,000 and $10,000, respectively. On March 28, 2018, the SEC imposed a cease-and-desist order (“Order”) against Aegis for its alleged supervisory failures concerning penny stocks. Further, the SEC penalized Aegis $750,000 after the brokerage firm admitted that it failed to file required suspicious activity reports (“SAR’s”) on numerous penny stock transactions from “at least late 2012 through early 2014.”

In early 2014, Aegis acted as the underwriter to an IPO for stock priced at $5.50 in Akers Biosciences, Inc. (“Akers”). Akers (Nasdaq: AKER), headquartered in Thorofare, NJ, “[d]evelops, manufactures, and supplies rapid screening and testing products designed to deliver healthcare information to healthcare providers and consumers in the United States, the People’s Republic of China, and internationally.” As recently reported, on May 21, 2018, Akers filed a 8-K with the SEC, disclosing that “the Company has been reviewing the characterization of certain revenue recognition items for the quarter ended March 31, 2018.”

Following Akers’ May 21 disclosure with the SEC, its share price fell over 8% to $0.59 per share on May 22, 2018. Shortly thereafter, on May 29, 2018, Akers issued a press release indicating that “Raymond F. Akers Jr., Ph.D has resigned as a director of the Company…” As a result of this news release, shares of Akers fell another 33% in value to close trading at $0.39 per share on May 29, 2018.

On June 5, 2018, Akers filed another 8-K with the SEC, in response to a letter received from Mr. Akers’ attorney. This June 8^th 8-K characterized the previous 8-K as “false” and “totally misleading” and further, disclosed that Mr. Akers was purportedly acting as a whistleblower and had apparently refused to approve the annual 10-K for 2017. Following this disclosure, class action litigation was initiated against Akers and certain of its officers, alleging that during the class period (May 15, 2017 through June 5, 2018, inclusive), acquirers of AKER shares were damaged due to alleged “false and materially misleading statements regarding the Company’s business, operational and compliance policies.”

Brokerage firms including Aegis have a duty to ensure that their business activities surrounding speculative low-priced securities are conducted in accordance with a reasonable compliance system which includes specific written supervisory procedures. Further, any recommendation by a financial advisor to invest in a speculative penny stock must conform to NASD Rule 2310 and FINRA Rule 2111 – the so-called suitability rule – which is premised on the brokerage firm and financial advisor obtaining information about the customer in order to ascertain that investor’s profile, including the investor’s age, other investments, financial situation and needs, tax status, investment experience and risk tolerance. In instances when brokerage firms fail to adequately supervise their registered representatives, they may be held liable for losses sustained by investors.

Attorneys at Law Office of Christopher J. Gray, P.C. have significant experience resolving disputes on behalf of investors, including losses sustained due to instances of fraudulent conduct, market manipulation, and unsuitable investment recommendations. Investors may contact a securities attorney by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation.

On March 27, 2018, the Securities and Exchange Commission (“SEC”) announced formal charges against Wedbush Securities Inc. (“Wedbush”, CRD# 877) with respect to allegations that the broker-dealer failed to supervise its employee, Ms. Timary Delorme (f/k/a Timary Koller) (“Delorme”). Based on its investigation, the SEC alleged Wedbush ignored numerous red flags indicating that Ms. Delorme — who has been affiliated with Wedbush as a registered representative since 1981 — was purportedly involved in a manipulative penny stock trading scheme with Izak Zirk Englebrecht, a/k/a Zirk De Maison “(“Englebrecht”).

As alleged by the SEC, Mr. Englebrecht engaged in manipulative trading, commonly referred to as “pump and dumps”, through the use of various thinly traded microcap penny stocks. According to the SEC’s allegations, Ms. Delorme purchased stocks at Englebrecht’s behest in certain customer accounts, and in turn received undisclosed material benefits. Moreover, the SEC’s findings suggest that Wedbush ignored numerous red flags associated with Ms. Delorme’s alleged involvement in the scheme, including a customer email outlining her involvement, as well as several FINRA arbitrations regarding her penny stock trading activity.

In response to the red flags, Wedbush purportedly conducted two investigations into Ms. Delorme’s conduct. The SEC has characterized Wedbush’s investigation as “flawed and insufficient”, and that ultimately the brokerage firm failed to take appropriate action to address the alleged misconduct. The SEC’s order instituting administrative proceedings against Wedbush charges that the broker-dealer failed to reasonably supervise its broker, Ms. Delorme. The matter will come before an administrative law judge, who will hear the case and prepare an initial decision — there have not yet been any findings of misconduct.

Founded in 1955, Los Angeles based Wedbush formed its brokerage unit in July 1966. As of June 2017, Wedbush’s Wealth Management Group provides various wealth management services through approximately 400 financial advisors located in roughly 100 offices nationwide. Brokerage firms like Wedbush have a duty to ensure that their registered representatives are adequately supervised. Brokerage firms must also take reasonable steps to ensure that their financial advisors follow all applicable securities rules and regulations, in addition to internal policies and procedures. In instances when brokerage firms fail to adequately supervise their registered representatives, they may be held liable for losses sustained by investors.

Both the SEC and FINRA have issued ample guidance concerning trading in penny stocks, which is generally regarded as a risky proposition due to a host of factors, including the lack of transparency as to information about the investment, including financials. In addition, penny stocks, due in part to their characteristic low-price and low-volume, are particularly susceptible to fraudulent activity such as pump and dump schemes by unscrupulous stock manipulators.

Attorneys at Law Office of Christopher J. Gray, P.C. have handled a number of disputes on behalf of investors, including losses sustained due to instances of alleged fraudulent conduct and market manipulation. Investors may contact a securities arbitration attorney by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation.