Penny Stocks: Fines, Jail Time From Alberta Regulator For ‘Pump-And-Dump’ Operators

An Albertan man, Joseph Gaetano Bucci, who is the CEO of Coastal Pacific Mining Corp (USOTC: CPMCF), pleaded guilty to “acting as a dealer of securities without registration, not filing a prospectus, and engaging in a course of conduct that resulted in a false appearance of trading activity and an artificial price,” for a penny stock issued by the company according to the Calgary Herald.

The penny stock pump-and-dump charges are reported to be the first handed down by the Alberta Securities Commission to result in a jail sentence.

Coastal Pacific Mining stock traded as high a $0.82 in late 2010. On Friday, the shares were quoted at $0.0006. That’s a 99.93 percent loss for shareholders.

Canadian penny stocks. [Stock Chart Courtesy of Venngage]A 2010 press release stated that funds raised from a penny stock offering at the time were to be used “on the Santa Rita property exploration,” according to Reuters.

The penny stock manipulation Bucci is accused of being part of was helped by “individuals in Vancouver.”

All penny stock pump-and-dump scams need people to buy into them. The group that Joseph Bucci is alleged to have been a part of was described as using an “online promotional campaign.”

Online promotional stock campaigns can include lots of things: e-mails, websites, apps, tweets, Facebook posts, banner ads, and just about anything else. Groups looking to create a wave of buying, or to bring a “bid” into a stock, may use a combination of various techniques. Jordan Belfort, the so-called “Wolf of Wall Street,” did jail time for similar criminal acts, as reported by the Inquisitr.

More recently, the Albertan securities regulator handed down $100,000 fines to three Canadians: Dylan Leslie Boyle, Benjamin Thompson Kirk, and John Bruce Kirk who controlled Skymark Research, Liberty Analytics, and the Emerging Stock Report.

The trio was reported to use “e-mail and telephone promotion” in “pump-and-dump” scams, according to the Calgary Herald.

Pump-and-dump operators can only work in stocks that are small enough, and thinly traded enough, that they can control prices, keeping them artificially high while selling shares to unsuspecting marks, then selling personal holdings, and holdings of other perpetrators, and forcing the price down.

Almost all suspect penny stocks trade over-the-counter (OTC) in the United States. There are several examples of suspect penny stocks that trade on the TSX Venture exchange as well, many of which also trade U.S. OTC.

Penny stock: Northern Gold Mining. [Stock Chart Courtesy of Venngage]Northern Gold Mining (TSXV: NGM, USOTC: NTGMF) is an example of a stock that is traded on both exchanges and has had several share offerings. Yet, its stock has gone nowhere but down. Shares of Northern Gold Mining are down about 97.5 percent over the past five years. In 2014, for example, the company issued 28.4 million shares at $0.05 each, which it discusses in a press release. The shares are now quoted at $0.01 and were as high as $0.60 in early 2011. That anyone would have been interested in the 28.4 million 2014 share offering seems questionable.

Further, Northern Gold Mining has had similar offerings placed with Joe Dwek and the now defunct MineralFields, as reported by MarketWired. Also in 2014, Dwek agreed to pay $200,000 in a settlement with the Ontario Securities Commission for alleged “deficiencies and compliance issues, including inadequate supervision of personal trading, inappropriate personal trading, and insufficient supervision,” according to Investment Executive.

Even though Northern Gold publishes press releases, as reported by Yahoo! Finance, regarding work that it actually appears to do, the company loses $0.01 per share and investors appear to want nothing to do with their penny stock.

Interestingly, Northern Gold penny stock has also been featured in research published by Quality Stocks. The Quality Stocks client list features several OTC penny stock names with shares down significantly in value over a five-year period. A name that seems fairly representative from the list is Giggles N’ Hugs, Inc. (USOTC: GIGL). The stock is down 95.7 percent over the last five years. About the same amount, coincidentally, as Northern Gold Mining.

How can investors protect themselves from penny stock scams? Keeping in mind the wisdom, “If it sounds too good to be true, it probably is,” given by Investopedia, is probably a good idea.

Sometimes though, penny stock scammers appear to be offering legitimate online research. How can investors tell the difference between real research and promotional research? According to William O’Neil, founder and chairman of Investor’s Business Daily, most investors should generally avoid stocks priced less than $15 per share, like penny stocks, reports Stock Trader.

Though there are no guarantees in investing, sticking to shares listed on the New York Stock Exchange and NASDAQ, that are priced at least $15, goes a long way towards ensuring that investors are out of the arena of “pump-and-dump” operators; simply because the market at that level is just too big.

Three excellent books about investing by people who have never traded in penny stocks (for the most part) include: Beating the Street by Peter Lynch, How To Make Money in Stocks by William O’Neil, and The Warren Buffett Way by Robert Hagstrom. Most big companies that Americans are familiar with, including Facebook, Inc. (NASDAQ: FB); Apple Inc. (NASDAQ: AAPL); Microsoft Corporation (NASDAQ: MSFT); Wal-Mart Stores Inc.(NYSE: WMT); The Home Depot, Inc. (NYSE: HD); and many others, never traded as penny stocks. They all brought stock public at a price greater than $15 per share.

The Dow Jones Industrial Average (^DJI) averaged just under 10 percent a year for the last 40 years. Any promoter who states that they can significantly outperform this average could be viewed with skepticism.

[Feature Photo by Tim Boyle/Getty Images]