SEC Goes After Microcap Stock Scams; 82 Firms, People Accused

Securities regulators on Tuesday accused 82 people and companies of carrying out a series of microcap stock scams, which allegedly earned them more than $12 million in illicit profits.

Tuesday’s crackdown, in which the Securities and Exchange Commission filed 26 complaints and other enforcement actions across the country, targeted a broad array of people--from promoters who touted the stocks to boiler room-style brokerages to accountants and lawyers who allegedly filed bogus documents.

Whether regulators will collect on any court judgments they win remains to be seen. The SEC has collected about 50% of the judgments and penalties it has imposed in the last 10 years.

The SEC said the sweep marks its second major offensive against fraud in microcap stocks, which are low-priced, thinly traded issues. Richard H. Walker, SEC enforcement chief, said the market for microcap stocks “is too vital to our nation’s small businesses to allow it to be spoiled by a corrupt few.”

In one Los Angeles case, regulators accused 15 people and companies of a classic “pump-and-dump” scheme, in which the defendants allegedly propped up their stock with fraudulent trades and false promotions on the Internet, then sold it at inflated prices, reaping more than $1 million.

The SEC said Edward A. Durante and Burton G. Vishno--both of whom have been convicted previously of fraud or related felonies--worked with other promoters to corner the market on shares of Los Angeles-based PSA Inc. and manipulated the price by matching buy and sell orders.

At one point, the stock soared from about 50 cents a share to $5 in less than two weeks, the SEC said.

When the defendants prepared to then dump the stock, SEC attorney Michael Dicke said, Durante and others set up an unregistered broker-dealer (in the same building) called First New Haven to market the shares and hired a San Diego promoter to hawk them on the Internet.

Lawyers for Durante and Vishno did not return phone calls Tuesday.

PSA Inc. is not named as a defendant in the case.

In another case filed in Los Angeles federal court, the SEC accused a Newport Beach couple of insider trading, falsifying financial documents and looting the assets of American Telephone & Data Inc., a publicly traded Costa Mesa telecommunications company.

The complaint says William Posnett Lynas III and Janeen Hauxhurst-Lynas misappropriated at least $900,000 to fund such personal expenses as a $46,000 GMC Suburban and vacations in Hawaii, New York and Europe. Regulators said the couple also made $400,000 selling stock in the company, which they controlled, without disclosing their phony accounting practices. The Lynases could not be reached for comment.

SEC officials also accused Irvine brokerage Del Mar Financial Services of fraudulent schemes involving shares in Comparator Systems Corp., a maker of fingerprint identification systems.

Times staff writers P.J. Huffstutter and E. Scott Reckard contributed to this report.