An attorney charged with penny stock fraud by the Securities and Exchange Commission earlier this year has now been indicted. The U.S. Attorney’s Office for the Eastern District of New York announced the criminal charges today.
The SEC’s complaint against Christopher K. Davies, filed April 18, alleges that he fraudulently controlled a penny stock company from behind the scenes and made false statements about its business plans and operations so he could illegally obtain millions of shares, which he planned to profit on by selling into the market. The SEC’s suspension of trading in the securities of the issuer in July 2016 effectively thwarted the defendant from dumping many of these shares on the market. Davies allegedly recruited a series of strawmen to serve as CEOs of American Transportation Holdings Inc. (ATHI), which was in fact a shell company with no operations. Meanwhile, according to the SEC’s complaint, Davies was behind the company’s frequent misleading statements about purported business ventures that ranged from home health care and gold trading to transportation services and game development. Davies also allegedly orchestrated a series of press releases in June and July 2016, falsely claiming that the company had entered into agreements with a National Indoor Football League. Following these press releases and a simultaneous promotional campaign, ATHI’s share price soared from under a penny to an intraday trading high of $12, causing the market capitalization of this empty shell company to reach nearly $3 billion.
According to the SEC’s complaint, Davies’ scheme included setting up fake email addresses and using forged documents to cause ATHI to issue stock to entities that he and his associates controlled. ATHI and Davies allegedly also misled a court in Florida to obtain approval for ATHI to issue shares to another company, which then sold the shares for over $100,000 and paid more than $37,000 to one of Davies’ companies. Over the course of his scheme, Davies caused ATHI to issue at least 271 million shares, potentially worth millions of dollars to entities he controlled.
The SEC’s investigation, which is continuing, is being conducted in the SEC’s New York office by Kristine Zaleskas, Ricky Tong and Michael Paley of the Microcap Fraud Task Force. The litigation is being led by Haimavathi Marlier and Ms. Zaleskas, and the case is being supervised by Sanjay Wadhwa. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of New York, the Federal Bureau of Investigation, the United States Postal Inspectors Service, and the Financial Industry Regulatory Authority.