The U.S. Securities and Exchange Commission -- Canada's toughest securities regulator -- has ordered West Vancouver promoter Brent Pierce to disgorge $2,043,362 in illicit trading profits from his junior public company, Lexington Resources Inc.
Pierce sold the shares through his private company, International Market Trend AG, which had received large blocks of stock for providing administrative and consulting services to Lexington.
IMT is registered in Switzerland, but run out of offices in Blaine, Wash., a border town that is populated with crooked penny stock players and facilitators.
SEC enforcement staff also wanted Pierce to disgorge an additional $7,557,985 in allegedly illicit trading profits that he generated by selling Lexington stock through two other private companies, Jenirob Company Ltd. and Newport Capital Corp.
Carol Fox Foelak, the administrative law judge who presided over the hearing in Seattle in February, agreed those shares had also been illegally sold, but denied the request because they weren't included in the SEC's original allegations.
Still, it gives you an idea of how much money these promoters generate from such penny stock "pump and dump" schemes that are set up in Vancouver and trade on the OTC Bulletin Board in the U.S. -- and rarely, if ever, prosecuted by local authorities.
I first wrote about Lexington in June 2006, when it was being touted on CKNW radio's Market Matters program, hosted by financial commentator Michael Levy.
I noted the company was infested with penny stock players who had regulatory or criminal records, most notably Pierce, whom I described as "a key player -- perhaps the central player."
In 1993, the B.C. Securities Commission had banned Pierce from the B.C. securities market for 15 years after he admitted to diverting proceeds of the initial public offering of a Vancouver Stock Exchange company.
Despite his suspension, he never went anywhere. He simply moved his deals to the bulletin board, which local regulators ignored. One of those deals was Lexington.
Last July, the SEC filed a complaint in Seattle alleging that Lexington's president, Grant Atkins -- who has partnered with Pierce in many of these fly-by-night promotions -- issued more than five million Lexington shares to Pierce and his associates, who then commenced a massive spam and newsletter campaign.
Lexington's share price more than doubled to $7.50 US, allowing Pierce and his associates to dump their stock and make millions of dollars.
The shares later slumped to two cents and the company went into bankruptcy and has since been liquidated.
This is the "pump and dump" pattern of many other Pierce/Atkins bulletin board promotions, including Uranium Energy, Morgan Creek Energy, GeneMax, Geneva Gold and most recently, CellCyte Genetics.
It has been a lucrative business for Pierce and his wife, Dana. In November 2006, Dana bought a Vancouver condo for $6.2 million. And in August 2007, the couple acquired a waterfront home in West Vancouver for $10.4 million.
In the Lexington matter, the SEC alleged that Pierce and Atkins failed to register their stock sales, thereby "avoiding the public disclosures and other investor protections of the federal securities laws."
Although this sounds like a technical matter, it is not. It is the way that known stock offenders like Pierce disguise the fact that they are orchestrating the promotion, and sucking naïve investors into buying the very stock they are dumping into the market.
Last week, the presiding judge released her decision. She said Pierce's misconduct was "egregious and recurrent."
"As a control person making unregistered sales, he deprived the investing public of valuable information. He took measures to evade the beneficial ownership reporting requirements ... and ignored the reporting requirements ... for more than two years."
She ordered Pierce to disgorge more than $2 million in ill-gotten gains. Unfortunately, given the immense profits made from this chicanery, this is chump change for Pierce.
But there is hope yet. The judge noted that Pierce didn't attend the hearing in February because, according to his lawyer, he "is the target of a federal criminal investigation involving CellCyte Genetics and was concerned that he might be arrested if his whereabouts became known in the U.S. courthouse in Seattle, where the hearing was held and where the U.S. Attorney's office is located."
I think it is obvious that criminal action -- more particularly, jail time -- is the only thing that will put this predator out of business. And if it happens, it will be in the United States, where FBI and SEC officials stand on guard for thee.
dbaines@vancouversun.com