On July 9, the Securities and Exchange Commission settled with two stock promoters accused of reaping $2.5 million in illicit profits by manipulating stocks of medical marijuana microcap companies. According to the proposed judgments filed in the US District Court for the Western District of Washington, defendants Alexander Hawatmeh and Christopher Mrowca each consented to a permanent bar from participating in penny stock offerings and to a permanent restraint from further violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, Section 9(a)(1) of the Exchange Act and Section 17(a) of the Securities Act. The SEC brought criminal and civil charges against Mr. Hawatmeh, Mr. Mrowca and two other stock promoters in August 2014, alleging that they engaged in a pump-and-dump scheme and used manipulative trading tactics, such as wash trading, and matched orders to artificially inflate the stock prices of certain thinly traded microcap companies. The SEC alleged that the scheme created the illusion of an active market in the stocks, which the defendants used to aggressively promote the stocks through social media and websites under their control. According to the complaint, the defendants misled potential investors that the stock price would rise substantially, knowing that two of the target companies had no business operations and no news suggested that the stock price of the other companies would significantly increase. The SEC alleged that the defendants sold their shares and reaped more than $2.5 million in profits, and the stocks subsequently collapsed and resulted in losses to investors. Earlier this year, Mr. Hawatmeh and Mr. Mrowca were sentenced to five and three years in prison, respectively, for their participation in the scheme. Under the proposed judgments, Mr. Hawatmeh and Mr. Mrowca are liable for disgorgement of approximately $2.1 million and $306,000 in illicit profits, respectively.

SEC v. Mikhail Galas et al., No. 3:14-cv-05621 (W.D. Wash.)