Like many penny stock investors, some penny stock operators never learn from their mistakes. Count Richard A. Altomare among them.
Seven years after the Securities and Exchange Commission got a federal court order permanently barring Mr. Altomare from participating in penny stock offerings, the 65-year-old Boca Raton, Fla., resident is going to jail after being caught and convicted of doing just that.
His conviction is part of an ongoing SEC operation against the penny stock industry in southern Florida that has resulted in charges against 48 individuals and 25 companies since October 2010.
As described in court documents, the methods employed by Mr. Altomare, in the past and more recently, should give pause to investors eager to make a killing in cheap stocks that do not have a wide following.
But they probably won’t.
A decade ago, Mr. Altomare earned some ink here after issuing a press release in which he volunteered to be a psychologist for the SEC’s overworked staff. His magnanimous offer coincided with the agency’s investigation into the manipulation of shares of Universal Express, a habitually unprofitable New York enterprise that provided services to independently owned postal stores. Mr. Altomare was chairman, president and CEO of Universal.
The agency accused him of orchestrating a classic pump-and-dump scheme. Regulators said Universal illegally issued more than 500 million discounted shares of its stock to associates as well as press releases that included false information that drove up the price of the stock.
Once the share price was artificially inflated, the associates unloaded their shares. In addition to lying about financing, falsifying records and deceiving auditors, Mr. Altomare was accused by the SEC of diverting about $1 million that the associates paid for their discounted shares. The funds went to family members and personal accounts.
Mr. Altomare countered by accusing the SEC of violating his First Amendment rights. He alleged he was being pursued because he criticized the SEC over its failure to police naked short sellers, another bane of the penny stock industry. (Short sellers borrow shares of a stock they think is headed south, sell them, and profit if the stock falls. Naked short sellers cause problems because they don’t bother borrowing shares. They sell stock they don’t own.)
His protests notwithstanding, a March 2007 federal court order prohibited Mr. Altomare from participating in penny stock offerings, including working with anyone for the purpose of inducing or trying to induce someone to buy or sell penny stocks.
Nevertheless, court records indicate that, starting in January 2013, he took part in a scheme to manipulate the stock price of Sunset Brands, a Jacksonville, Fla., financial services consulting company currently trading for around $1 per share. What Mr. Altomare did not know was that the former associate he was working with was a paid informant for the FBI.
In court documents, the SEC and federal prosecutors say Mr. Altomare drafted a press release that outlined a supposed increase in the value of Sunset Brands assets.
He showed the release to the informant in March and asked the witness to buy 2,000 shares of Sunset Brands stock. He also promised to give the informant 70,000 more shares. He supplied the shares a week later after convincing Sunset Brands officials to issue them because he had a private investor who was interested in purchasing them.
A few days after the informant received the shares, the company issued a press release “substantially similar to the one Altomare provided to the cooperating witness,” according to court documents. Mr. Altomare hoped the favorable news would send Sunset Brands shares higher, allowing his accomplice to cash out and split his profits with Mr. Altomare.
Two FBI agents got multiple versions of what happened when they questioned Mr. Altomare two months later. Criminal charges were filed and Mr. Altomare was convicted in February on three charges of securities fraud and one count of mail fraud. He was sentenced to 37 months in prison, a sentence he is appealing.
In a related civil action filed in federal court in Miami last month, the SEC is seeking court orders directing Mr. Altomare to repay his ill-gotten gains and barring him from participating in penny stock offerings.
Even if he heeds the court order, there are others who will take Mr. Altomare’s place. After all, there is a ready pool of investors willing to follow these pied pipers and take a flyer based on unsubstantiated message board posts, seemingly impressive press releases, or stock tip sheets promoting allegedly breakthrough stocks.
There is also a ready inventory of material designed to convince these unthinking investors to take precautions. A good place to start can be found here: www.sec.gov/investor/pubs/microcapstock.htm.
As always, Mr. Altomare’s pending vacation notwithstanding, be careful out there.
Len Boselovic: 412-263-1941 or email@example.com