Posted in Business Start Ups, Corporate Law
Bob Marley is the world’s most recognized reggae superstar even 34 years after his death. His socially conscious music touched people across the globe and we can only imagine what he might think of his family name being associated with possible shareholder fraud.
The former chief executive of Jammin’ Java Corporation, which sells Marley Coffee, Shane Whittle been charged by the Securities and Exchange Commission (SEC) with fraud in November, according to the Los Angeles Times. Whittle is accused of running a “pump-and-dump” stock scheme that resulted in $78 million in illegal trading profits.
A “pump-and-dump” scheme, according to the SEC, normally involves positive and false publicity about the stock and the company which can drive up the number of people buying the stock, increasing its price.
- False claims are often made on social media, internet bulletin boards and chat rooms. People are urged to buy the stock early then sell it before the price drops. The party making the statements often claims to have inside information about some future development or skills in picking stocks.
- Those “pumping” the stock price often are actually company insiders or people paid to promote the stock and/or they will profit by selling their shares due to increased interest in the stock created by bogus claims.
- Once those involved in the scheme “dump” their shares and the hype stops, the price drops and investors find they’ve invested in a company worth much less than they believed.
The SEC claims that Whittle and eight outside accomplices illegally profited by secretly controlling of millions of shares, inflating their value then selling them to unsuspecting investors.
- The group is accused of creating a company that appeared to be a financial backer and making promotional announcements that increased the share price.
- The listed accomplices (none employed by the company) engaged in promotional activities, including allegedly publishing false stock reports and engaging in illegal stock transactions through offshore holding companies.
The SEC claims these acts happened in 2010 and 2011, the company was founded in 2008. The stock price peaked at $6.35 in May 2011 (giving the company a value of more than $400 million) at a time when the revenue in 2010 was $1,037. Soon after the price peaked, defendants sold their shares and the price plummeted to less than $1 a share. Marley coffer continues to be sold, though last year it lost $10.3 million on $9.6 million in revenue.
The company was co-founded with Marley’s son Rohan Marley in Los Angeles. Rohan Marley is not charged in the SEC complaint. The company has since moved to Denver. The lawsuit was filed in federal court in California.
The SEC has suggestions on how to avoid being a victim in this kind of fraud.
- Small, thinly traded companies are often used because it’s easier to manipulate such a stock because there’s little or no information available about the company.
- If you see an offer to sell stock on the Internet assume it’s not legitimate until you can prove its worth through your own independent research.
- A stock sold over the counter is more risky because it hasn’t met the listing requirements of a nationally recognized stock exchange.
- Carefully read the prospectus or current financial statements. Look on the SEC’s EDGAR database to determine if the investment is registered with the agency. Smaller companies need not register their offerings with the SEC so you should check with the state securities regulator as well.
- Beware of high pressure sales tactics and claims about an “opportunity” and you might miss a “once in a lifetime opportunity” unless you act quickly.pa
If you believe you may be the victim of a “pump and dump” stock manipulation scheme, contact our office so we can talk about what’s going on and the applicable laws.
