SEC Charges Windsor Street Capital for Alleged Conduct in Pump-and-Dump Scheme

The SEC announced charges against New York-based brokerage firm Windsor Street Capital (CRD# 34171), formerly Meyers Associates, L.P., for gatekeeper failures related to a pump-and-dump scheme. John D. Telfer (CRD# 1099745) was also charged as chief compliance officer and anti-money laundering officer of Windsor Street Capital from November 2013 to his separation from the firm in September 2016.

According to the SEC complaint, Windsor Street Capital (“Windsor Street”) violated Section 5 of the Securities Act after it facilitated the unregistered sale of hundreds of millions of penny stock shares without performing adequate due diligence regarding the Section 5 compliance of the shares.

The penny stock companies were MedGen, Inc.; Alternaturals, Inc.; Manzo Pharmaceuticals, Inc.; and Solpower, Inc. According to the complaint, Windsor Street Capital failed to file suspicious activity reports for $24.8 million in suspicious transactions, including those occurring in accounts controlled by microcap stock financiers Raymond H. Barton and William G. Goode, who were separately charged.

According to the SEC complaint filed against Barton and Goode, Barton and Goode controlled the companies and made numerous false statements to bolster the companies’ stock price. Windsor Street Capital took the two alleged perpetrators at face value and facilitated the transactions, earning close $500,000 in commissions.

A pump-and-dump scheme is a form of micro- and small-cap stock fraud that involved artificially inflating the price of an owned stock through false and misleading positive statements in order to sell the cheaply purchased stock at a higher price. Traditionally, it’s a scheme that has been carried out through cold calling, but the internet has made its perpetration much easier and prevalent.

Micro- and small-cap stocks are easier to influence because, due to their small float, it does not take a lot of new buyers to push the stock higher.

The pump-and-dump scheme has been featured in mainstream media in the form of movies: “Boiler Room” and “The Wolf of Wall Street.” Both films featured a warehouse full of telemarketing brokers pitching penny stock. Leaders of the brokerage firms would incentivize the sale of those shares with high commissions and bonuses. Once the price of the stock was sufficiently high enough, the firms dumped their shares for a huge profit. This would then drive the stock down, leaving the unsuspecting the customers with huge losses.

This same scheme can be perpetrated simply by publishing press releases on the internet and using other forms of advertising that can reach many people with little effort and capital.

If you have invested with John D. Telfer, Meyers Associates, L.P., and/or Windsor Street Capital and have lost money doing so, you may be able to recover some or all of your losses. Our lawyers are experienced in recovering investor losses due to broker and brokerage firm misconduct through FINRA arbitration.

Silver Law Group represents the interests of investors who have been the victims of investment fraud. If you have questions about your legal rights, please contact Scott Silver of the Silver Law Group for a free consultation at ssilver@silverlaw.com or toll free at (800) 975-4345.