The Securities and Exchange Commission said on Tuesday it has charged a penny stock trader for running a “pump-and-dump” scheme that promoted inaccurate information about the activities of a biotech company in relation to the coronavirus pandemic.
The SEC said that over the last three months, a California resident manipulated the share price of a company called Arrayit Corporation, generating over $137,000 from unlawful sales and leaving retail investors with virtually worthless stock.
The SEC named Jason C. Nielsen, saying he engaged in manipulative activity for claiming that Arrayit has developed an approved COVID-19 blood test. This was part of a wider wave of fraudulent promotions, including on social media, claiming that the products of mostly tiny companies can prevent, detect, or cure coronavirus, and that the stock of these companies will dramatically increase in value as a result.
As of May, the SEC has suspended nearly 30 companies from trading on Wall Street due to suspected coronavirus frauds.
But the full scope of potential securities fraud implicated by Jason Nielsen was far larger. In a parallel statement, the SEC said the defendant had place hundreds of buy or sell orders that he intended to cancel and not to execute at the time he placed the orders, a practice known as spoofing.
Spoofing, in general, is a practice in which a trader floods the market with fake orders by entering and quickly canceling large buy or sell orders on an exchange, in order to fool other traders into thinking that the market is poised to rise or fall.
The SEC has also released several warnings to investors to beware of fraud, illicit schemes and other misconduct during the pandemic.
Among the most prevalent scams attempting to take advantage of the coronavirus outbreak are fraudsters urging people to invest in new stocks related to the disease.
That’s according to U.S. regulators, including the SEC, which all released investor alerts in the past months warning Americans about an uptick in internet promotions claiming that stocks of certain companies will dramatically increase.
Another common scam is “pump and dump” schemes related to some penny stocks where fraudsters try to boost its price by sharing positive, but fake, information. In this case, they claim that a company managed to detect coronavirus cases or to develop a new cure to prevent the infection.