Aug 5 U.S. authorities on Tuesday charged four stock promoters with civil fraud for manipulating the securities of marijuana-related and other microcap companies, and three were hit with criminal charges over their trades in a penny stock.
The U.S. Securities and Exchange Commission said Mikhail Galas, Alexander Hawatmeh, Christopher Mrowca and Tovy Pustovit made more than $2.5 million by buying six thinly traded stocks and then artificially driving up their prices through a so-called "pump-and-dump" scheme.
It said the defendants, all in their early- to mid-20s, conducted "matched" offsetting trades to create an appearance of growing demand and promoted the stocks with "blast" emails through websites such as Explosive Alerts and moneyrunnersgroup.com.
The SEC said two of the stocks were GrowLife Inc, which has said it provides soil, nutrients and other products to help cultivate plant-based medicines, and Hemp Inc, which has said it focuses on the industrial hemp industry but does not cultivate or market medical cannabis.
Galas, Hawatmeh and Mrowca were also charged criminally by the U.S. Department of Justice with conspiracy to commit securities fraud and conspiracy to launder monetary instruments in connection with one of the non-marijuana-related stocks, ISM International Inc.
Lawyers for the defendants could not immediately be located.
GrowLife and Hemp are not defendants in either case.
Galas, of Vancouver, Washington; Hawatmeh, of Salem, Oregon; and Mrowca, of Bradenton, Florida, have been arrested and are in federal custody, according to a spokeswoman for U.S. Attorney Jenny Durkan in Seattle, who announced the criminal charges.
Pustovit also lives in Vancouver, the SEC said.
In May, the SEC warned investors about possible scams involving marijuana-related investments, saying fraudsters often try to exploit new growth industries by manipulating stocks.
The cases are U.S. v. Mrowca et al, U.S. District Court, Western District of Washington, No. 14-mj-05172; and SEC v. Galas et al in the same court, No. 14-05621. (Reporting by Jonathan Stempel in New York; Editing by Dan Grebler)