| NEW YORK, April 21
NEW YORK, April 21 The U.S. Securities and
Exchange Commission won a preliminary injunction against a
Montreal man it accused of running a penny stock fraud known as
"scalping," and who regulators say enjoyed a lifestyle of
multiple homes and expensive cars before he became a fugitive.
U.S. District Judge Paul Crotty in Manhattan on Monday
refused to disturb an asset freeze he had imposed on March 13
against the defendant John Babikian, and again ordered him to
account for his assets and respond to the SEC's allegations.
Babikian was 26 at the time of the freeze.
"The evidence establishes a strong likelihood that Babikian
committed securities fraud through the alleged pump and dump
scheme," Crotty wrote. "There is also a high risk that, unless
enjoined, Babikian may commit the alleged fraudulent acts again,
given his control of penny stock websites and his aptitude at
using anonymous email accounts, alter-ego front companies, and
mass email distribution systems."
Crotty also said that while "there is substance" to the
defendant's argument that the SEC had overreached by tying up
too many assets, the regulator's action could be justified on
Stanley Morris, a lawyer for Babikian, declined to comment.
In a court filing on Saturday, Babikian, through his
lawyers, declined to address some SEC claims, invoking his right
against self-incrimination under the U.S. Constitution.
Babikian was accused by the SEC of reaping an illegal $1.9
million profit by selling nearly 1.4 million shares of coal
mining company America West Resources Inc after his
emailed touts had boosted their price.
The SEC said Babikian sent the touts on Feb. 23, 2012, to
about 700,000 email addresses through the AwesomePennyStocks.com
and PennyStocksUniverse.com websites.
As other investors bought the stock and drove up the price,
he sold his holdings at an average price more than quadruple the
level where it had traded previously, the SEC said.
Among the assets subject to the freeze are two Los Angeles
homes, property in The Dalles, Oregon, which according to The
Oregonian newspaper Babikian hoped to develop as a vineyard, and
proceeds from the sale of a stake in an airplane.
The SEC has said Babikian left Canada in 2012 following tax
Revenu Québec, a tax authority, has said it had won a
judgment last year to recoup millions of dollars of back taxes
from Babikian, and frozen assets including a home in Laval,
Québec, a Bugatti Veyron, a Bentley Continental and a BMW X6.
America West is not a defendant in the SEC case and was not
accused of wrongdoing.
The case is SEC v. Babikian, U.S. District Court, Southern
District of New York, No. 14-01740.
(Reporting by Jonathan Stempel in New York; Editing by Mohammad