NEW YORK, Aug 7 (Reuters) - U.S. authorities are investigating whether a California man engaged in a series of improper pump-and-dump campaigns while secretly paying broker-dealers to trade the stocks he was promoting, according to court papers.
The probe was disclosed in a lawsuit the U.S. Securities and Exchange Commission filed on Thursday seeking to enforce a subpoena against Michael Forster, who the agency says runs multiple stock promotion websites.
Forster has resisted complying with the subpoena, the SEC said. In letters filed in the case as exhibits, Forster’s lawyer has cited his client’s right against self-incriminating himself, calling him the target of a related federal criminal probe.
A federal judge has scheduled a hearing on the SEC’s request to enforce the subpoena for Sept. 1, according to a court order filed Friday.
Forster’s lawyer, Charles Goldberg, declined comment. The SEC declined to comment on the investigation, and an FBI spokeswoman had no immediate comment.
U.S. authorities have been increasingly cracking down on pump-and-dump schemes, in which the prices of thinly-traded stocks are artificially inflated based on false or overly positive statements.
In court papers, the SEC said Forster, a resident of San Luis Obispo, California, owned a number of promotional websites, including openingbellreport.com, and operates through several corporate entities including one called SLO 3 Holdings LLC.
In its lawsuit, the SEC said it believes that Forster has been promoting the stock of various microcap companies in various pump-and-dump campaigns without accurately disclosing that those companies paid him to promote the stocks.
The SEC said it also is investigating whether Forster has been paying undisclosed compensation to broker-dealers to trade the stocks he is promoting.
Those firms include Monarch Bay Securities LLC, an El Segundo, California-based broker dealer founded in 2006 that advertises itself as assisting lower middle market private and public companies.
The SEC said it launched a formal investigation in January and subpoenaed Forster a month later, seeking among other things documents related to his communications with David Kavrell, a managing director at Monarch.
The SEC said it believes Forster maintains a brokerage account at Monarch in the name of his girlfriend and that he and Kavrell frequently communicated about trading penny stocks.
Keith Moore, Monarch’s chief executive, in an interview said he was not aware of the SEC investigation nor of its lawsuit and declined further comment.
Kavrell did not respond to requests for comment.
The case is Securities and Exchange Commission v. Forster, U.S. District Court, Southern District of New York, No. 15-mc-246. (Reporting by Nate Raymond in New York; Editing by Andrew Hay)
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