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5 charged after FBI sting to catch manipulators of penny stocks

The FBI has used stings to nab corrupt politicians, suspected terrorists and military suppliers willing to pay bribes. On Thursday, the government said it had mounted another in a series of undercover operations to catch manipulators of penny stocks.

Five men were charged in criminal indictments and named in SEC enforcement actions, the government said.

The case highlighted the risks of penny stocks, which are easily manipulated because they trade so thinly and for extremely low prices -- sometimes fractions of a cent. Often, the companies behind the stocks give investors little if any solid information about their financial performance.

In one of the cases the government announced Thursday, Douglas Newton, the chief executive of a California company called Real American Brands, allegedly paid kickbacks so that a pension fund trustee would buy more than 6 million shares of the company’s stock. The trustee was actually a creation of the FBI, and a purported associate of the trustee who helped arrange the deal was an undercover agent, the SEC said.

It appears that shares of the company’s stock last traded earlier this month for four hundredths of a cent, according OTC Markets, which runs a quotation system for penny stocks.

Newton could not be reached for comment, and a lawyer who previously represented him declined to comment.

In a separate case, a federal judge in Florida ordered two penny stock promoters to pay more than $20 million in fines and disgorgement of ill-gotten gains, the SEC said Thursday.



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