Two Houston-area residents have been sentenced for their role in a $40 million ‘Pump and Dump’ securities fraud. John Brotherton of League City was sentenced to 60 months while Charles Grob received a sentence of 12 months.
Brotherton and Grob were also ordered to forfeit $1.9 million and $242,907 respectively, and serve three years of supervised release following their sentences. The court also ordered each man to pay restitution to the victims of the fraud. The amount will be determined at a later date.
Brotherton pleaded guilty in February 2019, while Gobb admitted his guilt in December 2018.
Five others – Andrew Ian Farmer, 41, Thomas Galen Massey, 49, Eddie Douglas Austin Jr., 69, and Carolyn Price Austin 65, all of Houston; and Scott Russell Sieck, 61, of Winter Park, Florida, also pleaded guilty for their respective roles in 2018 and will be sentenced later this year.
The original indictment involved the stock of a Houston oilfield services company called Chimera Energy Corp. In the summer of 2011, Farmer met Grob and Mr Grob agreed to become the CEO. Chimera was incorporated and a sham Initial Public Offering was conducted in December 2011 and January 2012.
Farmer and his associates recruited individuals to act as straw investors in the IPO which, in total, raised $75,000. In correspondence with the FINRA regulator, Farmer concealed the extent of his involvement and got clearance from a broker-dealer to publish quotations for the stock. Farmer then got the straw investors to transfer their stock to entities he controlled.
During 2012, Farmer issued fake press releases touting cutting edge technologies in ‘NEW SAFE FRACKING that uses ZERO WATER’. The share price rose to a high of $1.55 and Farmer sold 6 million shares for $4.6 million. The SEC suspended trading in October 2012 and announced initial charges in 2014.
A superseding indictment was filed in July 2017 which accused the defendants of ‘pump and dump’ schemes in 11 other penny stocks. Those schemes operated between September 2011 and June 2016 and caused losses of $40 million.
Brotherton participated in “war room” strategy meetings during which he and others formulated the “story arcs” for the various Issuers. He also coordinated promotions for the Group’s pump-and-dump schemes through late 2013. Brotherton later rejoined the Group’s scheme in 2015 in which he assisted in formulating promotional strategies and received distributions of illicit stock sale proceeds.