On 4 November 2024, the US Attorney for the Southern District of New York announced that Ronald Bauer ("Bauer") had pleaded guilty to conspiring to commit securities fraud in connection with his role in a long-running “pump-and-dump” stock manipulation scheme. Bauer is scheduled to be sentenced on 25 May 2025.
Bauer, aged 49, of London, England, pleaded guilty to one count of conspiracy to commit securities fraud. As part of his guilty plea, a money judgment in the amount of $4,377,228.74 was also entered against Bauer.
Bauer admitted in connection with his guilty plea that he and his co-conspirators participated in a conspiracy to commit securities fraud with respect to seven issuers: Cantabio Pharmaceuticals Inc., Virtus Oil and Gas Corp., Steampunk Wizards, Black Stallion Oil and Gas Inc., PetroTerra Corp., Black River Petroleum and Cyberfort Software Inc. (collectively, the “Issuers”).
To perpetrate their “pump-and-dump” scheme, Bauer and his co-conspirators obtained ownership and control of all or the vast majority of the unrestricted (i.e., free trading) stock of the Issuers. Bauer and his co-conspirators sought to conceal their beneficial ownership of these controlling interests in the shares of the Issuers by causing their shares to be distributed to and divided amongst nominee entities that had been established at a Swiss corporation ("B"). These entities were nominally owned by unrelated third parties but were, in fact, controlled by Bauer or his co-conspirators. Thereafter, Bauer and his co-conspirators retained trading authority over the blocks of shares of the Issuers held by B's nominee entities and Bauer regularly provided trading instructions with respect to these shares to executives or employees at B. In addition, Bauer and his co-conspirators effectively controlled or otherwise maintained significant influence over the management of the Issuers during the “pump-and-dump” scheme.
At times, Bauer and his alleged co-conspirators caused nominees to engage in “match trades” — i.e., place both buy and sell orders in the same stock on the same day — for no legitimate economic purpose. Furthermore, Bauer and his co-conspirators financed and coordinated promotional campaigns "touting the Issuers to stoke trading interest in the Issuers’ stock", though without publicly disclosing their relationship to the promotional campaigns, their controlling interest, or their intent to sell a significant percentage of their holdings into the buying interest that they intended the promotional campaigns would generate. Bauer and his co-conspirators also took steps to conceal the fact that the nominee entities they controlled were the true funding source for the promotional campaigns.
During or shortly after the promotional campaigns, Bauer and his co-conspirators caused the B's nominee entities to engage in trading activity in the Issuers’ stock, including selling a large percentage of their holdings of the Issuers’ stock, then caused the B's nominee entities they controlled to remit to them the proceeds of the stock sales.
The US Securities and Exchange Commission (the “SEC”) had previously alleged in a Civil Complaint ("the Complaint") that Bauer and a number of other individuals, some also allegedly resident in the UK (the “Defendants”) had engaged in a fraudulent scheme comprising a series of highly profitable “pump-and-dump” activities in relation to shares in at least 17 publicly-traded companies quoted on U.S. markets.
The following summary is taken from the SEC's allegations in the Complaint.
Bauer, 47, is a citizen of Canada and the United Kingdom, and was believed to be residing in the United Kingdom. Bauer oversaw and coordinated virtually every aspect of every penny stock fraud perpetrated by the various groups he led.
From at least 2006 and continuing until at least 2020 (the “Relevant Period”), the Defendants allegedly formed and acted in various combinations (or “Rings”), on a serial basis, to:-
(a) amass a controlling interest in a relevant Issuer;
(b) conceal their collective control of the stock of that Issuer;
(c) fund misleading promotional campaigns to increase investor interest in purchasing the Issuer’s shares; and
(d) then "exploit the buy-side demand they had created by collectively unloading their shares of the stock on unsuspecting retail investors, thereby reaping millions in illicit gains".
Following each such fraud, Defendants divided most of their profits amongst themselves while reinvesting a portion into their next "pump-and-dump scheme".
The SEC claimed that the Defendants made more than US $145 million in illicit proceeds.
For 15 of the 17 pump-and-dumps schemes, the primary strategist was said to be Bauer. Bauer oversaw nearly every aspect of the schemes and most frequently called upon the other Defendants to, among other things, acquire control of the Issuer, arrange for the issuance of shares, and conduct promotional activity.
The following table provides an overview of the serial alleged schemes:-
|
Issuer
|
Date Range
|
Approximate
Minimum
Illicit
Proceeds
|
Bauer allegedly involved
|
|
Black Stallion Oil and Gas Inc
|
Oct. 2014 – Nov. 2016
|
$3.5 million
|
x
|
|
PetroTerra Corp.
|
May 2014 – Sept. 2016
|
$3.96 million
|
x
|
|
Virtus Oil & Gas Corp.
|
Feb. 2014 – Jan. 2015
|
$23.1 million
|
x
|
|
Gray Fox Petroleum Corp.
|
Nov. 2013 – Aug. 2014
|
$11.8 million
|
x
|
|
Bison Petroleum Corp.
|
Feb. 2013 – Sept. 2015
|
$2.36 million
|
x
|
|
Lone Star Gold Inc.
|
Aug. 2011 – Jan. 2013
|
$4.9 million
|
x
|
|
True North Energy Corp
|
April 2006 – May 2007
|
$40.23 million
|
x
|
|
North American Oil & Gas Corp.
|
July 2013 – Aug. 2014
|
$15.23 million
|
x
|
|
American Helium Inc.
|
Mar. 2018 – Feb. 2020
|
$1.45 million
|
x
|
|
Cantabio Pharmaceuticals Inc.
|
Nov. 2015 – Oct. 2018
|
$2.56 million
|
x
|
|
Steampunk Wizards Inc.
|
Aug. 2015 – Nov. 2016
|
$3.29 million
|
x
|
|
Polar Petroleum Corp.
|
Apr. 2013 – June 2013
|
$12.4 million
|
x
|
|
Patriot Berry Farms Inc.
|
Aug. 2013 – Feb. 2016
|
$425,000
|
x
|
|
Black River Petroleum Corp.
|
Apr. 2014 – May 2014
|
$417,000
|
x
|
|
Cyberfort Software Inc.
|
Nov. 2016 – Dec. 2018
|
$1.37 million
|
x
|
|
Lifelogger Technologies Corp.
|
Mar. 2014 – May 2016
|
$12.15 million
|
|
|
Blue Eagle Lithium Inc.
|
Aug. 2018 – Aug. 2019
|
$5.95 million
|
|
The Defendants in executing the schemes were alleged to have often relied on the services of offshore financial firms, typically Swiss-based, to conceal their control of shares and their collective activities with respect to each Issuer. They also used front companies and omnibus vehicles administered by the those offshore financial firms.
Through doing so, the Defendants allegedly hid their coordinated efforts from gatekeepers such as transfer agents and brokers who otherwise would have treated their shares as restricted stock, which could not have been freely purchased, sold or transferred in the retail market.
The Defendants also "flouted" their obligations under the federal securities laws, as controlling shareholders, to report their holdings and trading, and by doing so they, hid their coordinated efforts from investors.
As a result of the conduct alleged in this Complaint, the SEC alleged each of the Defendants violated Sections 17(a)(1) and (3) of the Securities Act of 1933 (“the US Securities Act”), Section 10(b) of the Securities Exchange Act of 1934 (“US Exchange Act”), and its Rules 10b-5(a) and (c) Each of the Defendants also allegedly violated Sections 5(a) and 5(c) of the US Securities Act.
By way of an example, the SEC described the alleged fraud in relation to Steampunk Wizards Inc. ("Steampunk").
The relevant group of Defendants ("the Ring") including Bauer allegedly arranged for millions of the Steampunk shares to be reissued in the names of offshore front companies, in tranches of less than 5% of its outstanding stock, and to be deposited with various offshore financial companies.
Positioning Steampunk’s Stock for Unloading
By 27 April 2015, the Ring had positioned at an offshore financial company/ companies over 93% of the Steampunk shares then available for trading, The shares represented over 24% of Steampunk’s outstanding stock, and 93% of its shares then available for trading.
All of these shares had been issued without restrictive legend. However, in reality, every one of these “unrestricted” shares were controlled by the Ring's members, who, because of their control of all Steampunk shares, were, individually and collectively, affiliates of the Issuer.
Because these shares were controlled by the Ring's members who together and separately were affiliates of Steampunk, as a matter of law, the shares were restricted, and thus were subject to the federal securities laws’ limitations and restrictions on unregistered sales of such shares.
By having their Steampunk shares allocated in multiple different tranches, each of which fell below 5% of the company’s total outstanding shares, to various nominee shareholders and omnibus vehicles administered by various offshore financial companies, the Ring's members created the false appearance – deceiving Steampunk’s transfer agent, the nominee entities’ brokerage firms, investors, and other market participants – that multiple different, unrelated offshore corporate entities each held less than 5% of Steampunk’s stock. In truth, those offshore corporate entities were all under common control by the Ring's members.
Promoting the Purchase of Steampunk Stock
With control of virtually all of Steampunk’s tradeable shares, and as those shares were being positioned to be sold, the Ring allegedly designed, funded, and launched a campaign urging investors to buy the stock. The Steampunk promotional materials urged readers to buy the stock and do so quickly, to capitalize on supposedly realistic prospects of near-term, dramatic gains. A promotion disseminated in November 2015, for example, urged: “Investors Who Act Fast Could Walk Away with QUICK 2,043% Gains! … URGENT: BUY SPWZ [Steampunk] UP TO $1.50 PER SHARE … NOW!” (Emphasis in original).
These statements were materially misleading for, among other reasons, they omitted to disclose material facts, including that the parties behind the statements – the Ring – did not believe the statements, as evidenced by their simultaneous, and massive, trading in the opposite direction, as they collectively sold their stock during the campaign.
Dumping Steampunk Stock
The Ring’s Steampunk campaign was attended by dramatic rises in demand for Steampunk stock, as well as its share price. The Ring's members took full advantage of these price and demand increases. Between August 2015 and November 2016, through three of the offshore financial companies, the Ring's members sold at least 4.05 million Steampunk shares, for proceeds of at least $3.29 million.
The Ring's members were alleged to have used various offshore financial companies to unload their Steampunk stock. As their Steampunk stock sale proceeds were coming in, the Ring's members took distributions of them via furtive means. These furtive means included (i) using their offshore front companies to receive distributions, (ii) falsely characterizing distributions (as “loans,” “fees” or otherwise), (iii) using distributions to pay third-party service providers they owed, and (iv) using distributions to reload or “top up” their Swiss bank-issued VISA debit cards.
Commentary
There have been a number of recent proceedings brought by the US SEC around alleged "pump and dump" schemes. One notable claim involved civil charges against 8 social media influencers in December 2022 alleging that they had participated in a US $100 Million stock manipulation scheme promoted on Discord and Twitter.
This case serves as a reminder also that firms should be sure to have their market abuse surveillance systems calibrated towards detecting "pump and dump" and "trash and cash" manipulation schemes.
