On Wednesday, federal regulators announced a crackdown on 11 individuals alleged to have used the 2010 Haitian earthquake as a backdrop for perpetrating a stock scam to bilk unsuspecting investors out of $3.5 million.
Pulling on the heartstrings of investors, scammers promoted stock in a company that supposedly was building temporary housing in Haiti, federal officials said.
Kevin Sepe of Miami was the alleged mastermind behind the Haiti scam as well as another related scheme, according to the Securities and Exchange Commission. All told, 11 individuals were involved, including Florida-based lawyers and corporate officials, in one or the other scheme, the SEC said.
The defendants "chose to ignore the laws governing stock sales and play by their own set of rules," said Eric Bustillo, director of the SEC's Miami regional office in a press release. "Some of these individuals were attorneys and corporate officers who should have known better, and we will continue to crack down on any such gatekeepers who put investors at risk with their harmful activities to manipulate the markets."
Sepe and five of the 11 people allegedly involved in the two schemes have settled with the SEC without admitting or denying the claims and will together pay $3.2 million. The SEC has not arrived at a settlement with the other five.
In the first scheme, Recycle Tech, a home container company, allegedly aimed to capitalize on the demand for temporary housing after the Haiti earthquake.
Using an alleged "pump and dump" scam, the individuals involved boosted the value of Recycle Tech’s stock by issuing false press releases and other information; then they dumped the shares in an inflated market, netting a profit of at least $1.1 million, according to the SEC. Recycle Tech also circulated a binding letter of intent, claiming it intended to build as many as 50 container homes but never disclosed a lack of means to follow through with the construction, the SEC said.
David Chase, Sepe’s lawyer, wrote in an email that this matter had been resolved for his client. "With neither admitting nor denying the SEC's allegations, which did not include an allegation that Mr. Sepe directly violated the anti-fraud provisions of the federal securities laws, Mr. Sepe opted to resolve this matter."
In the second scheme described by the SEC on Wednesday, lawyers allegedly helped Sepe and others sell millions of shares of stock of HydroGenetics that weren’t registered with the SEC on the public market, netting the individuals involved $2.2 million. HydroGenetics acquires emerging alternative energy companies.
Regarding the HydroGenetics allegations, Chase wrote, "The SEC’s sole charge against Mr. Sepe was that he allegedly sold securities in violation of the registration requirements of the federal securities laws."
"With neither admitting nor denying this allegation, Mr. Sepe agreed to resolve the case, Chase added. "Notably, Mr. Sepe was not charged with fraud, and was not alleged to have engaged in any fraudulent conduct."
Natural disasters often are fertile ground for scam artists. In the wake of Hurricane Katrina, the SEC charged Home Solutions of America, which operated in Dallas and New Orleans, with fraudulently inflating the stock price of its home restoration company before the CEO sold millions in company shares. In another case, one man allegedly touted the stock price of two thinly traded companies -- including a storm management firm -- and then profited off the transactions.
Using natural disasters to take advantage of unsuspecting investors is a relatively common tactic, according to Katherine Hutt, a spokeswoman for the Council of Better Business Bureaus.
"We call them storm chasers," she said. "Pretty much [for] every natural disaster from a tornado in our backyard to a tsunami halfway around the world, there will be scammers."
In the aftermath of the Haiti earthquake, some common scams included the creation of fraudulent charities in a bid to lure unsuspecting donors and individuals' claims of needing money wired in order to bring Haitian relatives to the United States, Hutt said.