Banking News – SEC Charges Mother, Daughter, and Their Attorney in Illegal Penny Stock Scheme 
FOR IMMEDIATE RELEASE
2012-80
Washington, D.C., April 30, 2012 — The Securities and Chat Fee today charged a mother and daughter along with their attorney in a scheme to illicitly buy and sell billions of shares of penny stock in unregistered transactions.
The SEC alleges that Christel S. Scucci and her mother Karen S. Beach, who live in Florida, used alter ego companies (Protégé Enterprises LLC and Capital Edge Enterprises LLC) to make more than $1.5 million from selling approximately 3.3 billion shares of by all accounts unhindered stock that they bought in so-called debt conversion “wrap around” transactions. They were able to sell most of this stock only because Florida-based attorney Cameron H. Linton issued unjustified legal opinions for them stating that the stock could be issued without restrictive legends and that their re-sales were exempt from the registration equipment of the federal securities laws.
“This case shines a focus on prohibited profiting from transactions calculated to dodge the registration equipment of the federal securities laws,” said Stephen L. Cohen, an Normal Boss in the SEC’s Rift of Enforcement. “This should alert conveying agents, securities attorneys and other diligence gatekeepers to closely study efforts to lift restrictive legends by ‘tacking’ onto incorrect debt through wrap around agreements.”
According to the SEC’s protest filed in federal court in Orlando, Fla., this scheme concerning the illegal use of wrap around agreements lasted from January 2010 to October 2011. Under the wrap around agreements, affiliates or others by all accounts owed money by certain microcap issuers for more than one year assigned from the issuers to Protégé or Capital Edge the right to collect the debts. The wrap around agreements also alleged to amend the initial debt agreements thereby allowing Protégé and Capital Edge to convert the money owed to them by the issuers into shares of the issuers’ common stock at a deep money off (usually 50 percent) to the existing market price. Protégé and Capital Edge nearly always elected to receive stock from the issuers shortly after execution of the wrap around agreements. None of the transactions were registered with the SEC.
The SEC alleges that Protégé and Capital Edge paid Linton to write attorney opinion letters for them stating that their sales of the stock bought under these wrap around agreements legally could be issued to them without a restrictive legend and at once sold to the public. Protégé and Capital Edge evenly sold the stock into the public market, often for large profits, merely days or weeks after they bought the shares through the wrap around conversions.
According to the SEC’s protest, Linton’s legal opinion letters lacked any basis. The premise of Linton’s opinion letters was that – through the wrap around agreements and debt conversion – Protégé and Capital Edge were able to “tack” the period that had elapsed from the admittance of the first debt at least one year earlier to claim a registration resistance relying on Securities Act Rule 144(d)(3)(ii). When Linton wrote the opinion letters, he lacked an appreciative of the applicable legal doctrine and failed to demonstrate the factual predicate for his opinions. Furthermore, in mid-2010, Linton became aware of an ban issued in a break SEC enforcement action (SEC v. K&L Global Enterprises) in which two of his letters were used in a similar scheme. Without Linton’s opinion letters, Protégé and Capital Edge couldn’t have bought most of the stock without a restrictive legend and quickly turn around and sell it freely.
The SEC’s protest alleges that Protégé, Capital Edge, Scucci and Beach debased Section 5 of the Securities Act. The protest further alleges that Linton debased, or aided and abetted the violation of, Section 5 of the Securities Act. The SEC seeks disgorgement, penalties, injunctions, and penny stock bars against the defendants.
The SEC’s case was investigated by Daniel Rubenstein and Adam Eisner under the supervision of C. Joshua Felker, an Supporter Boss in the Rift of Enforcement. Kenneth Guido will lead the SEC’s legal action.
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SEC.gov Updates: Press Releases – http://www.sec.gov/news/press/2012/2012-80.htm
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