By Anne Sherry, J.D.
An attorney settled SEC charges of violating the ’33 and ’34 Acts by helping a public-company chairman sell restricted stock into the markets. The attorney (and the chairman) violated disclosure rules requiring them to report their beneficial ownership of the stock. For these violations, and in light of his cooperation, the attorney was ordered to disgorge $182,000, cease and desist from future violations, and be barred from practicing before the Commission or participating in any penny-stock offering (In the Matter of Daniel V. Martinez, Esq., Release No. 33-11203, June 8, 2023).
Beginning in 2011, the chairman arranged with the respondent to hold and sell millions of shares in the penny-stock companies he chaired. The respondent formed an LLC for this purpose and then signed a stock purchase agreement on the LLC’s behalf. This agreement falsely represented that the LLC was acquiring the shares as principal for its own account and that no one else had a beneficial interest in the shares. In fact, though, the shares were acquired primarily for the chairman, who shared beneficial ownership with the respondent.
Beginning in 2013, to induce brokerage firms to remove the shares’ restricted legends, the respondent falsely represented that he was the sole beneficial owner of LLC and not affiliated with the company. He eventually sold the shares, keeping 5 percent of the proceeds as his fee.
This scheme continued with another penny-stock company and a new LLC through 2017. At no time did the respondent file a Schedule 13D disclosing the agreements with the chairman or their combined holdings in the issuers. Similarly, he aided and abetted the chairman’s disclosure failures.
The SEC considered the respondent’s cooperation. The Commission ordered him to cease and desist from future violations, barred him from participating in any offering of a penny stock, and denied him the privilege of practicing as an attorney before the SEC. The order also imposed disgorgement of about $150,000 plus interest of $30,000.
This is Release No. 33-11203.