Penny stock operator settles with SEC over stock scheme

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Personal Injury News

Article Date: 7/15/2009 | Resource: MLG

Penny stock operator settles with SEC over stock scheme

“Two years after Register investigation, Mark Ellis settles with SEC.”

Mark Ellis, the Orange County penny-stock operator who was the subject of a March 2007 Register investigation, has settled civil charges that he violated federal securities laws.

The Securities and Exchange Commission alleged that Ellis evaded federal stock-sale rules by issuing 2 billion shares in his Newport Beach company, Winsted Holdings, to employees and consultants. They immediately sold the stock to the public, returning 85 percent of the sale price to Winsted.

In a final judgment filed in U.S. District Court in Santa Ana last week, Ellis agreed not to sell unregistered stock in the future. A federal judge fined him $1.4 million but waived the fine based on his inability to pay.

In the settlement, Ellis neither admitted nor denied wrongdoing. He could not be reached for comment Wednesday

Winsted raised $2 million – about half of which went to Ellis personally – without making required disclosures to investors. Ellis claimed in news releases that Winsted was building potentially lucrative businesses in website design, environmental services and medical spas.

In fact, however, none of these businesses ever made a dime. Winsted earned most of its money through stock sales.

The relentless dumping of new shares onto the market wiped out investors. A $1,000 stake purchased in early 2003, when Ellis took over, would have been worth a few hundred-trillionths of a penny by March 2007.

The SEC sued Ellis, Winsted and the operators of four other penny-stock companies in August 2008, nearly a year-and-a-half after The Register investigation. The SEC said the companies used the same scheme to evade the law and cheat investors.

Weeks after filing the lawsuit, the SEC fined Alameda resident James Y. Lee, operator of San Diego-based Alexander & Wade, $2.9 million. It alleged that Lee taught Ellis and the others how to skirt the securities laws.

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Jeffrey Marquart