SEC wins order to depose Canadian suspect in nearly $1M penny stock con

A Canadian accused in an Indiana federal court of a “scalping” scheme to fraudulently drive up the price of a penny stock while selling off his own shares for a profit of almost $1 million must answer questions in a U.S. deposition before the Securities and Exchange Commission, a judge has ruled.

The SEC accuses Michael Skerry of New Westminster, British Columbia, of executing the scheme, in which regulators allege he profited by about $950,000. Skerry is accused of dumping his stock in Success Holding Group International, Inc., at the same time he was sending enthusiastic but allegedly fraudulent emails and marketing materials that urged investors to buy Success stock with claims of future riches.

Success Holding Group traded as an over-the-counter stock on the venture market under the symbol SHGT, according to the SEC complaint. The company’s SEC filing says Success Holding was “in the business of conducting training seminars primarily in China and the business of investing in the production of Internet short films in China … [and] developing a specialty drink.”

Securities regulators brought a three-count complaint against Skerry last year in the Northern Indiana District Court in Fort Wayne. The complaint came after the SEC issued a cease-and-desist order against the company, a Nevada corporation registered in Fort Wayne with its operations in Taiwan. Among other things, the SEC seeks to disgorge Skerry’s financial gains and impose a penny stock bar against him. The SEC also seeks civil penalties against Skerry.

Skerry, who represents himself in the case, denies the SEC’s allegations and has said the court lacks jurisdiction over him. He also asserts numerous affirmative defenses in his answer to the complaint. He claims a related company is responsible for Success’ failure, citing audits that were not timely filed to the SEC. Among other things, Skerry also claims he is not an investment adviser and therefore not subject to certain SEC rules.

Success Holdings was seeking a listing on the Nasdaq or American Stock Market in May 2014 when its principals met with Skerry and other consultants. Afterward, the company paid Skerry $120,000 to provide investor relations service and aid in raising capital, according to the SEC.

“Around the same time, Skerry told Success Holding that he also could help the company raise money by selling shares of its stock to the public. In order to get the necessary shares, Skerry entered into an agreement with Success Holding and its principals that allowed Skerry to purchase shares of Success Holding stock at predetermined prices ranging from $0.10 to $2.50 per share,” the complaint says. Skerry in June 2014 purchased 360,000 shares in the company for $36,000.

From mid-June 2014 through the end of that year, the SEC alleges, Success Holding sent at least 21 email blasts, including press releases Skerry prepared or arranged though vendors that touted touting the company to investors.

“The press releases announced, among other things, contracts with service providers, the status of Success Holding’s new internet movie business, a product launch for Success Holding’s new health drink business, and Success Holding’s periodic revenues,” according to the complaint. “…Skerry did not mention in any of these blast emails that he was selling his shares of Success Holding stock at the same time that he was recommending that investors buy shares.”

Meanwhile, from July through the end of 2014, the SEC says Skerry dumped the 360,000 shares he purchased.  “At the time, Skerry’s shares represented substantially all of the Success Holding shares that were readily available for trading. In fact, not a single share of Success Holding stock had publicly traded before Skerry’s first sale in July 2014.

“From July 2014 to December 2014, Skerry sold all of the Success Holding shares he bought in June 2014 to the public for a profit of over $950,000.” The SEC alleges Skerry’s sales made up more than 60 percent of the trading volume during the period and 100 percent of trading volume on certain days.

Afterward, according to the SEC, “With Skerry no longer selling a substantial number of shares into the market, the price and trading volume of Success Holding stock dropped dramatically during 2015.”

From the time Skerry purchased the stock until December 2014, the share price rose from $1 to more than $10, according to the SEC.

Nevertheless, Skerry continued to pump the company as its stock value fell back to about $6 per share. In a YouTube video posted in September 2015, for instance, Skerry painted the company on an upward trajectory. “The company has been bringing in new auditors, new lawyers, they’ve been gearing up to move toward Nasdaq or Amex, as well as to be trading on one of the top levels of (the) Frankfurt (Stock Exchange),” Skerry says in the video.

Skerry also touted an “888 health drink” he claimed was being sold in upwards of 9,000 stores in Shanghai, China, waiting to be exported to thirsty, health-conscious consumers in Europe and America. Success Holdings was “anticipating hundreds of millions of dollars in revenue from this over the next few years,” he says in the video.

On Monday, Northern District Magistrate Judge Susan Collins granted an SEC motion to compel, ordering Skerry to answer regulators’ questions by Jan. 28 and appear for a future deposition in Seattle. Collins also cautioned Skerry: “a failure to adhere to orders entered by this Court may result in sanctions being issued against him, up to and including the entry of a default judgment against him.”

The case is SEC v. Michael A. Skerry, 1:17-cv-00415.