The US Securities and Exchange Commission (SEC) charged a man hailing from Hawaii for allegedly running a scheme in which he spread fake press releases to pump up the price of unsecured loans.
In the said releases, the man promised high returns for those who would redeem early. The agency said that the individual had also lied about converting the said loans into cryptocurrency.
The scenario
On Friday, Jeremy Koski was charged by the New York Office of the SEC for allegedly distributing fake press releases, along with redemption notices pertaining to shares.
These shares were part of a trust fund that Jeremy owned and was operated by JCPenney, the retailer.
According to the agency, Koski had deliberately tried to drive up the price of the shares by lying to the investors in order to sell them later, which is essentially a pump-and-dump scheme.
The statement from the SEC said that Koski had admitted to creating fake press releases and fake redemption notices and was aware that the content was false.
He also admitted to creating them to generate artificial interest in COTRP shares and jack up their price.
The background
The securities regulator revealed that the pump-and-dump scheme had been orchestrated by Koski to protect himself against huge losses on his investment.
It further said that Koski had bought a total of 287,000 debentures in September 2020 for a cost of $302,000, which put them at about $1.05 per share.
Debentures are essentially debt security and their return depends on the earnings of the issuer. In the days leading up to Koski’s fraud, JCPenney had been recovering from a Chapter 11 bankruptcy.
The price of the shares had declined to about $0.07, which means that Koski was looking at a potential loss of about $281,000.
Additional details
Koski had put his plan into action a month later when he took to messaging boards to post fake redemption notices under various aliases.
This drove up the price of the shares and he sold off some of the ones he owned. According to the SEC, before the fake notices were posted, about 3,200 shares were traded daily.
Their price had been between $0.01 and $0.27. But, on the day after the notices were posted, there was a 600% increase in their price.
The shares rose to $1.11 and the total number of daily trades also increased to 270,000. Koski sold about 800 of the shares he owned and was able to make about $815.
The first fake press release had then been issued in September 2021 in which Koski claimed that the shares would be converted into a cryptocurrency.
He further said that there was a collaboration with Renaissance Technologies’ founder, Jim Simons, for the conversion. This is a legitimate crypto fund.
Renaissance and Simons were obviously not involved, but Koski spread the fake statement through Issuewire, a distribution service.
The case was brought by the SEC against Koski for the harm that investors had to suffer, as they bought the shares at a higher price because of his scam.