The U.S. Securities and Exchange Commission (SEC) announced that it has filed a subpoena enforcement action against St. James Holding and Trust Investment Company and its trustee, Jeffrey James. It is explained that the regulator has initiated an investigation against potential pump-and-dump scheme “in the stock of Cherubim Interests, Inc., among other penny-stock companies.”
"Based on its ongoing, nonpublic investigation, the SEC has reason to believe that to 'pump' its stock price, Cherubim issued false public statements in January 2018 claiming that the company had executed a $100,000,000 financing commitment to launch an initial coin offering (ICO) for St. James Trust. After Cherubim's stock price and trading volume increased on this news, certain individuals associated with the company may have 'dumped' their overvalued Cherubim stock for significant profits," SEC explained in an official statement.
The agency also said it issued subpoenas to the St. James Trust and James in June 2018. The regulator asked to prepare documents related to the public statements of Cherubim in January 2018 about the St. James Trust and its ICO, as well as any agreements between the St. James Trust, James, and Cherubim. The SEC also repeatedly tried to contact James, extended the deadline for answering to the subpoenas, but no feedback was received.
Recall that the SEC suspended trade in shares of Cherubim Interests Inc., PDX Partners Inc., and Victura Construction Group Inc., announced the acquisition of assets related to cryptocurrency and blockchain assets in February of this year. Then the regulator explained that the companies published very similar press releases, which refer to the acquisition of assets from the division of a private investor’s subsidiary. In addition, Cherubim has additionally announced plans for an initial coin offering (ICO).
As a result, SEC suspended trading in securities of companies and reminded investors that many organizations today are trying to manipulate the course of their shares through announcements about the expansion of activity in the field of distributed ledger technology. The regulator urged investors to be especially attentive to joint-stock companies that are changing their orientation towards new trends, including cryptocurrency, blockchain or ICO.
Now, the financial regulator suspects Cherubim of participation in the pump-and-dump scheme. This is one of the classic scam schemes on exchanges, which appeared long before the emergence of cryptocurrencies. It lies in the fact that the owner of the asset artificially raises its value in order to sell as expensive as possible. After the initiator of the scheme “dumps” its share, the value of the asset collapses and investors lose their money. The SEC regularly discloses such cases in the traditional stock market. This practice was banned in the U.S. in the 1930s. Then the traders bought and sold shares from each other, raising the price and creating the appearance of demand, and then dumped them to ordinary investors. Now the turn has reached the crypto industry.
In the traditional stock market, pump-and-dump typically use low-priced, low-capitalized, low-priced securities from small companies. Such assets can be bought cheaply, and for a sharp rise in value, it is enough to attract a relatively small number of investors. To create an increased demand, they use fake positive news, false financial statements and plums of insider information about the imminent increase in the price of shares of a company.
SEC believes that Cherubim could act on a similar basis in this case. And after the price of the Cherubim and the volume of trades increased due to the news that the company had fulfilled a financing commitment of $100,000,000 to launch an ICO for St. James Trust, some individuals associated with the company, may lose their overvalued Cherubim shares for a substantial profit. However, the regulator emphasizes that it’s not concluded that anyone has violated securities laws.
It is worth noting that over the past year, the SEC has strengthened its control over the crypto market. For example, in September, the regulator filed its lawsuit against TorkenLot. The agency claims that from July 2017 to March 2018, a company called TokenLot worked as a broker, buying cryptocurrencies on ICO, and then selling it to retail buyers for the profit. Also last month, the SEC initiated an investigation against Crypto Asset Management (CAM). The company managed the Crypto Asset Fund (CAF), a joint investment instrument formed with the goal of investing in digital assets. According to the CAM, more than $3.6 million were raised over the period from August 1 to December 1 last year. CAM not only did not register the Crypto Asset Fund as an investment company but also spread false information that they are the first regulated cryptocurrency fund in the U.S.
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