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SEC Issues an Investor Alert on Social Media and Investing (Part III)

On Behalf of | Mar 22, 2016 | Securities Laws, Uncategorized

SEC v. McKeown.

On June 23, 2010, the Securities and Exchange Commission (“SEC”) filed an emergency action to enjoin Carol McKeown and Daniel F. Ryan, a Montreal-based couple, and their companies from using a website and social media to tout U.S. companies.[1]  According to the SEC, since at least April 1, 2009, Ryan and McKeown owned and operated the website (“PennyStockChaser”), which held itself out as a securities research firm.  The SEC said that, in 2009 alone, Ryan and McKeown used the website to make more than 65 penny stock recommendations, which generally refers to a security issued by a very small company that trades at less than $5 per share and, thus, is considered speculative by nature.[2]  The SEC said McKeown also posted messages on Twitter concerning the stock recommendations published on PennyStockChaser.

The SEC alleged that, as compensation for the defendants’ touting, Downshire Capital Inc. (“Downshire”) and Meadow Vista Financial Corp. (“Meadow Vista”), two companies controlled by Ryan and McKeown, received shares of the touted companies from those companies’ affiliates or third parties and sold them on the open market, while simultaneously predicting massive price increases for the touted companies, a practice known as “scalping.”  The SEC also alleged that Ryan and McKeown purchased shares of the stock they touted on PennyStockChaser and sold them for profits after their promotional campaigns inflated the stock prices.  According to the SEC, Ryan and McKeown failed to adequately disclose their conflict of interest.  Specifically, the SEC said, the PennyStockChaser website stated only that it “may be selling shares of stock at the same time the profile is being disseminated to potential investors; this should be viewed as a definite conflict of interest and as such, the reader should take this into consideration,” when in fact the defendants had regularly been selling massive quantities of the stock they touted on the website.

To give you an example of how the defendants touted and illegally profited from such activity, the SEC said, between May and June 2009, the defendants promoted the stock of Converge Global, Inc., a Utah corporation (“Converge”), on PennyStockChaser at least four times, as follows: “[Converge] . . . Up 16% on Friday – Ready to Move Higher . . . . [Converge] has the potential to jump 500%”; “[Converge] shares rose over 400% since our last alert.  We recommend [Converge] to our members at $.022. . . .”; “[Converge] shares moved from our recommendation at $.02 to a high of $0.044 that is a 2100% increase;” and “[Converge] IS WAY TO LOW [sic] . . .  [Converge] IS ON NEWS WATCH !!! . . . .”  The SEC alleged that Converge’s stock prices and trading volume increased significantly as a result of this promotional campaign, jumping from 1.9 to 2.2 cents a share to as high as almost 4 cents a share between May 11 and 29, 2009.  Around the same time, the SEC said, the defendants sold almost 6.3 million shares of Converge stock for approximately $602,000 in net proceeds.

The SEC’s complaint charged McKeown, Ryan, Downshire, and Meadow Vista with several counts of fraud under federal securities law and requested that the defendants be enjoined from future violations, disgorge all ill-gotten gains, pay civil money penalties, and be prohibited from participating in any offering of penny stock, among other things.  On January 25, 2011, the court entered judgments granting the relief sought by the SEC.[3]  PennyStockChaser currently appears to have been shut down.

This post was part of a multi-part series on SEC’s investor alert on social media and investing.  You can find the other posts by searching our blogs at  If you have any questions about the content of this blog or other securities law issues not discussed here, please contact us.

This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein.  This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances.  This article should not be treated as legal advice to any person or entity.

Steps have been taken to verify the contents of this article prior to publication.  However, readers should not, and may not, rely on this article.  Please consult with counsel to verify all contents and do not rely solely on this article in planning your legal transactions.

[1] See generally Complaint, SEC v. McKeown, No. 10-80748 (S.D. Fla. June 23, 2010).  Unless otherwise noted, all references to the SEC’s allegations in this posting are from the complaint.

[2] SEC, Fast Answers: Penny Stock Rules (May 9, 2013),

[3] SEC, Litigation Release No. 21847: Court Enters Default Judgments of Permanent Injunction and Other Relief Against Defendants Carol McKeown, Daniel F. Ryan and Their Companies Downshire Capital Inc. and Meadow Vista Financial Corp. (Feb. 9, 2011),