[ by Howard Haykin ] The SEC on Wednesday charged a New York-based firm and its owner with conducting a penny stock scheme involving billions of shares of small company stock, which were purchased, then illegally resold in the public market. SEC Findings and Allegations. Edward Bronson and E-Lionheart Associates LLC earned over $10 million in illicit profits on the sale of shares from about 100 penny stock companies.  Bought at deep discount, Bronson and E-Lionheart were able the shares at double the price at which they had acquired the shares.  No registration statements were filed or in effect for any of the securities that Bronson and E-Lionheart resold to the investing public, and no valid exemption from the registration requirements of the federal securities laws was available.

"By violating the registration provisions of the securities laws and dumping billions of unregistered shares into the OTC market, Bronson deprived investors of important information about the companies in which they were investing." -- Andrew Calamari, Acting Director of SEC’s NY Regional Office.

According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Bronson lives in Ossining, a Westchester suburb of New York (and the home of 'Sing-Sing' Prison).  E-Lionheart, which also does business under the name Fairhills Capital, is located in White Plains. Bronson directed his staff to systematically cold call penny stock companies quoted on the OTC Link, asking if they were interested in obtaining capital.  An affirmative reply was followed by an offer to buy shares of the company at a deeply discounted rate.  Typically, Bronson and E-Lionheart immediately began reselling the shares on the open market within days of receiving the shares from the company. Bronson and E-Lionheart purportedly relied on an exemption from registration under Rule 504(b)(1)(iii) of Regulation D, which exempts transactions that are in compliance with certain types of state law exemptions. However, no such state law exemptions were applicable to these transactions. Bronson and E-Lionheart claimed reliance on a Delaware state law registration exemption, but the transactions in fact had little or no connection to the state of Delaware.  As a result, investors purchasing these shares did not have access to all of the information that a registration statement would have provided, including in many instances important information concerning the issuance of millions of new shares by the company to Bronson and E-Lionheart. SEC Charges and Sanctions Sought. E-Lionheart and Bronson are charged with violations of the registration provisions of the federal securities laws;  the Commissions seeks over $10mn in disgorgement, prejudgment interest and various penalties.  Fairhills Capital Inc. is named as a relief defendant. SEC NYRO Staff Credits. Investigation by: Senior Attorney William Edwards and Assistant Regional Director Wendy Tepperman.  Litigation to be led by Senior Trial Counsel Kevin McGrath. For further details, go to:  [SEC PR 12-165, 8/22/12] and [SEC Complaint].