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Regulatory Sanctions

Market Analyst / Adviser Settles SEC Scalping Charges

September 18, 2017
Relying on stock recommendations that are posted to the internet by independent analysts can be a diceyproposition for your firm's registered reps and customers. It's hard, if not impossible to ascertain the validity of underlying information and assumptions. And who knows if the 'author' fully disclosed potential conflicts of interest. Here, the SEC caught an analyst whose primary interest was in pumping up stock prices ahead of his intended sales.


Mark Gomes, an independent stock analyst and investment adviser, agreed to pay $273,000 in disgorgement, fines and prejudgment interest to settle SEC charges that he engaged in scalping – selling shares of companies  that he was 'hawking' or pumping up.


BACKGROUND.    Gomes, 46, a resident of Miami Beach, FL, is an unregistered investment adviser and an independent stock analyst. He held a 50% ownership in “Company A,” which he formed in 2013 as a vehicle for distributing his investment recommendations and stock analyses. Company A operated 2 websites: (i) a paid subscription site offering clients benefits such as earlier access to reports and direct contact with Gomes; and, (ii) a free site that essentially was designed to attract potential clients to buy a paid subscription. Company A had no other lines of business, and it had no income other than its paid subscriptions.


Gomes also distributed recommendations and analyses through a 3rd-party website. He actively participated in the comment boards that accompanied those articles, encouraging readers to become paid clients of Company A’s subscription site.


SEC FINDINGS.    The Gomes regularly distributed bullish investment recommendations and other analyses and reports about publicly-traded securities. He held shares of the stocks that he wrote about in his recommendations and analyses, so his recommendations and analyses were not disinterested. 


  • On at least 5 occasions between February 2014 and July 2014, Gomes purchased shares in a stock, recommended buying that stock, and then sold shares in his personal accounts within days of his recommendation. In at least 1 instance, Gomes began selling shares only a few hours after posting his recommendation. Gomes never disclosed that he planned to or was selling his shares.


  • In April 2014, Gomes issued a recommendation to clients on Company A’s paid subscriber website that investors purchase shares of an issuer’s stock. That same day and the following day, he sold shares of the stock at a profit. Gomes repeated the process later in the month, recommending the stock on Company A’s free site and on a 3rd-party website and then selling shares 2 days later at a profit.


  • By recommending investments, but failing to disclose that he would trade in the opposite direction of his recommendations, Gomes omitted material information necessary in order to make his recommendations not misleading.


A reasonable investor would consider Gomes’s intention to sell his shares as an important factor in assessing the objectivity and credibility of his descriptions. Gomes’s conduct also constituted a device, scheme, or artifice to defraud his clients, and it operated as a fraud or deceit on his clients.


The SEC, therefore, deems this conduct to be fraudulent conduct in the offer or sale of securities and in connection with the purchase or sale of securities - and willful violations of: (i) Section 17(a) of the Securities Act; (ii) Section 10(b) of the Exchange Act; and, (iii) Rule 10b-5 thereunder.  


The SEC further deems this conduct to be fraudulent conduct by an investment adviser, and in inviolation of: (i) Sections 206(1) and 206(2) of the Advisers Act.