Penny Stock Scams (South Florida Business Journal)

SEC targets 379 shell companies in fraud-fighting initiative


South Florida Business Journal
Date: Monday, May 14, 2012, 2:44pm EDT


The Securities and Exchange Commission on Monday suspended trading in the securities of 379 dormant companies before they could be hijacked by fraudsters and used to harm investors through reverse mergers or pump-and-dump schemes, the agency said in a press release.

The trading suspension marks the most companies ever suspended in a single day by the agency as it ramps up its crackdown against fraud involving microcap shell companies that are dormant and delinquent in their public disclosures.

South Florida has traditionally been one of the nation's hotbeds when it comes to microcap shell companies, which are often touted via investment newsletters and telephone sales operations. The SEC has a link to a list of the companies whose trading has been suspended, but the list did not have a breakdown of where the companies are located.

Earlier this month, the SEC suspended the trading of two companies based in Fort Lauderdale and Miami, saying there was an attempt to manipulated the market. In April, FBI Director Robert Mueller in a Miami speech said corporate and securities fraud were a big problem for South Florida's business community.

In a pump-and-dump, perpetrators will tout a thinly-traded microcap stock through false and misleading statements about the company, the SEC said. After purchasing shares for a low price and pumping the stock price higher by creating the appearance of market activity, they dump the stock to make huge profits by selling it into the market at the higher price.

While the price gains are often less than a dollar per share, the schemes can generate millions in revenue through dramatic percentage increases in share prices.

"Empty shell companies are to stock manipulators and pump-and-dump schemers what guns are to bank robbers — the tools by which they ply their illegal trade," said Robert Khuzami, director of the SEC's Division of Enforcement. "This massive trading suspension unmasks these empty shell companies and deprives unscrupulous scam artists of the opportunity to profit at the expense of unsuspecting retail investors."

Stock manipulators will pay as much as $750,000 to assume control of a shell company in order to pump and dump the stock for illegal proceeds to the detriment of investors, the SEC said. But with this trading suspension's obligation to provide updated financial information, these shell companies have been rendered essentially worthless for scam artists.

An initiative tabbed Operation Shell-Expel by the SEC's Microcap Fraud Working Group utilized various agency resources including the enhanced intelligence technology of the Enforcement Division's Office of Market Intelligence to scrutinize microcap stocks in the markets nationwide and identify clearly dormant shell companies in 32 states and six foreign countries that were ripe for potential fraud, the SEC said.

The SEC's previously largest trading suspension was an order in September 2005 that involved 39 companies. The federal securities laws allow the SEC to suspend trading in any stock for up to 10 business days. Subject to certain exceptions and exemptions, once a company is suspended from trading, it cannot be quoted again until it provides updated information including accurate financial statements.

Top Dividend Aristocrats (street.com)

10 Best-Performing 'Dividend Aristocrats'

The biggest dividend payer in the group has a yield of 7.4%.
By Frank Byrt, Analyst
THESTREET.COM — 05/03/12

Investors, ravenous for reliable returns given the sketchy economic outlook, are gobbling up dividend stocks and dividend-focused mutual funds this year. That means high-yielding shares may continue to rise.


Indicative of investors' current interest in yield, both bond and dividend-focused equity mutual funds are being flooded with cash, while other fund categories are suffering outflows.


This year through April 25, dividend-focused stock funds had inflows of $17.3 billion, resulting in total net inflows of $1.1 billion for all types of mutual funds, which means other categories of stock funds had outflows of $18.4 billion, according to fund tracker EPFR Global.


"We've been seeing a tremendous search for yield, given that interest rates have been so low," said Cameron Brandt, director of research at EPFR.


Most investors have been buying bond funds, but those looking to get potentially higher total returns are going with dividend-focused stock funds, he told TheStreet.


With that in mind, I screened the SPDR S&P Dividend ETF (Symbol : SDY ), an exchange traded fund that tracks the S&P High Yield Dividend Aristocrats Index -- which is made up of the 60 highest-yielding stocks of the S&P 1500 that have also raised their dividends every year for the past 25 years -- for the 10 stocks with the best share-price returns so far in 2012.


This group of stocks should give their investors the best of both worlds: high-quality companies -- since they have solid, sustainable business models -- coupled with potentially good share-price returns.


But there are no home run returns to be had here, as big steady dividends are their chief appeal and share-price appreciation comes secondary, hence Wall Street analysts' middling ratings.


The biggest dividend payer in the group, insurance underwriter Old Republic International (Symbol : ORI), has a yield of 7.4%, while the biggest share-price return is that of another insurer, Cincinatti Financial, with a 19.5% total return (which includes dividends). Its shares carry a hefty 4.4% dividend yield.


The S&P 500's total return is 12.5% this year, including a 2% dividend yield.


Here are 10 stocks of the 60 S&P dividend aristocrats with the best total returns ranked in inverse order of year-to-date gain:


10. Kimberly-Clark (Symbol : KMB )


Company profile: Kimberly-Clark (Symbol : KMB ), with a market value of $31 billion, is a major consumer products company with a stable of tissue, personal-care and health-care brands including: Huggies, Pull-Ups, Kotex, Depend, Kleenex and Scott.


Dividend Yield: 3.76%


Investor takeaway: Its shares are up 7.4% this year and have a three-year, average annual return of 20%. Analysts give its shares one "buy" rating, one "buy/hold," 12 "holds," and two "weak holds," according to a survey of analysts by S&P. Analysts estimate it will earn $5.15 per share this year and that that will rise by 8% to $5.54 per share next year.


Morningstar says Kimberly-Clark (Symbol : KMB ) "throws off a ton of cash, but it's facing an increasingly difficult time in its categories" due to competitive pricing pressures domestically and in Europe. There are also valuation concerns as the shares have gained 23% in the past 12 months.


9. Genuine Parts (Symbol : GPC )


Company profile: Genuine Parts (Symbol : GPC ), with a market value of $10 billion, is a wholesale distributor of automotive replacement parts, industrial parts and supplies, and office products.


Dividend Yield: 3.01%,


Investor takeaway: Its shares are up 8.2% this year and have a three-year, average annual return of 28%. Analysts give its shares eight "holds" and one "weak hold," according to a survey of analysts by S&P.


8. Bemis International


Company profile: Bemis, with a market value of $3 billion, manufactures flexible-packaging products and pressure-sensitive materials. About 65% of its sales come from the food industry.


Dividend Yield: 3%


Investor takeaway: Its shares are up 9% this year and have a three-year, average annual return of 13%. Analysts give its shares one "buy" rating, one "buy/hold," 10 "holds," and two "weak holds," according to a survey of analysts by S&P. Analysts estimate it will earn $2.10 per share this year and $2.36 next year, representing 12% growth.


S&P says its "hold" rating "is based on our valuation metrics, along with still challenging global markets and high raw material costs."


7. Old Republic International (Symbol : ORI)


Company profile: Old Republic (Symbol : ORI ), with a market value of $2.6 billion, is an insurance underwriter in the U.S. and Canada.


Dividend Yield: 7.10%


Investor takeaway: Its shares are up 9.7% this year and have a three-year, average annual return of 8%. Analysts give its shares one "hold" and one "weak hold" rating, according to a survey of analysts by S&P.


6. RPM International (Symbol : RPM )


Company profile: RPM International (Symbol : RPM ), with a market value of $4 billion, makes specialty chemical products to industrial and consumer markets worldwide.


Dividend Yield: 3.20%


Investor takeaway: Its shares are up 10% this year and have a three-year, average annual return of 28%. Analysts give its shares two "buy" ratings, six "holds," and one "sell," according to a survey of analysts by S&P. Analysts estimate it will earn $1.62 per share this year and that earnings will rise by 11% to $1.80 per share next year.


5. Coca-Cola


Company profile: Coca-Cola, with a market value of $173 billion, makes carbonated and still beverages, and sells non-alcoholic beverages worldwide.


Dividend Yield: 2.65%


Investor takeaway: Its shares are up 11% this year and have a three-year, average annual return of 25%. Analysts give its shares 10 "buy" ratings, five "buy/holds," and seven "holds," according to a survey of analysts by S&P.


4. AT&T (Symbol : T )


Company profile: AT&T (Symbol : T ), with a market value of $194 billion, is the second-biggest U.S. wireless carrier, serving 89 million traditional customers and 12 million "connected devices" such as e-readers. It is also the dominant local phone company in 22 states.


Dividend Yield: 5.39%


Investor takeaway: Its shares are up 12% this year and have a three-year, average annual return of 14%. Analysts give its shares seven "buy" ratings, six "buy/holds," 22 "holds," and one "sell," according to a survey of analysts by S&P.


3. Abbott Laboratories (Symbol : ABT )


Company profile: Abbott, with a market value of $97 billion, makes and markets pharmaceuticals, medical devices, blood glucose monitoring kits, and nutritional health-care products.


Dividend Yield: 3.29%


Investor takeaway: Its shares are up 12.5% this year and have a three-year, average annual return of 18%. Analysts give its shares five "buy" ratings, five "buy/holds," 12 "holds," and one "sell," according to a survey of analysts by S&P. Analysts estimate it will earn $5.03 per share this year and $5.37 in 2013, or 7% growth.


2. Federal Realty Investment Trust (Symbol : FRT )


Company profile: Federal Realty, with a market value of $6 billion, is an equity real estate investment trust (REIT) that specializes in the ownership, management and redevelopment of community and neighborhood shopping centers.


Dividend Yield: 2.74%


Investor takeaway: Its shares are up 13% this year and have a three-year, average annual return of 28%. Analysts give its shares two "buy" ratings, two "buy/holds," and 11 "holds," according to a survey of analysts by S&P. Analysts estimate that it will earn $2.40 per share this year and $2.65 in 2013.


1. Cincinatti Financial


Company profile: Cincinatti Financial, with a market value of $6 billion, is an insurer that provides coverage for commercial casualty, commercial property, commercial auto, and workers' compensation risk.


Dividend Yield: 4.40%


Investor takeaway: Its shares are up 19.5% this year and have a three-year, average annual return of 21%. Analysts give its shares six "holds" and one "sell," according to a survey of analysts by S&P.



Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.




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