(CN) – A Florida man bilked investors for more than $8 million by using his investment firm to pump up the share prices of two biomedical start-ups before dumping them on the penny stock market, the SEC says. It sued Seven Palm Investments and its CEO Peter Veugeler in Chicago Federal Court, and claims they were assisted by Cardiovascular Sciences and its CEO Lawrence H. Hooper Jr.
The SEC claims the defendants issued misleading press releases and other correspondence to investors to pump up share prices. Veugeler, 41, lives in Naperville, Fla., Hooper, 56, in Oviedo, Fla.
Before getting into the scheme, Hooper and Cardiovascular Sciences were clients of the University of Central Florida’s business incubation program, conducting research into a proprietary post-surgery, anti-adhesion technology, the SEC says.
But by the time that relationship ended in late 2007, Cardiovascular Science’s financial condition was dismal, with a total bank balance of $57, according to the complaint.
At that point, Hooper solicited Veugeler to provide financing for the company, and Veugeler agreed to give him $1 million for 5 million Cardiovascular Science shares, the SEC says. But it claims that Seven Palms actually paid Cardiovascular Science only $140,000.
The SEC claims that Hooper kept up false appearances, telling an unidentified newspaper that Seven Palms’ $1 million investment would “allow the company to develop its products more rapidly and enter the marketplace within the next two years.”
In the meantime, Veugeler used Seven Palm’s accounts at multiple broker-dealers to place numerous buy orders for small amounts of Cardiovascular Science stock, creating the façade of a highly sought-after stock and ensuring that the price of the shares would not fall dramatically, the SEC says.
In a matter of months, Veugeler and Seven Palm realized more than $4.6 million in illicit profits, though when the scam ended, Cardiovascular Science’s stock was virtually worthless, the SEC says.
The SEC says Veugeler repeated the scheme with a second biomedical company, Emergent, which claims to make immunity boosters and weight-loss products.
The SEC seeks declaratory and injunctive relief, disgorgement of ill-gotten gains, civil penalties for securities violations and wants the defendants barred from participating in the penny stock market.