Beaufort and the Regulators: US Prosecutors Expose Wide Ranging Scam

News began to emerge yesterday of problems at broker Beaufort Securities. Firstly, the FCA posted this RNS stating that brokerages Beaufort Securities Limited and Beaufort Asset Clearing Services Limited had been placing into insolvency, must cease all regulated activities, and that administrators had been appointed who would seek to protect client assets.

Not long after, this indictment by the US Securities and Exchange Commission (SEC) came to light, alleging market manipulation in the US by Beaufort Securities and the individual Peter Kyriacou. This announcement of a much broader indictment, naming a further 5 individual defendants and two further corporate defendants, as well as Beaufort and Kyriacou, was then drawn to my attention.

These announcements appear to lift the lid on long suspected scams. The nature of the pump and dump scams, set out in the indictments involved:

1. Principals in the scams acquiring microcap shell companies, traded on the US OTC market (but the same modus operandi could apply on AIM), which started out as very illiquid
2. The Principals inserting their own management into those companies, who would  issue press releases of “news that’s not really news” at “certain points in time.”
3. Kyriacou allegedy said: “That’s what we need. We need for these smaller cap companies,
   the problem is…when they initially raise money, the news flow goes dry after, and then the share price starts to trickle down…. You need constant news on these companies.”
4. The indictment goes on to describe “wash trades”, whereby owners of the stock in the subject company use nominees to buy and sell stock to themselves, giving the appearance that the stock is liquid and trading actively (at whatever prices the scammers choose). Remember, if you study trades, that for every apparent buyer there must be a seller.
5. The combination of constant newsflow, promotion via bulletin boards and other social media and apparent liquidity/buying interest entices naïve investors to purchase the stock from the Principals netting the latter a large profit and leaving the former holding the baby when, ultimately, the worthless nature of the subject company is exposed.

One sad aspect of this type of scam, which I have observed, is that the naïve investors who have been duped refuse to believe that the company they have invested in is not what they believe it be. Though not part of the scam themselves, they will often attack anyone posting comments suggesting that the subject company may have been “pumped up”, accusing such posters of “deramping”, rather than studying causes for concern carefully.

A long list of AIM companies that Beaufort has been involved with can be seen here: https://www.investegate.co.uk/Index.aspx?searchtype=1&words=beaufort

Whilst the fact of Beaufort’s involvement does not necessarily mean that those companies are not what they appear to be, I would urge any investors or potential investors in them to consider carefully whether the company’s history and track record fits the pattern the indictments have described.

It is disappointing, but not surprising to me, that these allegations have only come to light through the work of the US SEC, who conducted a sophisticated sting operation to uncover the alleged nefarious activities of the defendants. Where are the FCA, the AIM regulatory team and the SFO in the UK? As you may be aware, ShareSoc has been running a campaign to improve the AIM market for several years. We have held several meetings with Marcus Stuttard, head of AIM, and principals of the regulatory team. We hope that this exposé by the SEC will act as a wake up call.

However, a clear issue which this case highlights is whether these regulatory and law enforcement bodies have sufficient resources to be able to conduct similar operations to uncover perpetrators of such scams and, when they are uncovered, whether the penalties that can be imposed in the UK are sufficient deterrent. I will discuss with my ShareSoc board colleagues what we can do to prompt a parliamentary enquiry into such matters.

Mark Bentley