The U.S. Securities and Exchange Commission (SEC) on October 9 charged two investors and Minerco, Inc., an inactive penny stock company, which was formerly MINE on an over-the-counter ticker, with defrauding investors in an $8 million pump and dump scheme.1
In this case, Bobby Shumake Japhia, formerly known as Robert Samuel Shumake, Jr. and Shumake, secured a large amount of stock in Minerco and then arranged for Julius Makiri Jenge to assume control of Minerco. Then the two worked to increase Minerco’s stock price by “promoting Minerco as the first publicly traded company focused on the research, production and distribution of psilocybin mushrooms with psilocybin being the principal psychoactive component in a plant-based hallucinogen, magic mushrooms.” 2
When Shumake dumped his shares he made $3.4 million and investors lost $8 million.
Pump and dump schemes have proliferated for quite a while. A survey of spam e-mail messages conducted in 2004 to 2005 found that these schemes accounted for about 15 percent of spam email messages and that the spammers could make an average return of 4.29 percent and the recipients typically lose close to 5.5 percent of their investment within two days.3
How these schemes work is that a fraudster buys a large amount of shares in a company whose stocks are selling for less than $5 per share and are not traded on major exchanges, are thinly traded or difficult or impossible to sell short and then puts out a false statement on social media or in an investment newsletter about the company or its products.4
There is usually an enticement such as that the fraudster knows something about the company or product that will make the stock price rise, such as a major breakthrough, and to take advantage of this “insider information” the stock purchaser has to act quickly. This is the pump part of the scheme.
The dump part occurs when a significant number of shares are purchased by unsuspecting investors and the fraudsters stop hyping the company and quickly sell the shares they purchased, making a profit and sending the stock price plummeting so other investors lose their money or are left with worthless, or near worthless stock.
The Minerco scheme ran from October 2019 through May 2021. In the case of the Minerco stock, Shumake and Minerco issued press releases which were alleged by the SEC to contain false statements that the company was partnering with a Jamaican company with expertise in growing a “unique strain of psilocybin” and that the Jamaican company was going to give Minerco its Jamaican cannabis license, valued at $1 billion by an independent third party.5
Investors were also purportedly told that Minerco was a Nevada company, however, its charter had been revoked.
The SEC complaint seeks permanent injunctions, disgorgement with prejudgment interest and civil monetary penalties against Shumake and Jenge. It also seeks conduct-based injunctions and penny stock and officer-and-director bars against both men.
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Take action to protect your investor rights by contacting an experienced securities attorney. If you have questions about investment fraud, financial schemes, broker misconduct, or about how your broker is managing your account, please contact our Securities Law Firm located in Royal Oak.
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1,2 Press Release: SEC Charges “Magic Mushroom” Company and Two Individuals with Multimillion Dollar Pump-and-Dump Scheme, 10/9/2024
Link: https://www.sec.gov/newsroom/press-releases/2024-165
3, 4 Pump and Dump
Link: https://en.wikipedia.org/wiki/Pump_and_dump#:~:text
5 SEC Complaint, 10/9/2024
Link: https://www.sec.gov/files/litigation/complaints/2024/comp-pr2024-165.pdf