A Massachusetts investment advisory firm and its owner allegedly cost investors as much as $12 million in losses while generating personal gains in a fraudulent penny stock scheme.
Hans Peter Black, owner, president, chief investment officer and compliance officer of Boston-based InterInvest Corporation Inc., faces fraud charges in the U.S. District Court, District of Massachusetts.
The U.S. Securities and Exchange Commission’s complaint alleges that Black funneled more than $17 million in client assets into four financially-troubled Canadian penny stock companies in which he has undisclosed business and financial interests.
According to the complaint, Black has taken positions on the boards of directors of four Canadian penny stock companies: Amorfix Life Sciences, a biotech firm; Wi2Wi, a wireless device manufacturer; Williams Creek Gold Ltd., a mineral exploration firm; and Tyhee Gold Corp., another mineral exploration firm.
The four companies were not profitable, yet allegedly paid more than $1.7 million combined in reimbursements and consulting fees to an entity Black controlled.
The SEC claims that, from 2010 to March 2015, InterInvest committed $17 million in client assets to the four companies without disclosing Black’s conflict of interest. Allegedly, in 2014, Black continued to invest client assets in the companies after warnings from InterInvest’s compliance officer at the time that the trades may have resulted in a breach of fiduciary duty.
The investments were also allegedly contrary to InterInvest’s advertised promises to engage clients in a “conservative, risk averse investment approach” with an emphasis on “capital preservation.” The SEC’s complaint claims that Black allocated client funds to the penny stock companies without regard to their stated risk tolerance.
Black and InterInvest also allegedly failed to follow through on client requests to liquidate holdings in the Canadian companies. By March 2015, InterInvest clients had incurred unrealized losses of more than $12 million on the investments.
During spring 2014, Black and InterInvest allegedly attempted to cover up their activities by changing their registration with the SEC to reflect Black’s involvement with the penny stock companies.
In 2015, at the conclusion of a routine SEC examination, Black and Intervest allegedly acknowledged deficiencies in their compliance practices and the need for additional disclosures, but as of Wednesday, they had not implemented any of the additional disclosures, and have also failed to respond to an SEC subpoena for company records sent in February.