A New York securities lawyer faces 1½ years in prison and will pay $4.6 million in fines after admitting to orchestrating a stock manipulation scheme. His alleged accomplices, two Canadian stock promoters, were also charged with fraud Tuesday for allegedly scheming to inflate the prices of penny stocks to reap millions of dollars in profits.

Adam S. Gottbetter, managing partner of Gottbetter & Partners LLC and owner of Gottbetter Capital Investments, a registered broker-dealer, and K. David Stevenson, a Vancouver-based stock promoter, agreed to settle charges brought by the U.S. Securities and Exchange Commission in the U.S. District Court, District of New Jersey, on Tuesday. A third defendant, Mitchell G. Adam, of Vancouver, was arrested May 20 and is contesting the SEC’s claims.

The SEC alleges that over a six-year period, Gottbetter orchestrated promotional campaigns that touted the prospects of micro-cap companies and enticed investors to buy their stock at inflated prices.

The SEC seeks an order barring Gottbetter, Adam and Stevenson from participating in the offering of penny stocks, payment of disgorgement, and payment of civil penalties.

In a parallel action, the U.S. Attorney’s Office for the District of New Jersey announced criminal charges against the three men.

Gottbetter agreed to pay $4.6 million to settle the SEC’s complaint, and will serve 18 months in prison after pleading guilty to the criminal charges.

Stevenson pleaded guilty in December and will be sentenced in May.

“As a securities lawyer, Gottbetter should have served as a gatekeeper and protected the capital markets and investors from fraudsters. Instead, he swung the gates wide open and illicitly profited at investors’ expense,” said Andrew Ceresney, Director of the SEC’s Division of Enforcement. 

According to the SEC complaint, Gottbetter was involved in manipulating the stocks of Kentucky USA Energy Inc. and Dynastar Holdings Inc. before enlisting Adam and Stevenson’s offshore ties in a more lucrative scheme.

Together, the trio planned to drive up the stock price for purported oil and gas exploration company HBP Energy Corp. through fraudulent trades generated by a trading algorithm, according to the SEC. They then allegedly planned to launch a promotional campaign featuring multiple call centers, roadshows and a listing on the Frankfurt Stock Exchange.

During this time, the SEC claims that Gottbetter, Adam and Stevenson cautioned each other about the dangers of missteps that could have drawn law enforcement attention to the scheme, and rehearsed stories they would tell if ever questioned by law enforcement. During one New York meeting, Gottbetter allegedly complained about the difficulties of stock manipulation, conceding that robbing a bank was the only other way to make money so quickly.

After the trio created a false appearance of liquidity, the SEC alleges that they planned to dump their shares of the stock, but the scheme was thwarted before it could be launched when Stevenson was arrested by the FBI.

The SEC’s complaint alleges that Gottbetter violated Sections 5(a), 5(c) and Section 17(a) of the Securities Act of 1933, and violated and aided and abetted violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The complaint alleges that Adam and Stevenson violated and aided and abetted violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.