BHP Capital's Alleged Shenanigans: Unregistered Dealing and Possible Short Selling Playground?
Operation allowed them to transform over 100 convertible notes into about four billion new common stock shares, earning them millions in profits and a perfect opportunity to naked short sell.
https://www.sec.gov/litigation/admin/2023/34-97847.pdf
From December 2017 through mid-2022 (“relevant period”), BHP Capital was a New York corporation operated by Bryan Pantofel (“Pantofel”). Pantofel was the founding member of BHP Capital and is its sole officer. BHP Capital has never been registered with the Commission in any capacity.
On June 29, 2023, a final judgment was entered by consent against BHP Capital, permanently enjoining it from directly or indirectly making use of the mails or any means or instrumentality of interstate commerce to effect any transactions in, or to induce or attempt to induce the purchase or sale of, any security (other than an exempted security or commercial paper, bankers’ acceptances, or commercial bills) while engaged in and pursuant to the regular business of buying and selling securities (not including security-based swaps, other than security-based swaps with or for persons that are not eligible contract participants) for its own account through a broker or otherwise unless it is registered as a broker-dealer with the Securities and Exchange Commission, or unless it is associated with a broker-dealer that was so registered, in the civil action entitled Securities and Exchange Commission v. BHP Capital NY, Inc., et al., Civil Action Number 1:23-cv22233-DPG, in the United States District Court for the Southern District of Florida
The Commission’s complaint alleged that BHP Capital, through Pantofel, operated as an unregistered dealer through its business of buying convertible notes from penny stock issuers, converting those notes into stock at a discount from the prevailing market price, and selling the newly issued shares into the public markets. The complaint also alleged that during the relevant period, BHP Capital funded more than 100 convertible notes and associated warrants with 47 issuers, converted the notes into approximately four billion shares of newly issued common stock, and generated millions in trading profits. Neither BHP Capital nor Pantofel was registered with the Commission as a dealer during the relevant period, nor was either associated with a registered dealer.
Wut mean?
- The SEC claims that BHP Capital, through Pantofel, acted as an unregistered dealer. Their business involved buying convertible notes from penny stock companies, changing these notes into stocks at a cheaper rate than the market price, and then selling these new shares to the public.
- BHP Capital reportedly funded over 100 convertible notes, transforming them into about four billion shares of new common stock, and raked in millions in trading profits.
- The kicker? Neither BHP Capital nor Pantofel was registered with the Commission as a dealer or associated with a registered dealer during this time.
Here's how the actions of BHP Capital and Pantofel could potentially support Naked Short Selling:
- Convertibility of Notes: BHP Capital's business model involved buying convertible notes from penny stock issuers. Convertible notes are debt instruments that can be converted into a predetermined amount of the company's equity at certain times during its life. This convertible nature could potentially be misused to create shares that technically don't exist yet, facilitating naked short selling.
- Discounted Shares: Converting these notes into shares at a discount and then selling them to the public could create an artificial incentive for short sellers. If they anticipate that these actions will lower the stock price, they may decide to sell short in the hopes of profiting from the predicted drop in price.
- Unregistered Dealer Activity: As BHP Capital and Pantofel were not registered as dealers or associated with a registered dealer, their actions could evade standard regulatory oversight. This lack of scrutiny might have allowed them to engage in or facilitate manipulative practices such as naked short selling, since these actions wouldn't be as closely monitored as those of registered entities.
TLDRS:
- The SEC is calling out BHP Capital and Pantofel, accusing them of acting like unregistered dealers. What they've allegedly been doing is buying convertible notes from penny stock companies, converting these notes into stocks at a cheaper rate than the market price, and selling these new shares to public markets.
- This operation allowed them to transform over 100 convertible notes into about four billion new common stock shares, earning them millions in profits.
- All this while neither BHP Capital nor Pantofel was registered with the Commission as a dealer.
- Their actions might have provided a playground for manipulative practices like naked short selling, by creating conditions ripe for artificially inflating supply and influencing stock prices.
- Keep in mind, though, that they haven't been directly accused of naked short selling, but their actions could have potentially enabled such practices.
