Coffee Company Involved in Bold “Pump-and-Dump” Scheme

Posted on by MBELR

Last month, the SEC filed charges against the former CEO of Jammin’ Java, Shane Whittle.1 Jammin’ Java Corp., doing business as Marley Coffee, is a publicly traded U.S.-based coffee company listed on OTC exchanges.2 The SEC complaint, filed in the Central District of California, accuses Whittle and several accomplices of running a bold and intricate “Pump-and-Dump” scheme netting over $78 million in illicit profits.3

An ordinary pump-and-dump scheme has two parts. First, “promoters try to boost the stock with false or misleading statements about the company.”4 After the stock price has been “pumped” up, the fraudulent promoters attempt to cash in on major profits by “dumping” their shares into the market.5 Once the shares are dumped, the stock price typically plummets and investors lose their money.6 The schemes often violate federal securities registration and disclosure requirements, as well as laws against insider trading and anti-fraud and market manipulation provisions of the Securities and Exchange Acts.7 Pump-and-dump schemes typically target small cap “penny stocks” traded on crowded OTC exchanges and issued by small companies subject to less rigorous SEC disclosure and reporting requirements.8 The limited oversight gives fraudsters ample opportunity to take advantage of uninformed investors.9

Whittle’s relationship with Jammin’ Java began in 2005 when the penny-stock promoter befriended Rohan Marley, son of reggae legend Bob Marley, in California.10 After learning Marley had recently acquired a small coffee plantation in Jamaica, Whittle convinced him to join in forming a large scale coffee distribution business utilizing Marley’s late father’s image to market bottled beverages.11 According to the SEC’s complaint, Whittle informed Marley he was in the business of building shell companies and selling them to other entities.12

Subsequently, Whittle and Rohan formed Marley Coffee, registered under the name Jammin’ Java.13 In 2008, to raise capital for the new company, Whittle executed a reverse merger with a publicly traded shell company, GERC.14 At the time, Whittle was GERC’s controlling shareholder and a member of its board of directors. After the reverse merger, Whittle stayed on the board and exclusively managed the new entity as CEO, Treasurer, and Secretary.15 Whittle immediately became Jammin’ Java’s largest shareholder, directly holding 9.7% of the company’s outstanding shares.16 Additionally, in anticipation of the merger, Whittle had secretly acquired several million shares of GERC stock through the use of four separate offshore holding companies controlled by Whittle.17 The acquisition gave him control of 21% of Jammin Java’s shares after the merger.18

In 2010, the Vancouver Sun ran a story linking Whittle to numerous suspect penny-stock promotions.19 The negative publicity led to Whittle’s resignation from Jammin’ Java’s board. However, Whittle maintained a relationship with the company by acting as a “consultant” and de facto officer.20 After his resignation, Whittle secretly acquired another 3% of the company’s shares, bringing his total control up to 24%.21

In 2011, Whittle executed his intricate pump-and-dump scheme with the assistance of several affiliates. First, Whittle and two affiliates orchestrated a sham financing agreement to create the false appearance of legitimate third-party interest and investment in the company.22 In preparation for the announcement of this fake arrangement, Whittle distributed large blocks of Jammin’ Java stock to several offshore holding companies acting as intermediaries in the scheme.23 Immediately after Jammin’ Java announced the financing agreement, the intermediaries coordinated trades of the stock and the company’s share price began to rise.24 To further the scheme, Whittle and his affiliates made material omissions about beneficial ownership and circulated misleading newsletters to hype the stock.25

Bolstered by the hype surrounding the financing announcement, Jammin’ Java’s share price surged from $0.13 in December 2010 to $6.35 by May 2011 – inflating the value of the company to $400 million despite revenue of just $1,037 in 2010.26 On cue, the intermediaries under Whittle’s control dumped their shares into the public market without registering the transactions, netting them over $78 million in profits.27 A portion of the profits were then funneled back to Jammin’ Java under the guise of the very sham financing agreement that had launched the promotion.28

  1. Press Release, Sec. & Exch. Comm’n, SEC Charges Pump-and-Dump in Marley Coffee Stock (Nov. 17, 2015), http://www.sec.gov/news/pressrelease/2015-259.html. ↩

  2. Marley Coffee, http://investor.marleycoffee.com/ (last visited Dec. 7, 2015). ↩

  3. See Press Release, Sec. & Exch. Comm’n, SEC Charges Pump-and-Dump in Marley Coffee Stock (Nov. 17, 2015), http://www.sec.gov/news/pressrelease/2015-259.html. ↩

  4. Complaint at *5, SEC v. Jammin’ Java Corp., No. 2:15-CV-08921 (C.D. Cal., Nov. 17, 2015). ↩

  5. Id. ↩

  6. Id. ↩

  7. Id. at *5-7. ↩

  8. William Barnett, How to Spot a Pump and Dump, Forbes (Apr. 7, 2010), http://www.forbes.com/forbes/2010/0426/investing-pink-sheets-fraud-stock-scam-madoff-spot-pump-dump.html. ↩

  9. Id. ↩

  10. Press Release, Sec. & Exch. Comm’n, SEC Charges Pump-and-Dump in Marley Coffee Stock (Nov. 17, 2015), http://www.sec.gov/news/pressrelease/2015-259.html. ↩

  11. Marlene Satter, SEC, FINRA Enforcement: Bob Marley’s Son’s Coffee Company Faces Pump-and-Dump Probe, ThinkAdvisor (Nov. 20, 2012), http://www.thinkadvisor.com/2015/11/20/sec-finra-enforcement-bob-marleys-sons-coffee-comp?ref=hp-latest-news. ↩

  12. Complaint at *7, SEC v. Jammin’ Java Corp., No. 2:15-CV-08921 (C.D. Cal., Nov. 17, 2015). ↩

  13. Press Release, Sec. & Exch. Comm’n, SEC Charges Pump-and-Dump in Marley Coffee Stock (Nov. 17, 2015), http://www.sec.gov/news/pressrelease/2015-259.html. ↩

  14. See Complaint at *7, SEC v. Jammin’ Java Corp., No. 2:15-CV-08921 (C.D. Cal., Nov. 17, 2015). ↩

  15. Id. at *8. ↩

  16. Id. at *9. ↩

  17. See id. ↩

  18. See id. ↩

  19. See D. Baines, Vancouver Promoter Offers Unfriendly Advice to Journalists, Vancouver Sun (May 13, 2010), http://www.canada.com/story.html?id=a08e0372-7ffa-4b48-b32e-ddd5b3e38c74. ↩

  20. See Complaint at *8, SEC v. Jammin’ Java Corp., No. 2:15-CV-08921 (C.D. Cal., Nov. 17, 2015). ↩

  21. Id. ↩

  22. Press Release, Sec. & Exch. Comm’n, SEC Charges Pump-and-Dump in Marley Coffee Stock (Nov. 17, 2015), http://www.sec.gov/news/pressrelease/2015-259.html. ↩

  23. See Complaint at *10-13, SEC v. Jammin’ Java Corp., No. 2:15-CV-08921 (C.D. Cal., Nov. 17, 2015). ↩

  24. Id. at *19-23. ↩

  25. Press Release, Sec. & Exch. Comm’n, SEC Charges Pump-and-Dump in Marley Coffee Stock (Nov. 17, 2015), http://www.sec.gov/news/pressrelease/2015-259.html. ↩

  26. Google Finance, Jammin Java Corp (OTCmkts:JAMN), Historical Prices, https://www.google.com/finance?q=OTCMKTS:JAMN; James Koren, Former Marley CEO Charged in Alleged ‘Pump-and-Dump’ Scheme, LA Times (Nov. 17, 2015), http://www.latimes.com/business/la-fi-marley-coffee-fraud-20151117-story.html. ↩

  27. Press Release, Sec. & Exch. Comm’n, SEC Charges Pump-and-Dump in Marley Coffee Stock (Nov. 17, 2015), http://www.sec.gov/news/pressrelease/2015-259.html. ↩

  28. Id. ↩

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