According to FINRA, Craig Stanton Norton was barred from association with any FINRA member in all capacities and ordered to pay disgorgement of $240,360 plus interest on March 21, 2022, for willfully violating securities laws through market manipulation.
Norton manipulated the price of an over-the-counter microcap security by purchasing 250 shares for his firm's proprietary account at $5 per share, setting an artificially high closing price. This price helped release millions of shares held by Norton's customers from resale restrictions. Over the following months, during a paid stock promotion, Norton used his role as market maker to coordinate trading among his customers, creating the false appearance of active trading at steadily increasing prices. This enabled his customers to liquidate their holdings at artificially inflated prices.
As a result of the manipulative trading, firm customers sold approximately 13.2 million shares, generating about $8.5 million in net proceeds. Norton and the firm generated $400,600 in trading compensation, with Norton receiving about 60 percent of that revenue.
Despite being aware of numerous red flags - customers acquired shares on identical terms and prices under nearly identical agreements, deposited shares at the same time - Norton failed to raise concerns with his firm. Instead, he relied merely on customers' representations that they were not acting in concert.
Microcap securities manipulation schemes harm innocent investors who purchase shares at inflated prices based on false impressions of market activity. When the manipulation ends, prices typically collapse, leaving those investors with significant losses.
This case demonstrates how market makers can abuse their positions to facilitate manipulative schemes. Norton's coordination of trading to create artificial price increases represents precisely the type of market manipulation that securities laws prohibit.
Investors should be extremely cautious about thinly traded microcap stocks, particularly those subject to promotional campaigns. Warning signs include rapid price increases on unusually high volume, paid stock promotions, and coordinated buying activity.
