Two Carlsbad men face federal civil and criminal charges for allegedly orchestrating a pump-and-dump scheme involving penny stocks that authorities claim generated millions in illicit profits.
The U.S. Securities and Exchange Commission filed a lawsuit on Tuesday in Massachusetts accusing Joseph A. Padilla, 54, and Kevin C. Dills, 66, of violating anti-fraud provisions of securities laws.
The pair live within walking distance of each other in Carlsbad, according to court filings.
The SEC lawsuit follows a federal criminal indictment handed up in March against the two men on securities fraud and conspiracy charges. Padilla also faces allegations of violating the conditions of his pre-trial release.
A lawyer representing Dills didn’t respond to a request for comment.
Padilla’s attorney, Robert Goldstein, said in an email that “Mr. Padilla adamantly denies the allegations and looks forward to prevailing in court.”
Authorities allege that between 2020 and 2022, Padilla conspired with others — including some Russians and a Cayman Islands broker-dealer — to pump up the share prices of thinly traded penny stocks through manipulative trading, promotions and other means before dumping the shares at inflated prices.
Dills was allegedly involved in one of those schemes with Oncology Pharma, where he controlled nearly all of the free trading shares through shell companies.
Padilla is a former stockbroker who agreed to a settlement with the SEC in 2012 barring him from the brokerage industry, according to court documents.
Dills is the former owner of broker-dealer Del Mar Financial Services. In 1999, Dills was barred from the securities industry by the SEC for promoting a stock to his brokerage clients in exchange for kickbacks.
According to the SEC, Dills obtained control of the bulk of Oncology Pharma’s available shares and transferred them to people and entities associated with Padilla. They engaged in manipulative trading to drive up the stock price while Dills used his influence as a large shareholder to cause the company to issue positive press releases, according to authorities.
After the shares price increased, Padilla then sold shares at artificially high prices to unsuspecting investors. The scheme allegedly generated $150 million in gains — including $19 million for Dills.
The SEC is seeking civil fines against Padilla and Dills, as well as the claw-back of profits, penny stock bars, permanent injunctions and other measures.
Under the criminal indictment handed up in March, Padilla and Dills face fraud and conspiracy charges that could result in sentences of up to 20 years in prison and fines ranging from $250,000 to $5 million.
Padilla was initially arrested in August on a criminal complaint prior to the indictment. He was released with pre-trial conditions but ordered to surrender his port. He also owns a house in Cabo San Lucas, Mexico.
Prosecutors now allege Padilla attempted to acquire a Ukrainian port. He was taken into custody in January for violating the of his initial release agreement.
Other over-the-counter companies also were swept into the pump-and-dump schemes orchestrated by Padilla, according to the SEC. They include Charlestowne Beverage, Xtreme Fighting Championships and at least four others.
The U.S. Attorney’s Office in Massachusetts is prosecuting the criminal case. The SEC’s Boston regional office is handling the civil lawsuit.
