Markets Wired

The Securities and Exchange Commission today charged lawyer Michael J. Woodford for his role in a fraudulent scheme to conceal attorney Diane D. Dalmy’s involvement in preparing legal opinion letters concerning the sale of certain microcap securities from transfer agents and brokerage firms. Dalmy was previously charged by the SEC in a complaint filed in federal court in Colorado in March 2019. Today’s SEC action amended that complaint to add Woodford as a defendant for his role in the scheme.

The initial complaint alleged that Dalmy recruited a lawyer to facilitate her scheme to circumvent the consequences of being placed on the OTC Market Group Inc.’s list of prohibited attorneys. The OTC Market Group owns and operates the largest U.S. electronic quotation and trading system for microcap securities. The SEC’s amended complaint charges Woodford as the lawyer who allegedly signed the legal opinion letters drafted by Dalmy and provided them to transfer agents and brokerage firms. According to the complaint, Woodford, a divorce attorney with no previous securities law experience, signed the opinion letters without performing due diligence or conducting any legal analysis, despite representations made in the letter that he had done so. The SEC alleges that legal opinion letters are a significant factor in transfer agents’ and brokerage firms’ decisions to deem certain securities eligible to be freely sold on the public market without SEC registration, and that transfer agents and brokerage firms often refuse to accept legal opinion letters from attorneys subject to OTC Markets prohibitions. The SEC’s amended complaint further alleges that, in 2016, Dalmy was permanently suspended from appearing and practicing before the SEC as an attorney, which prohibited her from representing clients in SEC matters, including advising clients about SEC filing obligations or content. Despite this, the SEC alleges that Dalmy continued to prepare filings for publicly traded companies and directing Woodford to sign and file them with the SEC.

The SEC’s amended complaint, filed in U.S. District Court for the District of Colorado, charges Dalmy and Woodford with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and seeks from both defendants permanent injunctions against violating these provisions, disgorgement of ill-gotten gains plus interest, penny stock bars, and seeking from Woodford civil penalties. In addition, the SEC seeks a conduct-based injunction prohibiting Dalmy from providing legal services pertaining to federal securities law exemptions from registration and requiring her to provide actual or potential clients seeking advice or representation in matters related to the federal securities laws with copies of the SEC’s prior actions against her and an order pursuant to Section 21(e) of the Exchange Act requiring Dalmy to comply with the SEC’s September 2016 order.

The SEC’s case is being handled by J. Lauchlan Wash, Josh Grinspoon, Frank Huntington, and Amy Gwiazda of the SEC’s Boston Regional Office. The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Connecticut and the Federal Bureau of Investigation.