SEC Charges Jon Fullenkamp and Scott Sand in $2.6 Million Penny Stock Fraud Scheme

TL;DR

• The SEC charged Jon Fullenkamp and Scott Sand on March 31, 2026, for allegedly running a fraud scheme that siphoned $2.6 million from two publicly traded penny stock companies through sham agreements and fraudulent preferred share issuances.
• Fullenkamp also faces parallel criminal charges from the U.S. Attorney’s Office for the District of New Jersey — signaling the severity of the alleged conduct.
• The case highlights a recurring SEC enforcement pattern: individuals who exercise de facto management control without formal titles, making them harder to detect through standard governance reviews.

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The SEC dropped a fraud complaint on the last day of Q1 2026 that should make every compliance officer rethink how they monitor who actually controls a company versus who holds the title.

On March 31, 2026, the Securities and Exchange Commission filed a complaint in the U.S. District Court for the District of New Jersey charging Jon Fullenkamp and Scott Sand with orchestrating a scheme to misappropriate $2.6 million from two publicly traded penny stock issuers. The kicker: neither Fullenkamp nor Sand was formally identified as part of the companies’ management teams. They ran the show from behind the curtain.

What Actually Happened

According to the SEC’s complaint, from at least October 2020 through 2023, Sand and Fullenkamp exercised extensive control over two penny stock issuers — managing everything from regulatory compliance and financial reporting to investor relations. They were, in every functional sense, senior management. They just didn’t have the titles to match.

The alleged scheme worked like this:

1. Created a shell entity. Fullenkamp secretly controlled a separate company that had no legitimate business purpose in this context.
2. Engineered sham agreements. Sand and Fullenkamp caused the two penny stock issuers to enter into agreements with Fullenkamp’s shell entity — agreements the SEC characterizes as having no legitimate basis.
3. Issued fraudulent preferred shares. Under these sham agreements, the issuers handed over hundreds of thousands of preferred shares to the Fullenkamp-controlled company.
4. Cashed out. Sand and Fullenkamp sold some of those preferred shares to third-party buyers, netting $2.6 million in proceeds, which they split between themselves.

It’s a textbook scheme: create a company, funnel assets to it through fake deals, convert those assets to cash, pocket the money. The innovation — if you can call it that — was maintaining plausible deniability by never holding formal management titles at the victimized issuers.

The Charges and Penalties

The SEC charged both defendants with violations of:

Statute	What It Prohibits
Section 17(a)(1) of the Securities Act of 1933	Using any device, scheme, or artifice to defraud in the offer or sale of securities
Section 17(a)(3) of the Securities Act of 1933	Engaging in any transaction or practice that operates as a fraud in connection with securities offers/sales
Section 10(b) of the Securities Exchange Act of 1934	Fraud and manipulation in connection with the purchase or sale of securities
Rules 10b-5(a) and 10b-5(c)	Employing fraudulent schemes and engaging in deceptive practices in securities transactions

The SEC is seeking:

• Permanent injunctive relief against both defendants
• Disgorgement of all ill-gotten gains plus prejudgment interest
• Civil penalties (amounts to be determined by the Court)
• Penny stock bar and officer and director bar against Fullenkamp
• Conduct-based injunction against Sand
• Cancellation of all fraudulently acquired preferred and common shares held by Fullenkamp

Fullenkamp has already consented (without admitting or denying the SEC’s allegations) to a judgment that would permanently enjoin him, impose the officer/director and penny stock bars, require share cancellation, and order disgorgement and penalties in amounts the Court will determine later.

The Criminal Angle

This isn’t just a civil matter. The SEC’s litigation release confirms that Fullenkamp has also been charged in a parallel criminal action by the U.S. Attorney’s Office for the District of New Jersey. When DOJ gets involved alongside the SEC, it signals that prosecutors believe the conduct rises beyond regulatory violations into potential criminal fraud — carrying the possibility of prison time, not just financial penalties.

Why This Case Matters for Compliance Teams

This enforcement action illustrates three patterns that compliance practitioners need to internalize.

1. Shadow Management Is a Real and Growing Risk

The central allegation here is that Sand and Fullenkamp ran two public companies without holding formal management positions. They controlled regulatory compliance, financial reporting, and investor relations — the three pillars of corporate governance — while remaining invisible to anyone looking at the org chart.

For compliance teams, this creates a detection problem. Standard controls like:

• Officer and director background checks wouldn’t have flagged them
• Board composition reviews wouldn’t have identified them
• Insider trading monitoring keyed to named insiders would have missed them
• Related-party transaction reviews might have caught the sham agreements — but only if someone knew to look at Fullenkamp’s shell entity

The lesson: your governance controls can’t rely solely on formal titles. You need mechanisms to identify who actually exercises decision-making authority, regardless of what the org chart says.

2. Preferred Share Issuances Need Harder Controls

The fraud vehicle here was preferred share issuances under sham agreements. Preferred shares are a favored tool in penny stock schemes because they often carry conversion rights, special voting powers, or other features that can be exploited for value extraction.

Controls that would help prevent this type of scheme:

Control Activity	What It Catches
Independent board approval for all equity issuances above a threshold	Prevents insiders from self-dealing through share issuances
Third-party valuation of any agreement that triggers share issuance	Validates that the consideration exchanged for shares has real value
Beneficial ownership verification of counterparties to major agreements	Identifies when a counterparty is secretly controlled by company insiders
Share issuance reconciliation against board minutes and resolutions	Catches unauthorized or undocumented issuances
Transfer agent monitoring for unusual share movements	Flags large blocks of shares moving to new entities

3. The SEC’s Penny Stock Enforcement Isn’t Slowing Down

This case fits squarely within the SEC’s ongoing focus on penny stock fraud, which has been a priority across multiple SEC administrations. In fiscal year 2024, the SEC filed 583 total enforcement actions and obtained a record $8.2 billion in financial remedies. Penny stock fraud cases have consistently featured among the Division of Enforcement’s priorities, with the SEC regularly pursuing both civil and criminal parallel tracks for the most egregious schemes.

The SEC’s FY2026 examination priorities, released in late 2025, explicitly identified microcap and penny stock fraud as a strategic focus area — meaning more resources, more investigations, and more cases like this one.

What Your Firm Should Do Now

If you’re at a company that issues equity — especially a smaller public company, SPAC, or OTC-traded issuer — this case should prompt an immediate gut check on your controls.

30-Day Action Items

1. Map actual decision-makers. Go beyond the org chart. Document who has signing authority, who controls bank accounts, who communicates with regulators, and who manages investor relations. If anyone exercises management-level authority without a formal title, that’s a governance gap that needs addressing.

2. Review equity issuance controls. Pull every share issuance from the past 24 months. For each one: Was there independent board approval? Was the counterparty relationship verified? Was the underlying agreement reviewed by outside counsel? Any gaps should be flagged for remediation.

3. Audit related-party transactions. Run beneficial ownership checks on all counterparties to recent material agreements. Don’t just check disclosed related parties — actively investigate whether any counterparty is controlled by someone with influence over company operations.

4. Strengthen transfer agent protocols. Ensure your transfer agent has standing instructions to flag and escalate unusual share movements, particularly large blocks of preferred shares issued to entities without an established business relationship with the company.

60-90 Day Enhancements

5. Implement a “de facto officer” policy. Define criteria for when someone who doesn’t hold a formal title is nevertheless functioning as an officer or director. Require disclosure and subject those individuals to the same governance controls as named insiders.

6. Establish ongoing monitoring. Set up quarterly reviews of equity cap tables, counterparty relationships, and beneficial ownership of entities receiving shares. Automate where possible — manual reviews of cap tables get skipped when people are busy.

7. Train the board. Directors need to understand that sham agreements can look routine on paper. Brief them on red flags: agreements with newly formed entities, vague service descriptions, consideration paid in equity rather than cash, and counterparties with no independent web presence or operating history.

The Bigger Picture

The Fullenkamp and Sand case is a reminder that securities fraud doesn’t require sophisticated financial engineering. A shell company, some fake agreements, and a few hundred thousand preferred shares were enough to extract $2.6 million. The SEC described these two as effectively running the companies while staying off the books — a scheme that could play out at any small issuer with weak governance controls.

The parallel criminal charges raise the stakes further. When DOJ and the SEC coordinate, it usually means the evidence is strong and the government wants to send a message. For penny stock issuers and the professionals who advise them, that message is clear: the SEC is watching for shadow management, and the consequences now extend well beyond civil penalties.

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Frequently Asked Questions

What is shadow management in the context of securities fraud?

Shadow management refers to individuals who exercise actual control over a company’s operations — including financial reporting, compliance, and investor relations — without holding formal officer or director titles. In the Fullenkamp and Sand case, the SEC alleged both defendants functioned as senior management at two penny stock issuers while remaining invisible on the companies’ official organizational structures. This made them harder to detect through standard governance controls like background checks on named officers.

What are the red flags for preferred share fraud at small public companies?

Key red flags include: equity issuances to newly formed entities with no established business relationship, agreements where the consideration is vague or lacks independent valuation, counterparties that are secretly controlled by individuals with influence over the issuing company, large blocks of preferred shares being issued outside normal capital-raising activities, and any agreement where the counterparty’s beneficial ownership hasn’t been independently verified.

How can compliance teams detect de facto officers and directors?

Start by mapping who actually exercises decision-making authority at the company — who has signing authority on bank accounts, who communicates with regulators, who directs financial reporting, and who manages investor relations. Compare this map to the formal org chart. Anyone exercising these functions without a formal title should be disclosed, subjected to the same governance controls as named insiders, and monitored for related-party transactions.

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