A Pump-and-Dump Scheme With Magic Mushrooms

The Commission’s most recent manipulation case is a classic “pump-and-dump” action, in contrast to the almost continuous stream of offering fraud cases. This case also has a key to attract the attention of investors – magic mushrooms. SEC v. Minerco Inc., Civil Action No. 1:24-cv-02870 (D.D.C. Filed October 9, 2024).

Named as defendants in this action are: the company, essentially a Nevada shell entity; Bobby Schumake Japhia, a Dallas resident who has previously been named as a defendant in a Commission initiated action; and Julius Makiri Jenge, a Maryland resident who was the subject of an earlier Commission subpoena enforcement action.

The action centers on the sale of Minerco stock which ultimately netted Defendants about $8 million. That firm was pared with psilocybin mushrooms, a plant-based hallucinogen popularly known as “magic mushrooms.”

The scheme began with personal friends of Mr. Shumake serving as nominees who were used to gain undisclosed control of the company. The nominees quickly gained control of Minerco through devices such as the acquisition of a note that converted into millions of Minerco shares.

Once control of Minerco was obtained, Defendants began to push-up the share price. This was done by using press releases hyping the fact that they partnered with a Jamaican firm that would lend expertise in growing a unique strain of psilocybin. The firm would also transfer to Minerco its Jamaican cannabis licenses. Collectively these assets were supposedly valued at $1 billion by an independent third party. Additional false statements about Minerco and its operations were made despite the fact that its charter had been revoked. The public was told that Minerco was a thriving, growing business. A celebrity concert was used to promote the products and sell one million concert tickets.

The scheme came to a conclusion with a dump of Minerco shares into the market that had been pumped through Defendants’ promotion efforts. Ultimately about $3.4 million was dumped back into the company by a Shumake controlled entity named Shubox LLC. Those funds were used to pay Mr. Shumake along with Defendant Jeng to defray the costs of the scheme. The complaint alleges violations of Securities Act Sections 17(a)(1) & 3 and Exchange Act Section 10(b). See Lit. Rel. No. 26150 (Oct. 9, 2024).