The SEC charged two financial firms and three individuals with running a fraudulent "portfolio pumping" scheme to manipulate prices of small U.S. stocks, generating at least $63.7m of illegal proceeds.

The U.S. Securities and Exchange Commission charged Florian Homm and Todd Ficeto with running the two-year scheme through Hunter World Markets Inc, their Beverly Hills, California-based broker-dealer.

Also charged was Colin Heatherington, a Canadian trader who worked for Homm, and Hunter Advisors LLC, a company controlled by Ficeto, the SEC said.

The SEC said Homm, Ficeto and Heatherington took several thinly-traded microcap stocks public through so-called "reverse mergers," and then sold shares at inflated prices to eight now defunct offshore hedge funds managed by Absolute Capital Management Holdings Ltd, a London-based company run by Homm.

According to the SEC, the manipulation let Homm inflate the hedge funds' performance and value by at least $440m.

Ficeto garnered further illegal profit by controlling Hunter Advisors, which directed investments of a "fund of funds" also involved in the manipulation, the SEC said.

The scheme ran from Sept. 2005 to Sept. 2007 and involved hundreds of instant messages between Absolute Capital and Hunter World Markets traders that were recorded on a "secret, alternate messaging system" to avoid detection by regulators, the SEC said.

"Ficeto and Homm repeatedly abused their positions as securities industry professionals to commit a wide-ranging, cross-border fraudulent scheme," Rosalind Tyson, director of the SEC regional office in Los Angeles, said in a statement. "They defrauded investors in offshore hedge funds."

According to the SEC, Ficeto lives in Malibu, California and Heatherington in Victoria, British Columbia, while Homm has lived on the island of Mallorca off the coast of Spain.