Scottsdale Capital Advisors Sues me

Scottsdale Capital Advisors (referred to here and in many court filings as SCA) sued me personally and my company, MorningLightMountain LLC (referred to here and in many court filings as MLM), in The Kalamazoo County Circuit Court in Michigan. My lawyers removed it to federal court (Scottsdale Capital Advisors Corp. v. MorningLightMountain, LLC (1:18-cv-00533) U.S. District Court, W.D. Michigan) and then agreed with SCA’s lawyers to remand it back to state court. You can see all the initial filings and the filings that happened at the federal level for free at the Court Listener website:

https://www.courtlistener.com/docket/6627318/scottsdale-capital-advisors-corp-v-morninglightmountain-llc/

Full federal case docket
(Note that the links that are not PDFs are OCR text of the filings performed by CourtListener.com and will have errors):

1. May 11, 2018 Main Doc Notice of Removal Download PDF

Att 1 Exhibit 1 – Summons & Complaint Download PDF

Att 2 Exhibit 2 – First Amended Complaint Download PDF

Att 3 Exhibit 3 – State Court Register of Actions Download PDF

Att 4 Exhibit 4 – FINRA Amended Extended Hr’g Panel Decision Download PDF

Att 5 Exhibit 5 – Scottsdale Schedule of Commission & Fees Download PDF

Att 6 Exhibit 6 – Proof of Service for Notice of Removal Download PDF

2. May 14, 2018 Main Doc Notice Regarding Assignment of Case Download PDF

3. May 14, 2018 Main Doc Corporate Disclosure Statement Download PDF

4. May 18, 2018 Main Doc Stipulation and Order (Proposed-one document) Download PDF

 

Kalamazoo County Circuit Court does not yet allow the public electronic access to court records. To keep my readers updated, I will be posting a copy of the register of actions (docket) every so often as well as posting scans of all documents publicly available in the case.

The case is 2018-0153-CZ in the Civil Division of the Ninth Judicial Circuit Court of the State of Michigan.

Scottsdale Capital Advisors Corp.

v

Does 1-10
Michael Goode
MorningLightMountain, LLC

Michigan State case register of actions (2018-0153-CZ)

Register of Actions as of 8/6/2018 (PDF)
[All links below are to PDF files]

4/16/2018 – Summons and Complaint – Civil – New Filing
Service To: Defendant MorningLightMountain, LLC; Defendant Goode,
Michael; Defendant Does 1
10

4/17/2018 – Notice of Review by Business Court Judge

4/20/2018 – Amended Complaint
Party: Plaintiff Scottsdale Capital Advisors Corp.

5/11/2018 – Notice of Removal to Federal Court
Party: Plaintiff Scottsdale Capital Advisors Corp.; Defendant MorningLightMountainLLC; Defendant Goode, Michael; Defendant Does 110
[This is the same as the notice of removal filed in the federal case; the exhibits are not included in this scan because they were included with the federal case linked above]

5/25/2018 – Stipulation with Order Regarding:
Fixing Deadline to Response to First Amended Complaint

5/25/2018 – Substitution of Attorney and Order
Party: Plaintiff Scottsdale Capital Advisors Corp.

5/29/2018 – Court of Appeals- Supreme Court – Remand for:
Remanded from the Western Distict of Michigan

6/7/2018 –  Answer to Amended Complaint
Party:
 Defendant MorningLightMountain, LLC; Defendant Goode, Michael

6/7/2018 –  Motion for Summary Disposition
Party: Defendant MorningLightMountain, LLC; Defendant Goode, Michael
First Amended Complaintwith Brief in Support

6/7/2018 –  Praecipe

6/7/2018 –  Proof of Service

6/7/2018 –  Notice of Scheduled Proceeding
on Defendants Motion for Summary Disposition

6/27/2018 – Civil Proceedings Scheduling Order MCR 2.401
Party: Plaintiff Scottsdale Capital Advisors Corp.; Defendant MorningLightMountain, LLC; Defendant Goode, Michael

8/2/2018 – Stipulation
Stipulation to Amend Scheduling Order

8/22/2018 – Motion for Summary Disposition (9:00 AM) (Judicial Officer: Lipsey, Alexander C.)
Events: 06/07/2018 Motion for Summary Disposition

12/26/2018 – Settlement Conference (10:00 AM) (Judicial Officer: Lipsey, Alexander C.)

01/15/2019 – Civil Jury Trial (10:00 AM) (Judicial Officer: Lipsey, Alexander C.)

[Filings and state case register of actions last updated 8/6/2018]

 

Due to the litigation I will not be providing my opinion on this case or on any of the parties involved so please do not ask.

 

Disclaimer: I and MorningLightMountain LLC of which I am the sole member are being sued for defamation and false light invasion of privacy by Scottsdale Capital Advisors. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Some Forms 3 & 4, MintBroker, and how three microcap stocks moved 200%+ in days

Check out MintBroker International Ltd’s SEC filings on EDGAR. There was nothing filed prior to June 29th, 2018. The only SEC forms filed so far are forms 3 and 4.

The SEC describes the use of these forms (emphasis mine):

Corporate insiders – meaning a company’s officers and directors, and any beneficial owners of more than ten percent of a class of the company’s equity securities registered under Section 12 of the Securities Exchange Act of 1934 – must file with the SEC a statement of ownership regarding those securities.

New Concept Energy (GBR)

First I want to look at New Concept Energy (GBR). As of its most recent SEC Form 10-Q/A, GBR showed 2,131,935 shares outstanding as of May 11, 2018.

Here is a more zoomed-in view showing each date:

The stock first spiked on June 28th, gapping up big on no apparent news (a form SC-13D had been filed after the previous day’s close by Realty Advisors, Inc but that disclosed no new information — all the info in it was available in the June 21st, 2018 8-k filed by GBR). The stock then closed at $1.7201, well below the open price of $3.02. On July 29th GBR gapped down a tiny bit to $1.69 before spiking big and closing at $4.22. At 6:39 pm (all times Eastern) MintBroker filed an SEC Form 3 showing direct ownership of 1,073,713 shares with the “date of event requiring statement” being 06/29/2018.

The following trading day, July 2nd, GBR opened at $5.90 and hit a high of $12.75 before closing at $8.90. On July 3rd the stock gapped up again, opening at $12.00 and then dropping to close at $4.11. A form 4 filed by MintBroker at 11:14am on July 3rd revealed that the company had sold 114,576 shares on July 2nd at an average price of $11.32 and still owned 959,137 shares.

The following day the market was closed for the July 4th Independence Day holiday. On July 5th, GBR gapped up, opening at $5.03 and closing at $4.95. At 11:51am on July 5th MintBroker filed another form 4 showing that it had sold 959,137 shares on July 3rd at an average price of $8.682 and no longer owned any shares.

It is easy to guess at MintBroker’s profits with this information. I added up the total sales of stock to get $9,624,227.75 ($8.9635 per share). If we assume it paid an average of $4.22 (the close on July 29th), which is almost certainly higher than the price it actually paid, then it paid $4,531,068.86 for those shares and profited $5,093,159. Of course there is lots of information I don’t have so this is just an educated guess.

MER Telemanagement Solutions ltd (MTSL)

As of it most recent Form 20-F from December 31, 2017, MER Telemanagement Solutions (MTSL) reported 3,120,684 shares outstanding. Below is the daily candlestick chart of MTSL:

On July 10th, 2018 MTSL spiked from an open of $1.10 to close at $2.73. The next day it gapped up to $4.00 and closed at $2.19. The following day, July 12th at 1:56pm, MintBroker filed a form 4 showing that it had acquired 147,716 shares at an average price of $4.6189 on 7/11/2018 and had sold 446,911 shares at an average price of $3.603 on the same day. MintBroker has not filed any other SEC forms on MTSL.

Obviously the number of shares on that form 4 don’t match and it wasn’t a form 3 indicating that it wasn’t the first acquisition of MTSL shares by MintBroker. My opinion given that information is that MintBroker likely bought the other 299,195 shares on July 10th. Assuming that those shares were purchased at an average of $2.73 (the closing price on July 10th), the average purchase price of the total 446,911 shares would be $3.3543. That gives me an estimate of ‘only’ $111,146 in profits.

Avalon Holdings (AWX)

Avalon Holdings is the most recent stock for which MintBroker has filed a Form 3 or Form 4. As of May 4th (per the company’s May 10th Form 10-Q) Avalon Holdings reported 3,191,100 shares outstanding. Below is the daily candlestick chart of AWX:

Starting on July 24th, AWX started spiking on no news. It traded thrice the shares outstanding on each of the following two days. On July 27th, 2018 at 5:47pm MintBroker filed an SEC Form 3 showing direct ownership of 1,922,095 shares with the “date of event requiring statement” being 7/27/2018.

In premarket trading AWX hit a high of $36.00 but since 8:30am has dropped a lot and as I write this the stock is at $7.80. I eagerly await a future MintBroker Form 4 on AWX.

Final Results: AWX

This section was added on August 2nd after MintBroker filed the expected Forms 4 showing that they sold all of their shares. Following are the dates/details of the Forms 4.

7/30/2018 4:58pm Form 4 —  192,340 shares sold at $15.5054 (incorrectly showed “A” in box 4 which would mean ‘acquired’).
7/31/2018 1:34pm Form 4 — 719,885 shares sold at an average price of $8.175
8/1/2018 11:19am Form 4 — 799,720 shares sold at average price of $4.1506
8/1/2018 11:42am Form 4 — 202,642 shares sold at average price of $3.911 (zero shares held after this)
8/1/2018 1:41pm Form 4/A — correcting 7/30 form 4 to show 192,340 shares sold at $15.504 on 7/27

This adds up to an average sale price of $6.779 on 1,914,587 shares. Note that this does not quite add up to the number of shares shown in the form 3 (1,922,095) — in fact it is 7,508 shares less. But that is not important compared to the total number of shares traded by MintBroker so I will ignore the difference.

If I were to use the same very conservative estimate I used on GBR and MTSL to guess the purchase price of all those AWX shares I would use the closing price on 7/27, which was $10.25. This would have resulted in a MintBroker loss of $6.65 million dollars. However, most of the spike on AWX on 7/27 came at the end of the day and for most of the day it traded under $7.00. In fact, as of the close on 7/27 the volume-weighted average price (VWAP) of AWX was only $7.282 (see intraday chart with VWAP). If that is the price that MintBroker paid then it only lost $963,037 on the trade. Obviously if Mintbroker bought below the vwap or had acquired some portion of the shares on a prior day at a lower price it is still possible that they made money on the trade — there is no way for us to know just by looking at their filings.

Who/What is MintBroker?

MintBroker International, Ltd has its address listed as

ELIZABETH AVE. & BAY STREET
NASSAU C5 N-8340

in its SEC filings. This is the same address given by Suretrader for “Swiss America Securities Ltd” the company that runs it. It appears that MintBroker International Ltd is the successor to Swiss America Securities or the parent company of it because the Suretrader website shows the copyright as “Copyright 2008 – 2018 MintBroker International, Ltd”

To remove any doubt, MintBroker is owned by Guy Gentile, as he describes in his recent lawsuit, Mint Bank International, LLC and Guy Gentile Nigro v. Office of the Commissioner of Financial Institutions of
Puerto Rico et al. ((3:18-cv-01441) US District Court, District of Puerto Rico) (See docket on CourtListener.com).

21. Gentile is the current beneficial owner of a group of financial institutions located in the United States and other foreign countries (“Group”). The Group consists of MintBroker International, Limited in the Bahamas and its wholly-owned subsidiaries, MintBroker International Limited in U.K. The Group is involved in various areas of the financial markets including, but not limited to, holding accounts of clearing firms and maintaining custody of funds.
22. The SureTrader division of MintBroker has enjoyed significant success.

Besides being known for owning Suretrader, Guy Gentile was also the subject of an engaging article in Bloomberg in early 2017, “‘Bro, I’m Going Rogue’: The Wall Street Informant Who Double-Crossed the FBI.”

[Edit 8/2/2018]: Bloomberg had a nice story on the run-up in Avalon Holding Coporation (AWX) shares in which they talked to the CEO of Avalon and to Guy Gentile. Today Matt Levine of Bloomberg analyzed the situation:

His brokerage firm announced stakes in three tiny companies, including $13 million waste-management firm Avalon Holdings Corp., whose prices all “skyrocketed and then dropped.” The fun part is Gentile’s explanation:

“This is no pump-and-dump scheme,” Gentile, chief executive officer of MintBroker, said over the phone. “We were going to try to do a hostile takeover of the company.”

Ah. But here’s what Avalon said:

In response to inquiries regarding a potential change in control, Mr. Ronald Klingle, Chairman and Chief Executive Officer of the Company, holds approximately 67% of the voting power in Avalon, and has advised the Company that he has no present plans to divest any of his holdings.

What … happened here? Did Gentile not know that the company’s stock was controlled by its CEO? (It’s easy to find out!) Did he know that but think that he could do a hostile takeover anyway? (By, like, calling up the CEO and being real hostile on the phone until he agreed to sell?) Was it a pump-and-dump scheme, but Gentile was too lazy to make up a plausible cover story?

Note: Timestamps on SEC filings come from Acquire Media NewsEdge V8. Screenshot.

Disclaimer: I am short 30 shares of AWX and I may close that position or increase it or even go long at any time. I have no position in any other stock mentioned above. I have no relationship with any parties mentioned above except that one of the trading platforms I use is DAS Trader Pro and it may share common ownership with MintBroker (I am not sure). This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Two Unrelated stock manipulation schemes foiled by one cooperating witness & the FBI

On July 23rd the US Attorney’s Office for the Southern District of California issued a press release about eight defendants that were indicted in pump and dump schemes. I already blogged about the indictment of Luke Zouvas for “laundering money he believed to be proceeds of stock fraud schemes.”

Besides the Zouvas indictment, there were two other indictments announced in the same press release. The two indictments share no defendants or stocks but both mention a cooperating witness (“CW-1”), described identically in each indictment as “a resident of California, and worked as a stock promoter.” One of the most talented stock scam researchers I know (the anonymous ‘nodummy’) wrote that he believes Michael Forster is the cooperating witness.

The two cases are:

United States v. Gannon Giguiere & Oliver Lindsay (3:18-cr-03071) US District Court, S.D. California
Indictment (thanks to Promotion Stock Secrets for uploading this)
Docket on CourtListener.com

United States v. Andrew Hackett, Annetta Budhu, Vikram Khanna, Kuldeep Sidhu, & Kevin Gillespie (3:18-cr-03072) US District Court, S.D. California
Indictment (thanks to Promotion Stock Secrets for uploading this)
Docket on CourtListener.com

In addition to the two criminal indictments, the SEC filed a civil suit against five of the individuals:

SEC Litigation Release
SEC Complaint (pdf)

The case is:
Securities and Exchange Commission v. Gannon Giguiere, Oliver-Barret Lindsay, Andrew Hackett, Kevin Gillespie, & Annetta Budhu (3:18-cv-01530) US District Court, S.D. California
Docket on CourtListener.com

Simply because I cannot easily copy and paste from the indictments due to formatting issues I have quoted relevant parts of the SEC complaint below (emphasis mine):

2. The three fraudulent schemes netted more than $10 million in illicit proceeds.
Scheme #1 – KVMD
3. The first scheme concerned KVMD, a purported medical-device business. Beginning in approximately June 2016, Giguiere, a stock promoter and KVMD’s undisclosed control person, caused KVMD to issue three million shares of its common stock to one of his associates, who in turn sold two tranches of 1.5 million shares to each of two nominee entities he and Lindsay, the owner and operator of a Cayman Islands-based broker-dealer, controlled.
4. Giguiere deposited one tranche of 1.5 million shares into a U.S. brokerage account he opened in the name of his nominee, and Lindsay deposited the second tranche of 1.5
million shares into an account in the name of his nominee at his Cayman Islands broker-dealer.
5. Between November 29, 2017 and January 26, 2018, Giguiere, Lindsay, and an associate conducted a matched trading scheme in KVMD’s stock, whereby they coordinated
Giguiere’s sales of his 1.5 million shares of KVMD to Lindsay, who was buying those shares in his own brokerage accounts and customer accounts at his Cayman Islands broker-dealer.
6. Unbeknownst to Giguiere and Lindsay, the associate with whom they conducted the scheme was a witness cooperating with the Federal Bureau of Investigation (“FBI”), who
was recording their phone calls and preserving their encrypted email and text message communications.
7. By January 26, 2018, as a result of their scheme, Giguiere and Lindsay had netted approximately $1.57 million in proceeds and had increased KVMD’s share price from zero to $1.20.
8. Soon thereafter, Giguiere began promoting KVMD’s stock on TheMoneyStreet.com (“TheMoneyStreet”), a stock promotion website he controlled, in anticipation of his and Lindsay’s sales of their second tranche of 1.5 million shares of KVMD into the buying volume generated by the promotion.
9. Giguiere and Lindsay’s plan to liquidate the second tranche of 1.5 million shares was stymied, however, on March 19, 2018, when the Commission suspended trading in KVMD’s securities for a period of ten business days.

Scheme #2 – ASNT
10. The second fraudulent scheme concerned ASNT, a purported digital media company.
11. In early 2017, Gillespie, ASNT’s chief executive officer, Budhu, a purported adviser to the company, and Hackett, a purported lender to ASNT, began laying the groundwork for a “pump and dump” of ASNT’s stock. [citation omitted]
12. In February 2017, Gillespie caused ASNT to enter into a purported “Advisory Agreement” with Budhu, under which she was paid 200,000 shares of ASNT stock for her
“consulting services.” ASNT issued the stock to Budhu in March 2017, and in August 2017 she sold the shares to Hackett at a significant premium to its then trading price.
13. Gillespie then caused ASNT to issue to Hackett a sham $300,000 convertible promissory note that would allow Hackett to convert the debt into 750,000 shares of ASNT stock. The group planned to have Hackett ultimately sell these 950,000 shares in connection with the pump and dump and then split the proceeds among the group’s members.
14. In October 2017, the group approached the cooperating witness about promoting ASNT’s stock on TheMoneyStreet in connection with their planned pump and dump. Unbeknownst to them, the cooperating witness was recording their phone calls and preserving the encrypted email and text message conversations that they sought to hide from, among others, law enforcement.
15. In December 2017, after he ultimately declined to promote ASNT, the cooperating witness introduced Hackett to an individual claiming to be the ringleader of a network of corrupt stockbrokers who would buy stock that Hackett was selling in the open market in their customers’ accounts—and without their customers’ knowledge—in exchange for a 30% kickback. Unbeknownst to Hackett, the purported ringleader of the corrupt broker network was an undercover FBI agent (“UC”).
16. Hackett agreed, and between December 22, 2017 and January 12, 2018 he sold more than 14,000 shares of ASNT in matched trades with the UC that he coordinated with the
cooperating witness in record ed phone calls and preserved encrypted text messages.

Scheme #3 – ESSI

17. The third fraudulent scheme concerned ESSI, a purported technology company focused on the cannabis industry.
18. Beginning in December 2015, Giguiere, who was acting as the company’s undisclosed control person, arranged for a transfer of control of ESSI to two nominal officers.
19. Giguiere then caused the company to enter into an agreement with one of his nominee entities, under which the nominee entity promoted ESSI’s stock on TheMoneyStreet. In exchange, ESSI paid the nominee entity millions of purportedly free trading shares of ESSI stock that the company issued pursuant to two faulty Form S-8 registration statements.
20. Throughout 2016 and into January 2017, Giguiere liquidated the shares of ESSI stock paid to his nominee entity while he was concurrently promoting ESSI’s stock on
TheMoneyStreet without adequately disclosing to investors his active liquidation of his own shares. As a result of the scheme, Giguiere earned more than $8.5 million in illicit proceeds.
Looking at the sentences I emphasized in the large quoted text above it seems to me like the cooperating witness must be someone who worked for or with Giguiere at TheMoneyStreet.
The second person named in the first indictment, Oliver Lindsay (named as Oliver-Barret Lindsay in the SEC complaint), is described in that complaint as “the principal of CMGT Capital Management (“CMGT”), a Cayman Islands-exempt broker-dealer registered with the Cayman Islands Monetary Authority.” The Cayman Compass wrote an article about these cases and gives a few more details about Lindsay and CMGT Capital Management. That article also mentions that Lindsay is the “owner of Lindsay Capital Corp. SEZC, an investor relations services firm based in Cayman Enterprise City.”

 

Disclaimer: I have no position in any stock mentioned above. I have no relationship with any parties mentioned above except that I subscribe to Promotion Stock Secrets, which features the writing of ‘nodummy’ and may be owned in part by him. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

SEC Charges Oil Exploration Company Centro Energy (CNTO) and CEO Frederick DaSilva with Lying About the Company’s Prospects and Business Dealings

Yesterday on July 19th, 2018 the SEC announced that it had sued Centor Energy (CNTO) and its CEO Frederick DaSilva “for making materially false and misleading statements to Centor shareholders about Centor’s oil reserves, revenue prospects, and business dealings.” The company its its SEC both settled without admitting or denying the allegations.

SEC litigation release
SEC complaint (pdf)

The penalties seem particularly weak (quote from the litigation release):

Without admitting or denying the allegations, Centor and DaSilva consented to the entry of a final judgment enjoining them from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. DaSilva has also agreed to the imposition of penny stock and officer and director bars and to pay disgorgement of $7,500 plus pre-judgment interest of $1,028 and a civil penalty of $22,500. The settlements with Centor and DaSilva are subject to court approval.

I have previously blogged about Centor Energy thrice, when it was first promoted, when it was re-pumped, and when the SEC suspended trading in the stock. The trading suspension was in 2014 and the first promotion was in 2013.

Below are some details from the complaint:

8. Centor is a corporation organized under the laws of the State of Nevada in 2011 as “Centor, Inc.,” with a stated principal place of business in Winter Park, Florida. Centor is purportedly engaged in the business of shale oil exploration, drilling and extraction in the east central region of the Canadian Province of Saskatchewan known as the “Pasquia Hills.” The Company changed its name to “Centor Energy, Inc.,” effective January 2014. The Commission suspended trading in Centor securities on February 11, 2014, prior to which Centor was quoted on OTC Bulletin Board and was a penny stock as defined under Exchange Act Rule 3a51-1.
9. Frederick DaSilva, age 55, resides in Alberta, Canada. On February 13, 2013, DaSilva became Centor’s Secretary, Treasurer, and Director. DaSilva became Centor’s CFO at some point in late 2013, and became its President and CEO in March 2014.

30. The December Press Release, the Presentation, and the January 8-K were materially false and misleading. As DaSilva knew or recklessly disregarded, the 1.1 billion
barrels of oil estimate was based on the Reserve Report’s estimate of the Conglomerate’s entire Lease Interests, of which Centor only owned 55%. The true number of barrels of oil Centor could realistically expect to recover (even assuming the accuracy of its own projections) was therefore materially lower than 1.1 billion barrels.
31. The Presentation also falsely stated that Centor had entered into an agreement to purchase the remaining 45% of leasehold interests over the Region from the Conglomerate. As DaSilva knew or reckless disregarded, the Purchase Agreement covered only an additional 11.66% (such that Centor could at most hope to acquire 66.66% of the Lease Interests) and there was no other agreement that covered the remaining interests.
32. Nor did Centor or DaSilva disclose in the December Press Release or in the Presentation that the Reserve Report indicated that the study of the Lease Interests was
incomplete, in that no individual connected to the Reserve Report had conducted a field test or even visited the Lease Interests to test some of its assumptions about geological conditions.
33. Indeed, DaSilva, who had not read the Reserve Report, failed to make any attempt to verify the assumptions, calculations, and conclusions made in the Reserve Report, and accordingly had no good faith basis to make any projections about Centor’s prospects purportedly drawn from the Reserve Report.
34. The Presentation was also misleading because it (a) repeated many of the untested favorable assumptions made in the Reserve Report (such as that the Region had low overburden providing easy access to the oil shale); and (b) contained other false statements such as that the Region was located in an area with “established infrastructure” such as roads and railroads.
35. In fact, as DaSilva knew or recklessly disregarded, the favorable assumptions in the Presentation had not been verified and were untested; the nearest small town to the Region was over 71 miles away; and there was no main road or railroad running to the Region.

And the reason for the small settlement? This tweet makes sense to me — the SEC didn’t have a great case and statute of limitations was about to run out:


Disclaimer: I have no position in any stock mentioned above. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Efuel EFN Corp (EFLN) Shows how not to get OTCMarkets Caveat Emptor designation removed

When OTCMarkets designates a stock as Caveat Emptor (Buyer Beware), marked by the skull and crossbones, the stock will tend to drop and brokers and clearing firms may restrict deposits of new shares in that stock or at least do more careful due diligence on people depositing new shares of stock. Interactive Brokers will not let any client open new positions in any stocks marked Caveat Emptor. So Caveat Emptor designation is a big deal.

Here is OTCMarkets’ explanation of its policy on Caveat Emptor:

OTC Markets Group designates certain securities as ‘Caveat Emptor’ and places a skull and crossbones icon next to the stock symbol to inform investors that there may be reason to exercise additional care and perform thorough due diligence before making an investment decision in that security.

The Caveat Emptor Designation may be assigned when OTC Markets becomes aware of one or more of the following:

  • Promotion — The security is the subject of stock promotion that may be misleading or manipulative. Promotional activities may include news releases, spam email, and newsletters, whether they are published by the issuer or a third party. See OTC Markets Group’s Policy on Stock Promotion.
  • Investigation of Fraud or Other Criminal Activities — There is an investigation or other indication of fraudulent or other criminal activity involving the company, its securities or insiders.
  • Suspension/Halt  A regulatory authority or an exchange has halted or suspended trading for public interest concerns (i.e. not a news or earnings halt).
  • Undisclosed Corporate Actions — The security or company is the subject of a corporate action, such as a reverse merger, stock split, or name change, without adequate current information being publicly available.
  • Other Public Interest Concern  OTC Markets Group may determine that there is a public interest concern regarding the security. Such concerns may include but are not limited to promotion, spam or disruptive corporate actions even when adequate current information is available.

When Does Caveat Emptor Get Removed?

Facts and circumstances may differ, however generally, OTC Markets Group will remove the Caveat Emptor designation once the company meets the qualifications for Pink Current Information, has verified the information on its company profile on www.otcmarkets.com, and demonstrates that there is no longer a public interest concern. The Caveat Emptor designation is typically not removed within the first 30 days. During the time it is labeled Caveat Emptor, any stock that is not in Pink Current Information will also have its quotes blocked on www.otcmarkets.com.

 

A June 1st, 2018 petition to terminate its SEC trading suspension (pdf) by Efuel EFN (EFLN) gives some details about the company’s attempt to have its Caveat Emptor designation removed. The statements made by Efuel EFN’s President are rather comical for their bad English. For example:

11. On September 15, 2017 OTC Markets designate Efuel as a Caveat Emptor. All financial statements are true and correct. There were NO perpetrated reports. Efuel is small micro cup company which we represent as true, real, stable, genuine, dedicated and committed. Efuel was using “Research Report” to file more information regarding company activities. Efuel made many attempts to reach upon OTC regarding CE status, to reveal to the company relevant factor for action.

[14.] d. Efuel states no new shares were issued since 2013, which are restricted shares exchanged for acquired property.

The SEC enforcement brief against Efuel’s motion to terminate the trading suspension gives a fair amount of detail (far more than OTCMarkets provides) about why Efuel EFN received Caveat Emptor designation in the first place:

II. OTC Markets Designates Efuel as a Caveat Emptor Issuer
On September 25, 2017, OTC Markets designated Efuel as a “Buyer Beware” or “Caveat Emptor” issuer. (May 21 Enright Aff. ¶11) The designation was due to concerns about Efuel’s public disclosures, financial statements, and purported “Research Reports.” These documents were public as they were filed on OTC Market’s website under Efuel’s listing.  [Note by Michael Goode: Previous sentence was in footnote 2. Included in quote for clarity.] OTC Market’s concerns were based, among other things, on documents Efuel filed on OTC Market’s website, including:

(a) a May 21, 2017 “Research Report” titled “EFUEL CORPORATION HAS BEEN AUDITED BY DEPARTMENT OF REVENUE;”
(b) a May 5, 2017 “Research Report” titled “Euro-American Finance Network [sic] Inc. and [sic] Stefanovic Family Plan [$160 million] to Invest in Efuel EFN Corporation Projects;” and
(c) multiple balance sheets that did not balance, and did not include “cash” as an “asset.”

(May 21 Enright Aff. ,¶12) On January 2, Efuel sent a letter to OTC Markets, requesting that the Caveat Emptor designation on Efuel be removed. (Efuel Petition, Ex. A)

Efuel EFN then responded to OTCMarkets in an attempt to get Caveat Emptor designation removed:

III. Efuel Files Its 2017 Annual Statement on OTC Markets’ Website
On January 8, 2017, Efuel filed its purported financial statement with OTC Markets, claiming that the company had been audited by Mr. Stefanovic himself, through his firm EuroAmerican Financial Network, Inc. (“Euro-American”). (May 21 Enright Aff. ¶13)

IV. Efuel Sends an Attorney Opinion Letter to OTC Markets
On February 8, Efuel’s attorney, Mark E. Pena, sent a letter to OTC Markets regarding certain prior financial statements. (June 18 Enright Aff. Ex. 0). This letter is referenced in Efuel’s Petition, but is not attached to it as an exhibit. The Division includes it as an exhibit to the June 18 Enright Aff. for completeness of the record. [Note by Michael Goode: Previous sentence was in footnote 3. Included in quote for clarity.] The letter states that Mr. Pena has personally reviewed and discussed the financial statements with Mr. Stefanovic, and that Efuel’s 2017 financial statement complies with “Pink OTC Markets Guidelines for Providing Adequate Current Information.” Mr. Pena’s letter further states that: (i) the financial statement was internally prepared by the company in accordance with GAAP, with “auditing consultation” provided by Euro-American; (ii)he had the financial statement reviewed by an unidentified “local independent accounting firm specializing in public disclosure;” and (iii) that Efuel’s financial statement reports assets of over $519 million, with liabilities of approximately $3.7 million. The financial statement (which is only four pages) does not provide specific information as to what constitutes the $519 million in assets – only that Efuel supposedly has $15.1 million in “Property: Land, Building” and $500 million in “Land, Minerals, and Gold Deposit.” (June 18 Enright Aff. Ex. E, pg. 9) The financial statement does however, specifically state that it contains “audited results.” (June 18 Enright Aff. Ex. E, pg. 10) Efuel’s Petition (page 2) elaborates slightly by stating “Efuel holds 2905 acre land with 21 gold mining claims with minerals. Efuel is a small micro cup [sic] company which we represent as true, real stable, genuine, dedicated, and committed.” In its Petition, Efuel repeats the representation that it has over $519 million in assets, and only $3.7 million in liabilities. (Efuel Petition, pg. 3)

The SEC then gives OTCMarkets’ response detailing why it was not removing Caveat Emptor designation:

V. OTC Markets Declines to Remove the Caveat Emptor Designation
On February 23, 2018 OTC Markets sent a letter to Efuel stating “[w]e have completed our review of your December 31, 2017 Annual Report and related Attorney Letter and have determined that the information contained in these documents does not comply with OTC Pink Basic Disclosure Guidelines, therefore we are unable to remove the caveat emptor flag at this time. (May 21 Enright Aff. ,¶14 (Italics added)) OTC Markets’ letter further states that: “[i]n past reviews we have identified similar deficiencies to you and you continue to submit disclosure that does not resolve these deficiencies.” OTC Markets directed Efuel to submit revised financial reports and disclosure documents, a new attorney letter, and a letter from a U.S.-registered CPA certifying that the company’s financial reports were GAAP-compliant. (Id.) As of March 21, the date of the issuance of the trading suspension, Efuel had not submitted revised filings to OTC Markets in accordance with OTC Markets’ instructions. (May 21 Enright Aff. ¶15)

What can we conclude from this? OTCMarkets’ explanation of when it applies the Caveat Emptor designation and when it removes it is fairly complete at least when it comes to a company’s failures in disclosure. However, this does not provide clarity on the question of stock promotion and when that leads to the Caveat Emptor designation — I have seen some promoted stocks get designated Caveat Emptor and others not.

Trading in Efuel EFN (EFLN) stock was suspended by the SEC on March 21, 2018 (pdf). On May 7th, 2018 the SEC issued an order requesting additional submissions (pdf) stating that Efuel EFN was challenging the trading suspension and asking the company for more information. At the time I write this it appears that the administrative proceeding has not been decided. All relevant documents can be found on the administrative proceeding page for 3-18420.

I believe it unlikely that the SEC will grant Efuel EFN’s petition to remove the trading suspension given that the company is alleged by the SEC to have posted a false PR saying that the company was in compliance with OTCMarkets and the caveat emptor designation would be removed:

VI. Efuel Issues Materially False Press Releases and Twitter Statements
On March 19, 2018, Efuel drafted and disseminated a press release, which purports to be a letter from OTC Markets, and which states in relevant part, “[w]e have completed our review of your December 31, 2017 Annual Report and related Attorney Letter and have determined that the information contained in these documents complies with the OTC Pink Basic Disclosure Guidelines, therefore we are able to remove the Caveat Emptor flag at this time.” (Italics added) (May 21 Enright Aff. ¶6) The letter is a doctored version of the real February 23 letter from OTC Markets, which stated that Efuel’s filings “do not comply” with OTC Markets’ OTC Pink Basic Disclosure Guidelines, and that OTC Markets was “unable” to remove the Caveat Emptor designation. (May 21 Enright Aff. ¶14) Efuel released the doctored letter via Globe Newswire, and posted it on the company’s Twitter account (@aEfuelEFNCorp). (May 21 Enright Aff. ¶17) As of March 21, the letter remained viewable on Twitter and Yahoo Finance. (Id) As of March 21, 2018, Efuel’s Twitter feed touted the company’s stock, discussed purported stock repurchases in the open market, and described claimed shorting activity in Efuel stock. (May 21 Enright Aff. ¶18)

In Efuel EFN’s petition it also asked the SEC to tell OTCMarkets to remove the Caveat Emptor designation from its stock. This was the SEC’s response:

There is no provision in the Commission’s Rules of Practice for the additional remedies Efuel seeks – namely, an order from the Commission to OTC Markets requiring the removal of the Caveat Emptor designation on Efuel’s common stock that OTC Markets imposed in September 2017.

The Commission is not an arbiter of disputes between issuers and registered broker-dealers or alternative trading systems.

Disclaimer: I have no position in any stock mentioned above. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Lawyer Luke Zouvas indicted — he has worked for multiple companies involved in pump and dumps

On Friday, July 13th the US Attorney’s Office for the Southern District of California announced a number of unrelated criminal indictments for stock-fraud related offences. I will write another blog post about the other indictments, but the first one I wanted to write about the indictment of attorney Luke Zouvas. The case against Zouvas is US v. Zouvas (3:18-cr-03070) in US District Court, Southern District of California. The indictment (pdf) is only four pages long. Zouvas was released on a $50,000 bond (pdf). The charges are 8 counts of money laundering (18 U.S.C. § 1956 (a) (3) (B)), each one relating to a separate wire transfer to or from Zouvas’ client escrow or trust accounts at Wells Fargo to or from three different accounts at City National Bank accounts between November 13, 2017 and March 5, 2018. Of the 8 wire transfers listed in the indictment, 5 (totaling $350,000) were to the Wells Fargo accounts and 3 (totaling $236,700) were to the City National Bank Accounts. Two of the City National accounts (ending in 8609 and 6797) only sent money to Zouvas’ Wells Fargo accounts, while one (ending in 7084) only received money from Zouvas’ Wells Fargo accounts. Below is a quote from the indictment:

3  2. On or about the dates indicated below, within the Southern
4  District of California and elsewhere, the defendant LUKE CHRISTOPHER  ZOUVAS,
5  with the intent to conceal and disguise the nature, location,
6  source, ownership and control, of property believed to be the proceeds
7  of specified unlawful activity, did knowingly conduct the following
8  financial transactions affecting interstate commerce involving property
9  represented by a person at the direction of, and with the approval of,
10  a law enforcement officer, to be proceeds of specified unlawful activity,
11  to wit: fraud in the sale of securities:

The wire transfers at issue:

Zouvas has worked for a number of companies that have undergone pump and dumps and at least at one point he represented the people behind spam promoter “Stock Castle” and he received a subpoena in the case that George Sharp filed against the companies and promoter(s) involved in those promotions.

In 2016 Luke Zouvas was sued by the SEC for his role in a pump and dump. Read the complaint (pdf). Below are excerpts from the complaint:

2. As part of the scheme, Larson obtained controlling shares of Crown from Asher Z. Zwebner (“Zwebner”), an Israeli accountant who created and secretly controlled the company and its stock. Although Larson controlled Crown and acted as its de facto chief financial officer, his name did not appear in any of Crown’s filings with the Commission. With the assistance of Zouvas, an attorney
based in San Diego who served as Crown’s general counsel, Larson transferred free-trading Crown shares from Zwebner’s nominees – purported shareholders in Crown’s initial public offering – to Larson’s nominees, including Jorgenson and Schiprett. Larson then paid $400,000 for a “call center” to promote Crown and
placed manipulative trades in his own brokerage account to create the appearance of market interest in the stock. Robb prepared materially misleading press releases about the company’s business success. As Crown’s stock price became inflated as a result of Larson’s and Robb’s efforts to pump the stock, Larson’s nominees
Jorgenson and Schiprett sold Crown shares and wired most of the sale proceeds – at least $865,000 – to accounts controlled by Larson. Jorgenson and Schiprett retained some of the proceeds as compensation for their assistance in the scheme as nominees.

4. Zouvas, age 45, resides in San Diego, California. He is an attorney licensed to practice law in the State of California. During the relevant time period, he acted as escrow agent for Larson’s purchase of the Crown shell from Zwebner, and as general counsel for Crown. Zouvas declined to testify in the Commission’s
investigation based on his Fifth Amendment privilege against self-incrimination.

17. Ultimately, Larson purchased the Crown shell from Zwebner. On or about December 6, 2011, Larson wired $300,000 from a bank account titled to an entity he controlled – S&L Investments, LLC – to Zouvas’ trust account, which reflected that payment was for Crown. Two days later, Zouvas wired $25,000 to Zwebner. On or about December 14, 2011, Zouvas wired an additional $206,127 to Zwebner through a financial cash change house in Jerusalem. The next day, Larson wired an additional $25,000 from the same bank account he controlled to another of Zouvas’ trust accounts. Larson thus gained control of Crown’s 2.5 million freelytradable
shares that Zwebner had fraudulently placed in the names of the 40 Israeli subscribers and the shares held by the two nominee officers of the company.

21. On or about January 3, 2012, Zouvas directed Crown’s transfer agent to transfer the shares from the seven Israeli subscribers to Jorgenson and Schiprett. However, Zouvas instructed the transfer agent to send the certificates to Larson, rather than to Jorgenson and Schiprett, the supposed shareholders of record. The transfer agent did as Zouvas directed. As a result of a 3-for-1 forward stock split, Jorgenson and Schiprett became the record owners of 656,250 free-trading Crown shares each.

23. To enable Jorgenson and Schiprett to make the deposit, Zouvas prepared a false attestation for them to provide to the brokerage firm. The attestation was dated January 17, 2012. In it, Zouvas wrote that his law firm had acted as escrow agent for the transaction in which Jorgenson and Schiprett had purchased Crown shares for $25,850. He misrepresented that on December 14, 2011, he sent the funds to the selling shareholders. The attestation was false because Zouvas’s escrow account never received the funds from Jorgenson and Schiprett, and never remitted the funds to the seven purported subscribers. When
Zouvas provided the attestation, he knew, or was reckless in not knowing, that it was false.

35. On March 14, 2012, Crown filed a Form 10-K “Annual Report” (“10-K”) with the Commission. Zouvas approved a draft of the Form 10-K falsely reporting that Aninye owned the nine million shares of Crown, a statement which was repeated in the final Form 10-K. Zouvas became Crown’s general counsel in December 2011 and took responsibility for directing the transfer agent any time
shares of Crown needed to be cancelled or reissued. Zouvas therefore knew Aninye did not receive any shares from Rehavi and Zehavi because he had not directed the transfer agent to cancel the Rehavi and Zehavi share certificates or reissue them in Aninye’s name.
36. In a communication with FINRA three months later, Zouvas
reaffirmed the false 8-K by stating Aninye had purchased the nine million shares of Crown from Rehavi and Zehavi for $180,000: “On January 17, 2012, the Company executed a Stock Purchase Agreement, under which 9,000,000 (post-split) shares of
common stock of the Company were sold by Rehavi and Zehavi to Steve Aninye in exchange for $180,000.” Zouvas knew, or was reckless in not knowing, that his statement to FINRA was false because (i) he never had the shares placed in Aninye’s name, and (ii) he directed the transfer agent to cancel the shares and retire
them to Crown’s treasury.

H. Zouvas Receives Crown Shares and Provides False Certification to Transfer Agent
60. In or around June 2012, Zouvas received 87,500 shares of Crown stock for which he paid no consideration. According to a stock purchase agreement dated June 25, 2012, Zouvas purchased 87,500 shares of Crown stock from one of the original purported Israeli subscribers for $2,000. According to a second stock
purchase agreement dated June 19, 2012, a third-party entity purchased 100,000 shares of Crown stock from the same purported subscriber for $2,000. The purported subscriber was – like the other subscribers – Zwebner’s nominee. She did not purchase the shares or sell them to Zouvas or to the third party, nor was she even aware the stock certificate had been issued in her name. She never communicated with Zouvas and her signature was forged on the Stock Purchase Agreement.
61. On or about June 25, 2012, Zouvas directed the transfer agent to transfer the subscriber’s shares to himself and the third party. In his instruction letter to the transfer agent, Zouvas wrote, in part: “We certify that these shares have been validly purchased by the following parties,” including the third party and Zouvas himself. The certification was inaccurate because Zouvas did not purchase the Crown shares referred to in the letter, and the purported subscriber did not sell the shares either to Zouvas or the third party. When Zouvas made the certification, he knew, or was reckless in not knowing, that it was inaccurate.
62. Approximately one year later, in July 2013, Zouvas deposited the 87,500 Crown shares into his brokerage account. Between September 27 and October 7, 2013, Zouvas sold all of the 87,500 Crown shares he purportedly acquired for proceeds of approximately $10,300. Zouvas also received legal fees and other payments related to Crown in addition to his stock sale proceeds.

That case, SEC v. Zouvas et al, started in the US District Court, Southern District of California (3:16-cv-00998) but in 2017 was transferred to the US District Court for the District of Arizona (2:17-cv-00427). Read Zouvas’ answer to the complaint (pdf). Zouvas (at least as of the December 5, 2016 answer, is defending himself (‘in pro per’). The case is ongoing.

In 2013 Luke C. Zouvas and his wife filed for bankruptcy and that case was not terminated until December 28, 2017. That case is 13-06250 in the US Bankruptcy Court, Southern District of California. The bankruptcy case docket and a couple of the documents are available at the CourtListener website. The only interesting thing in the bankruptcy is the listing of unsecured non-priority claims which lists three claims resulting from San Diego Superior Court lawsuits. Those creditors/cases are as follows:

  • Social Media Ventures, lnc. — NOTICE ONLY – 01/2012, prof. liability claim, San Diego Superior Court Case #37-2012-00097720, settled as of 06/14/13
  • Joseph B. Larocco — NOTICE ONLY – 01/2012, prof. liability claim, San Diego Superior Court Case #37-2012-00097720, settled as of 06/14/13
  • lronshore Indeminty, Inc. — 05/20/13, declaratory relief and reimbursement claim, San Diego Superior Court Case #37-2013-000502

At the time of the bankruptcy Zouvas listed net monthly take home pay as $19,085, which seems to me modest for an attorney in independent practice in San Diego County.

For years Zouvas worked with and for some time he was name partner with Luis Carrillo and Wade Huettel. In 2011 Vancouver journalist David Baines said that the firm has “facilitated many dubious bulletin board companies that have turned into horrendous promotions.”

In March 2013 the SEC sued Wade Huettel and Luis Carrillo and their firm (as well as others) for their involvement with multiple pump and dump scams and in May 2017 won a large default judgment against them. (Luke Zouvas was not named in that suit.) From the judgment:

IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that Defendants are jointly and severally liable for disgorgement of $6, 703,484.15, representing the ill-gotten gains resulting from the conduct alleged in the Amended Complaint (reduced by the amounts procured by the Plaintiff from other defendants through settlement agreements), together with prejudgment interest thereon in the amount of $1,579,643.12 for a total of$8,283,127.27. In addition, each Defendant shall pay a civil penalty in the amount of $375,000 pursuant to Section
20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3).

 

Zouvas has also been named in other litigation, such as this in pro per lawsuit:

The docket for that case can be found on CourtListener.com. It is  Willett v. Procopio (3:17-cv-02144-LAB-JMA) US District Court, S.D. California.

For more on Luke Zouvas including on his bankruptcy and other litigation, see George Sharp’s account of the Zouvas indictment.

Disclaimer: I have no position in any stock mentioned above. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Stock Promoter litigation follow-up: Jay Fung in prison for Insider trading, more litigation for Anthony J. Thompson Jr.

I usually ignore SEC insider-trading litigation so I managed to miss when Jay Fung was arrested for insider-trading on a takeover (specifically, the Gilead takeover of Pharmasset in 2011). This was a follow-up to SEC v. Kevin L. Dowd (3:13-cv-00494) and USA v. Kevin Dowd (3:13-cr-00636-AET), all in the US District Court for the District of New Jersey (links are to dockets at CourtListener.com). The original civil complaint (pdf) was brought by the SEC on January 25, 2013. The final judgment against Dowd ordered him to pay $33,325 to the SEC. As to the criminal complaint, Dowd plead guilty and was sentenced to 3 years probation and forfeiture of $35,000.

The criminal complaint against Dowd listed his co-conspirators (the ones who actually traded on the information) as follows:

j. Co-conspriator J.F. was defendant DOWD’s childhood friend, and resided in or around Del Ray Beach, Florida. Among other things, J.F. operated “Company A” , which maintained a brokerage account with a brokerage firm headquartered in Shrewsbury, New Jersey (“Brokerage Firm B”). J.F. previously worked at a penny stock promotion company in Boca Raton, Florida (the “Stock Promotion Company”) from approximately in or about 2000 to approximately in or about late 2006, where defendant DOWD also worked between in or about May 2000 through in or about July 2001.

k. Co-conspirator E.B. resided in or around Boca Raton, Florida, and among other things, was the vice president of “Company B” , a business based in Boynton Beach, Florida. E.B. worked at the Stock Promotion Company with co-conspirator J.F. from
approximately in or about 2003 through in or about 2005, and knew defendant Dowd.

“Con-conspirator J.F.” was later revealed to be Jay Fung when he was charged on information on March 9, 2016 and immediately pled guilty. The case was US v. Fung (3:16-cr-00107) in the US District Court, District of New Jersey. On January 17, 2018 he was sentenced to 1 year in prison to be followed by 3 years of supervised release. Jay Fung forfeited $345,245.

Jay Fung is currently imprisoned at CI Taft:

Previously, Jay Fung had been sued by the SEC for his promotion of RecycleTech (RCYT). That case was SEC v. Recycle Tech, Inc (1:12-cv-21656) in the US District Court, Sourthern District of Florida. I blogged about that case when it was first filed in 2012. In that case, the final judgment against Jay Fung was rendered on February 14th, 2014. Fung and his company Pudong LLC were judged to be jointly and severally liable for disgorgement of $456,457 along with interest of $30,998.36. Fung was also ordered to pay a civil penalty of $120,000.

Criminal and Civil cases against Jay Fung, Anthony J. Thompson Jr., and Eric Van Nguyen

The Manhattan District Attorney charged a number of stock promoters including the three listed above, back in 2014. The case is 03853-2014 in Manhattan Supreme Court. I first reported on that case in September 2014 and then provided an update on September 26th, 2017.

The summary of the criminal case is below:

The charges (at least against Thompson) are shown below:

Charge Detail Disposition/Sentence
PL 165.52 00 C Felony, 1 count, Arrest charge, Not an arraignment charge

Description Cpsp-2nd:value Of Prop >$50000
Indictment Count 7
Dismissed
PL 165.54 00 B Felony, 2 counts, Arrest charge, Not an arraignment charge

Description Cpsp-1st:value Prop > $1000000
Indictment Count 16
Dismissed
GB 0352C 06 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >$250
Indictment Count 20
Date Added 09/03/2014
Dismissed
GB 0352C 05
**TOP CHARGE**
E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >9 Perso
Indictment Count 12
Date Added 09/03/2014
Pled Guilty
PL 155.35 01 D Felony, 1 count, Arrest charge, Not an arraignment charge

Description Grand Larceny 3rd Degree
Indictment Count 23
Dismissed
PL 155.35 01 D Felony, 1 count, Arrest charge, Not an arraignment charge

Description Grand Larceny 3rd Degree
Indictment Count 27
Dismissed
PL 165.52 00 C Felony, 1 count, Arrest charge, Not an arraignment charge

Description Cpsp-2nd:value Of Prop >$50000
Indictment Count 33
Dismissed
GB 0352C 06 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >$250
Indictment Count 39
Date Added 09/03/2014
Dismissed
PL 155.35 01 D Felony, 1 count, Arrest charge, Not an arraignment charge

Description Grand Larceny 3rd Degree
Indictment Count 52
Dismissed
GB 0352C 06 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >$250
Indictment Count 66
Date Added 09/03/2014
Dismissed
PL 155.35 01 D Felony, 1 count, Arrest charge, Not an arraignment charge

Description Grand Larceny 3rd Degree
Indictment Count 73
Dismissed
GB 0352C 05 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >9 Perso
Indictment Count 77
Date Added 09/03/2014
Dismissed
GB 0352C 05 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >9 Perso
Indictment Count 1
Date Added 09/03/2014
Dismissed
PL 190.65 1A E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Scheme Def 1st:10 Or> Persons
Indictment Count 30
Date Added 09/03/2014
Dismissed
GB 0352C 06 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >$250
Indictment Count 53
Date Added 09/03/2014
Covered By Gb 0352c 05
PL 190.65 1A E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Scheme Def 1st:10 Or> Persons
Indictment Count 61
Date Added 09/03/2014
Dismissed
PL 190.65 1B E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Scheme Def 1st:property> $1000
Indictment Count 62
Date Added 09/03/2014
Dismissed
GB 0352C 06 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >$250
Indictment Count 85
Date Added 09/03/2014
Dismissed
PL 190.65 1A E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Scheme Def 1st:10 Or> Persons
Indictment Count 2
Date Added 09/03/2014
Covered By Gb 0352c 05
PL 190.65 1B E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Scheme Def 1st:property> $1000
Indictment Count 6
Date Added 09/03/2014
Dismissed
PL 155.35 01 D Felony, 1 count, Arrest charge, Not an arraignment charge

Description Grand Larceny 3rd Degree
Indictment Count 19
Dismissed
GB 0352C 06 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >$250
Indictment Count 9
Date Added 09/03/2014
Dismissed
GB 0352C 06 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >$250
Indictment Count 11
Date Added 09/03/2014
Dismissed
GB 0352C 06 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >$250
Indictment Count 26
Date Added 09/03/2014
Dismissed
GB 0352C 06 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >$250
Indictment Count 41
Date Added 09/03/2014
Dismissed
PL 165.54 00 B Felony, 1 count, Arrest charge, Not an arraignment charge

Description Cpsp-1st:value Prop > $1000000
Indictment Count 49
Dismissed
GB 0352C 06 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >$250
Indictment Count 55
Date Added 09/03/2014
Dismissed
GB 0352C 05 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >9 Perso
Indictment Count 46
Date Added 09/03/2014
Pled Guilty
GB 0352C 06 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >$250
Indictment Count 57
Date Added 09/03/2014
Covered By Gb 0352c 05
GB 0352C 06 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >$250
Indictment Count 68
Date Added 09/03/2014
Dismissed
PL 155.35 01 D Felony, 1 count, Arrest charge, Not an arraignment charge

Description Grand Larceny 3rd Degree
Indictment Count 71
Dismissed
GB 0352C 06 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >$250
Indictment Count 28
Date Added 09/03/2014
Dismissed
PL 190.65 1B E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Scheme Def 1st:property> $1000
Indictment Count 31
Date Added 09/03/2014
Dismissed
GB 0352C 06 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >$250
Indictment Count 45
Date Added 09/03/2014
Dismissed
PL 190.65 1B E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Scheme Def 1st:property> $1000
Indictment Count 48
Date Added 09/03/2014
Dismissed
PL 155.35 01 D Felony, 1 count, Arrest charge, Not an arraignment charge

Description Grand Larceny 3rd Degree
Indictment Count 69
Dismissed
GB 0352C 06 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >$250
Indictment Count 83
Date Added 09/03/2014
Dismissed
PL 190.65 1B E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Scheme Def 1st:property> $1000
Indictment Count 3
Date Added 09/03/2014
Dismissed
PL 190.65 1A E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Scheme Def 1st:10 Or> Persons
Indictment Count 5
Date Added 09/03/2014
Dismissed
PL 165.54 00 B Felony, 2 counts, Arrest charge, Not an arraignment charge

Description Cpsp-1st:value Prop > $1000000
Indictment Count 15
Dismissed
PL 155.35 01 D Felony, 1 count, Arrest charge, Not an arraignment charge

Description Grand Larceny 3rd Degree
Indictment Count 8
Dismissed
GB 0352C 06 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >$250
Indictment Count 24
Date Added 09/03/2014
Covered By Gb 0352c 05
PL 155.35 01 D Felony, 1 count, Arrest charge, Not an arraignment charge

Description Grand Larceny 3rd Degree
Indictment Count 36
Dismissed
GB 0352C 05 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >9 Perso
Indictment Count 29
Date Added 09/03/2014
Dismissed
GB 0352C 06 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >$250
Indictment Count 43
Date Added 09/03/2014
Dismissed
PL 190.65 1A E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Scheme Def 1st:10 Or> Persons
Indictment Count 47
Date Added 09/03/2014
Dismissed
PL 155.40 01 C Felony, 1 count, Arrest charge, Not an arraignment charge

Description Gr Lar 2nd:property Val>$50000
Indictment Count 65
Dismissed
GB 0352C 06 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >$250
Indictment Count 70
Date Added 09/03/2014
Dismissed
GB 0352C 06 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >$250
Indictment Count 72
Date Added 09/03/2014
Dismissed
GB 0352C 05 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >9 Perso
Indictment Count 60
Date Added 09/03/2014
Dismissed
PL 155.35 01 D Felony, 1 count, Arrest charge, Not an arraignment charge

Description Grand Larceny 3rd Degree
Indictment Count 80
Dismissed
GB 0352C 06 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >$250
Indictment Count 81
Date Added 09/03/2014
Dismissed
PL 155.35 01 D Felony, 1 count, Arrest charge, Not an arraignment charge

Description Grand Larceny 3rd Degree
Indictment Count 82
Dismissed
PL 155.35 01 D Felony, 1 count, Arrest charge, Not an arraignment charge

Description Grand Larceny 3rd Degree
Indictment Count 84
Dismissed
PL 155.30 01 E Felony, 1 count, Arrest charge, Not an arraignment charge

Description Gr Lar 4-vlue Prpty>$1000
Indictment Count 10
Dismissed
PL 155.35 01 D Felony, 1 count, Arrest charge, Not an arraignment charge

Description Grand Larceny 3rd Degree
Indictment Count 25
Dismissed
GB 0352C 06 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >$250
Indictment Count 37
Date Added 09/03/2014
Dismissed
PL 155.35 01 D Felony, 1 count, Arrest charge, Not an arraignment charge

Description Grand Larceny 3rd Degree
Indictment Count 42
Dismissed
PL 155.35 01 D Felony, 1 count, Arrest charge, Not an arraignment charge

Description Grand Larceny 3rd Degree
Indictment Count 44
Dismissed
PL 165.52 00 C Felony, 1 count, Arrest charge, Not an arraignment charge

Description Cpsp-2nd:value Of Prop >$50000
Indictment Count 50
Dismissed
GB 0352C 06 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >$250
Indictment Count 59
Date Added 09/03/2014
Dismissed
PL 165.54 00 B Felony, 2 counts, Arrest charge, Not an arraignment charge

Description Cpsp-1st:value Prop > $1000000
Indictment Count 63
Dismissed
GB 0352C 06 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >$250
Indictment Count 74
Date Added 09/03/2014
Dismissed
PL 190.65 1A E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Scheme Def 1st:10 Or> Persons
Indictment Count 78
Date Added 09/03/2014
Dismissed
PL 190.65 1B E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Scheme Def 1st:property> $1000
Indictment Count 79
Date Added 09/03/2014
Dismissed
GB 0352C 05 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >9 Perso
Indictment Count 4
Date Added 09/03/2014
Dismissed
PL 190.65 1B E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Scheme Def 1st:property> $1000
Indictment Count 14
Date Added 09/03/2014
Dismissed
PL 165.54 00 B Felony, 1 count, Arrest charge, Not an arraignment charge

Description Cpsp-1st:value Prop > $1000000
Indictment Count 32
Dismissed
PL 155.35 01 D Felony, 1 count, Arrest charge, Not an arraignment charge

Description Grand Larceny 3rd Degree
Indictment Count 40
Dismissed
PL 155.35 01 D Felony, 1 count, Arrest charge, Not an arraignment charge

Description Grand Larceny 3rd Degree
Indictment Count 54
Dismissed
PL 155.35 01 D Felony, 1 count, Arrest charge, Not an arraignment charge

Description Grand Larceny 3rd Degree
Indictment Count 56
Dismissed
PL 155.35 01 D Felony, 1 count, Arrest charge, Not an arraignment charge

Description Grand Larceny 3rd Degree
Indictment Count 58
Dismissed
PL 165.54 00 B Felony, 2 counts, Arrest charge, Not an arraignment charge

Description Cpsp-1st:value Prop > $1000000
Indictment Count 64
Dismissed
PL 155.35 01 D Felony, 1 count, Arrest charge, Not an arraignment charge

Description Grand Larceny 3rd Degree
Indictment Count 21
Dismissed
PL 190.65 1A E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Scheme Def 1st:10 Or> Persons
Indictment Count 13
Date Added 09/03/2014
Dismissed
GB 0352C 06 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >$250
Indictment Count 22
Date Added 09/03/2014
Covered By Gb 0352c 05
PL 155.35 01 D Felony, 1 count, Arrest charge, Not an arraignment charge

Description Grand Larceny 3rd Degree
Indictment Count 38
Dismissed
PL 155.35 01 D Felony, 1 count, Arrest charge, Not an arraignment charge

Description Grand Larceny 3rd Degree
Indictment Count 67
Dismissed
PL 155.35 01 D Felony, 1 count, Arrest charge, Not an arraignment charge

Description Grand Larceny 3rd Degree
Indictment Count 75
Dismissed
GB 0352C 06 E Felony, 1 count, Not an arrest charge, Not an arraignment charge

Description Securities Fraud >$250
Indictment Count 76
Date Added 09/03/2014
Dismissed

 

The appearances in the case are shown below. Unfortunately, details are not given so I cannot be sure if any of the defendants have been dropped from the case. Sentencing is scheduled for September 27th, 2018.

Date/
Time
Judge/
Part
Calendar
Section
Arraignment/
Hearing Type
Court
Reporter
Outcome/
Release Status
09/27/2018
Scherzer, A
TAP A
SENTENCES Sentencing  
06/05/2018
Antignani, S
TAP A
SENTENCES Sentencing Castellano, L
Adjourned For Sentencing
Released on Recognizance
05/17/2018
Scherzer, A
TAP A
SENTENCES Sentencing Wilson, T
Adjourned For Sentencing
Released on Recognizance
02/08/2018
Edwards, E
TAPA-93
SENTENCES Sentencing Geraldi, Vincent
Adjourned For Sentencing
Released on Recognizance
09/27/2017
Biben, E
TAPA-93
TRIALS AM No Type Whitaker,
Pled Guilty
Released on Recognizance
09/18/2017
Biben, E
TAPA-93
TRIALS AM No Type Whitaker, B
Adjourned
Bail Continued
09/13/2017
Biben, E
TAPA-93
TRIALS AM No Type Whitaker, B
Adjourned
Bail Continued
09/05/2017
Biben, E
TAPA-93
TRIALS AM No Type Geraldi, V
Adjourned
Bail Continued
07/21/2017
Biben, E
TAPA-93
TRIALS AM No Type Hudson,
Adjourned
Bail Continued
06/08/2017
Conviser, Daniel
95
TRIALS AM No Type Kramsky, L
Adjourned
Bail Continued
05/12/2017
Conviser, Daniel
95
TRIALS AM No Type Davidson, C
Edwards, C
Adjourned
Bail Continued
05/02/2017
Conviser, Daniel
95
TRIALS AM No Type Kramsky, L
Adjourned
Bail Continued
04/04/2017
Conviser, Daniel
95
TRIALS AM No Type Kramsky, L
Adjourned
Bail Continued
01/27/2017
Conviser, Daniel
95
TRIALS AM No Type Kramsky, Lisa
Adjourned
Bail Continued
01/20/2017
Conviser, Daniel
95
TRIALS AM No Type Kramsky, L
Adjourned
Bail Continued
01/19/2017
Conviser, Daniel
95
TRIALS AM No Type Kramsky, L
Adjourned
Bail Continued
01/11/2017
Conviser, Daniel
95
TRIALS AM No Type Kramsky, L
Bruno, E
Dismiss Some, Not All Counts
Bail Continued
01/06/2017
Conviser, Daniel
95
TRIALS AM No Type Bruno, E
Adjourned
Bail Continued
12/05/2016
Conviser, Daniel
95
TRIALS AM No Type Davidson, C
Adjourned
Bail Continued
11/18/2016
Conviser, Daniel
95
TRIALS AM No Type Davidson, C
Adjourned
Bail Continued
11/15/2016
Conviser, Daniel
95
TRIALS AM No Type Davidson, C
Adjourned
Bail Continued
10/11/2016
Conviser, Daniel
95
TRIALS AM No Type Mcneill, D
Adjourned
Bail Continued
09/20/2016
Conviser, Daniel
95
TRIALS AM No Type Gale, Geralyn
Adjourned
Bail Continued
09/13/2016
Conviser, Daniel
95
TRIALS AM No Type Fleming, J
Adjourned
Bail Continued
07/12/2016
Conviser, Daniel
95
TRIALS AM No Type Tiardo, E
Adjourned
Bail Continued
06/07/2016
Conviser, Daniel
95
TRIALS AM No Type Geralyn, Gale
Kramsky, L
Adjourned
Bail Continued
05/17/2016
Conviser, Daniel
95
TRIALS AM No Type Demattia, L
Adjourned
Bail Continued
04/20/2016
Conviser, Daniel
95
TRIALS AM No Type Postel, M
Adjourned
Bail Continued
02/26/2016
Conviser, Daniel
95
TRIALS AM No Type Minelli, L
Adjourned
Bail Continued
02/23/2016
Conviser, Daniel
95
TRIALS AM No Type Minelli, L
Adjourned
Bail Continued
01/15/2016
Conviser, Daniel
95
TRIALS AM No Type Mcneill, D
Adjourned
Bail Continued
12/15/2015
Conviser, Daniel
95
TRIALS AM No Type Huntington, D
Conroy, E
Adjourned
Bail Continued
12/01/2015
Conviser, Daniel
95
TRIALS AM No Type Minelli, L
Adjourned
Bail Continued
09/08/2015
Conviser, Daniel
95
TRIALS AM No Type Huntington, D
Adjourned
Bail Continued
02/24/2015
Conviser, Daniel
95
TRIALS AM No Type Torres-fuster, L
Adjourned
Bail Continued
02/06/2015
Conviser, Daniel
95
TRIALS AM No Type Corcoran, R
Adjourned
Bail Continued
02/05/2015
Conviser, Daniel
95
TRIALS AM No Type Corcoran, R
Adjourned
Bail Continued
01/06/2015
Conviser, Daniel
95
TRIALS AM No Type Benkel, V
Adjourned
Bail Continued
12/09/2014
Conviser, Daniel
95
TRIALS AM No Type Huntington, D
Adjourned
Bail Continued
12/02/2014
Conviser, Daniel
95
TRIALS AM No Type Benkel, V
Adjourned
Bail Continued
11/18/2014
Conviser, Daniel
95
TRIALS AM No Type Aiello, C
Adjourned
Bail Continued
09/22/2014
Hayes, R
85
TRIALS AM No Type Kramsky,
Adjourned
Bail Continued
09/11/2014
Hayes, R
85
ARRAIGNMENTS Regular Aiello, Cynthia
Pled Not Guilty, Returned On Warrant
Bond $1,000,000 (Bond)
09/03/2014

GRAND JURY
MISCELLANEOUS No Type   True Bill, Warrant Ordered

 

The most recent decision in the case that I can access is from May 16th, 2016. Decisions do not appear to be accessible through the court’s website.

SEC Case against Anthony J. Thompson et al

Notwithstanding my ignorance of the exact outcome of the criminal case, the civil case has resumed (see docket). This week (on July 11th) the SEC alleged the following in a letter (document 99):

We write in advance of the July 10, 2018 prehearing conference in this matter in order to provide the Court with additional background as to the status of this litigation. Unfortunately, it has become apparent that defendant Anthony J. Thompson (“Thompson”) has engaged in a pattern of obfuscation and delay. The SEC has recently obtained documents from other litigation in which Thompson is involved that suggest not only that he has deliberately delayed the discovery process in the SEC action, but that his misconduct might be far broader than originally thought, and that Thompson might have significant assets secreted abroad.

As to defendant Jay Fung, he was agreed to a settlement offer that the staff is prepared to submit senior management and the Commission for review.

The other litigation referred to by the SEC is his divorce, Kendall Thompson v. Anthony J. Thompson, Jr., Case No. 147268-FL, and a trust litigation “in which Kendall [Thompson] alleges that Thompson has fraudulently diverted assets from a trust supposedly set up for the benefit of their children to pay for drugs and prostitutes, among other things.” (The quote is from the first footnote in the above-linked letter.)

This letter highlights how the SEC had agreed to a settlement with Thompson but he never formally agreed and now with the new allegations it is my opinion that the SEC will not settle with Thompson:

After approximately two months of what the SEC believed were good faith settlement discussions, Thompson has failed to formally agree or execute the settlement papers sent to him.

Information Obtained From the Matrimonial Case and the Trust Litigation

The SEC has learned from an initial and by necessity cursory review of some of the materials it has recently received of certain facts that are potentially material to the case at bar. These facts include that Thompson, in addition to the funds received in from the schemes set out in the Complaint, sold off OTC Solutions, Inc. for $6 million. The SEC was also informed that Thompson has been providing “consulting” services to companies located in Belize, might have been paid several million dollars in Belize. The SEC further learned that Thompson might have converted his ill-gotten gains into luxury cars and boats, and jewelry, including expensive watches. Finally, from reviewing the pleadings in those cases the SEC learned that Thompson was accused of similar dilatory and obfuscatory discovery tactics therein, including failing to adequately produce tax returns, banking information, and other financial data.

Disclaimer: I have no position in any stock mentioned above. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

 

Trading in AXM Pharma (AXMP) suspended by SEC

This morning prior to market open the trading in AXM Pharma (AXMP) was suspended by the SEC.

SEC Suspension Release (pdf)
SEC Suspension Order (pdf)

The reason for the SEC trading suspension (from the release):

because of questions about the adequacy and accuracy of information concerning AXMP’s leadership and operations contained in a Quarterly Report issued by AXMP on May 14, 2018, AXMP’s press releases issued between July 2, 2018 and July 6, 2018, and a Supplemental Information Report issued by AXMP on July 5, 2018. AXMP is a Nevada corporation based in Las Vegas, NV. AXMP’s stock is quoted on OTC Link (previously “Pink Sheets”) operated by OTC Markets Group Inc. under the symbol AXMP.

 

Here is the quarterly report mentioned above. The supplemental information report referred to above includes the CEO’s resignation. Below are the links to the press releases issued between July 2 and July 6:

AXM Pharma Announces A Proposed Reverse Merger with A Cameroon Billionaire Businessman – GlobeNewswire | 07/02/2018

AXM Pharma Announces the Appointment of a New Chief Executive Officer – GlobeNewswire | 07/03/2018

AXM Pharma Issues Correction – GlobeNewswire | 07/07/2018

This trading suspension is related to the suspension earlier this month of WSML, CYPE, and BTHI. AXM Pharma shares many connections with those other three companies including a connection with Mandla J. Gwadiso.

 

Disclaimer: I have no position in any stock mentioned above. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

More SEC & FINRA actions for failing to file SARs: Chardan Capital, ICBC Financial Services, and Schwab

The SEC and FINRA continue to pursue actions against brokers and clearing firms for failures in anti-money laundering (AML) controls and defects in filed suspicious activity reports (SARs) and failures to file SARs. In April I reported that the SEC had fined Aegis Capital for failures to file SARs related to the company’s penny stock business. Since then there have been a few SAR enforcement actions worth noting.

Chardan Capital LLC & Industrial and Commercial Bank of China Financial Services LLC (ICBCFS)

On May 16, 2018 the SEC announced settlements with Chardan Capital LLC and ICBCFS. The same day, FINRA announced a $5.3 million settlement with ICBCFS. At least in part, these settlements relate to failure to file SARs for penny stock transactions. I look in more detail at each settlement below.

FINRA fine of ICBCFS

The FINRA letter of acceptance, waiver, and consent with ICBCFS (pdf) gives detailed descriptions of the failings of ICBCFS’ systems and controls. There are many problems mentioned in the FINRA lettter, including “inadequate AML testing,” “customer reserve hindsight deficiencies,” “inaccurate books and records,” “inaccurate segregation calculations and possession or control violations,” “innacurate FOCUS reports,” “failure to seek SEC approval to use a satisfactory foreign control location,” “registration violation,” and “inadequate supervisory system and written procedures.” However, the charge that most interests me is “ICBCFS’s AML program was not reasonably designed to detect and cause the reporting of potentially suspicious activity.”

This failure was related to their business with penny stocks: “As described below, during the Relevant Period, the Firms AML program was not reasonably designed to detect and report potentially suspicious activity,
including customer trading in penny stocks.”

From the FINRA AWC letter:

In late 2012, ICBCFS added the clearing and settling of equity transactions as a new business line. The Firm began to clear for numerous direct customer accounts and dozens of correspondent clients (the introducing brokerdealersthat introduced over 21,000 fully disclosed DVP/RVP1 and held in custody accounts at ICBCFS. Within a few months of launching the equity clearing business, ICBCFS began clearing and settling the purchase and sale of millions of dollars’ worth of penny stocks.

Despite adding the equity clearing as a new business line, ICBCFS failed to design an AML program that was reasonably tailored to identify potentially suspicious activity, particularly in penny stock transactions. From January 2013 through at least June 2014, the Firm had no surveillance or exception reports identifying potentially suspicious activity involving penny stock liquidations or red flags of potentially manipulative trading, such as (1) purchases and close in time liquidations of large blocks of thinly traded penny stocks, (2) substantial fluctuations in price of thinly traded penny stock shares, and (3) customers who dominated the trading volume in penny stocks. ICBCFS also did not require its employees to document their review of monitoring / surveillance reports that the Firm had in place during the Relevant Period. Nor did the Firm require its employees to document their decisions regarding the filing of SARs.

The Firm failed to track whether customer accounts were related, or determine whether or not account holders were acting in concert to liquidate penny stocksThe Firm also lacked systems and procedures to monitor whether certain activities – including the opening of multiple accounts, wire transfers out of an account, or funds transfers among accounts, each of which would be relevant to evaluating potentially suspicious activity– were unusual for any given customer, despite the Firms written AML procedures specifically identifying such items as red flags requiring monitoring.

The Firm’s AML program also was unreasonable in that it assigned a significant number of the Firms suspicious activity monitoring functions to a nonexistent employee title. The Firms written AML procedures delegated the responsibility for investigating indicia of potentially suspicious activity such as the opening of multiple accounts by a single customer, wire transfers from an introduced customer with no apparent business purpose, and transactions inconsistent with a customers normal pattern of business to an unnamed employee identified by the title Operations Manager.However, during the Relevant Period the title Operations Managerdid not exist at the Firm and no Firm employees effectively carried out the investigation of suspicious activity assigned to the Operations Manager.

The scale of ICBCFS’ penny stock business is impressive (emphasis mine):

During the Relevant Period, Firm customers liquidated more than 33 billion shares of penny stocks and generated approximately $210 million in proceedsApproximately 15 billion penny stock shares were sold by Firm customer accounts that did not purchase a single penny stock during the Relevant PeriodIn total, approximately 106 accounts during the Relevant Period sold penny stocks without making any purchases. Liquidations of penny stocks by Firm introduced customers frequently dominated the overall trading volume, resulting in hundreds of instances where such liquidations represented more than 75% of a penny stocks trading volume in a single day.

The AWC letter gives several examples of suspicious trading, but the anonymous firm “XYZ Financial LLC” takes the cake:

In 2013 and 2014, the Firm opened two accounts for introduced customer XYZ Financial LLC (XYZ Financial), notwithstanding that the entitys beneficial owner had been barred from the securities industry in 2012 following a FINRA disciplinary action. XYZ Financial liquidated penny stocks associated with approximately 107 different issuers and generated more than $18 million in proceeds. In approximately 675 instances, XYZ Financials liquidations represented more than 50% of the total daily market volume for a given penny stock.

Over 143 trading days from June 2013 through June 2014, XYZ Financial liquidated more than 3.2 million shares of a thinly traded penny stock without purchasing a single share. On approximately 103 trading days, XYZ Financials liquidations exceeded 50% of the total market volumeXYZ Financial generated more than $475,000 from the liquidationsDuring this period, the price of the stock dropped by roughly 77% from a high of approximately $0.35 per share to $0.08 per share.

From late October 2013 through March 2014, XYZ Financial liquidated approximately 89 million shares of a different thinly traded penny stock without purchasing a single share. On several trading days, XYZ Financial’s liquidations represented or exceeded 30% of the daily trading volume. During the time period of XYZ Financials liquidations, the price of the penny stock dropped by more than 50%. XYZ Financial generated approximately $65,000 in proceeds from the liquidations.

SEC Settlement with ICBCFS

The SEC’s cease and desist order / settlement (pdf) with ICBCFS also relates to SARs on penny stock transactions and only mentions transactions with clients of Chardan:

4. Specifically, during the relevant period, seven of Chardan’s customers sold over 12.5 billion shares of penny stocks. These sales were often in large volumes, constituting a material percentage of the daily sales volume in the security. Each of the seven customers engaged in at least one transaction where the customer’s sales of a particular penny stock accounted for over 50 percent of the sales volume in that penny stock during a single trading day, and four of the seven customers engaged in at least one such transaction where the customer’s sales exceeded 70 percent of the sales volume in a penny stock during a single trading day. Moreover, while not identified by ICBCFS at the time, the liquidations by the seven customers at Chardan frequently occurred where the issuers had ongoing promotional campaigns or had large accumulated deficits.

5. On January 27, 2014, ICBCFS requested that Chardan have a customer stop trading “all these sub penny stocks today.” Despite this prohibition, that customer sold multiple sub-penny stocks after this date. ICBCFS failed to file a SAR related to these transactions and did not produce a written analysis or other records supporting the reasonableness of why a SAR did not need to be filed.

6. On March 18, 2014, ICBCFS asked Chardan for a description of another customer’s sales transactions, indicating that unless it received sufficient information about that customer’s background, it would close the account. ICBCFS closed that account a few days later, but failed to file a SAR related to the customer and did not produce a written analysis or other records supporting the reasonableness of why a SAR did not need to be filed.

7. On June 23, 2014, ICBCFS asked Chardan for more information on two specific transactions by customers trading low-priced securities. ICBCFS failed to file a SAR related to these transactions and did not produce a written analysis or other records supporting the reasonableness of why a SAR did not need to be filed.

8. On June 25, 2014, ICBCFS asked Chardan about ten specific transactions in lowpriced securities. ICBCFS failed to file a SAR related to these transactions and did not produce a written analysis or other records supporting the reasonableness of why a SAR did not need to be filed.

9. On June 26, 2014, ICBCFS asked Chardan about eight specific transactions in low-priced securities. ICBCFS failed to file a SAR related to these transactions and did not produce a written analysis or other records supporting the reasonableness of why a SAR did not need to be filed.

10. On June 27, 2014, a Vice President at ICBCFS told Chardan’s President that ICBCFS had closed certain customer accounts at a broker-dealer specializing in low-priced security trades, and those customer accounts were migrating to Chardan. Three of the accounts listed in the email had opened and begun trading in February 2014, and the fourth had opened and begun trading in October 2013. ICBCFS did not conduct a review of these customers’ trading activities despite flagging these issues. ICBCFS failed to file any SARs related to these transactions or customers and did not produce a written analysis or other records supporting the reasonableness of why SARs did not need to be filed.

11. By late June 2014, ICBCFS effectively ceased clearing transactions in penny stock securities by certain of Chardan’s customers.

ICBCFS was ordered to pay $860,000 to the SEC.

Chardan Capital Markets LLC Settlement with SEC

Chardan Capital Markets’ settlement with the SEC (pdf) relates to the SEC settlement with ICBCFS because it was Chardan’s clients’ trading cleared through ICBCFS that was responsible for a significant portion of the penny stock volume traded through ICBCFS. The FINRA action noted that ICBCFS “firm customers liquidated more than 33 billion shares of penny stocks and generated approximately $210 million in proceeds”. The SEC settlement with Chardan mentions that “seven of Chardan’s customers from the period October 1, 2013 to June 30, 2014 sold over 12.5 billion shares of penny stocks”. So by share volume Chardan clients were responsible for just over a third of penny stock trades at ICBCFS.

From the settlement:

1. Beginning in late 2013, Chardan on-boarded seven new customers who routinely deposited and then promptly sold billions of shares of thinly-traded penny stocks. These customers typically obtained their holdings by converting debentures into shares of microcap issuers. The shares were generally deposited with a custodian and then sold through the customers’ “delivery versus payment/received versus payment” accounts (“DVP/RVP accounts”) at Chardan. The customers engaged in sales that regularly accounted for a substantial percentage of the daily volume in these thinly-traded penny stocks until the customer’s entire position was sold. The sales frequently occurred after or as promotions in the securities were occurring. Those transactions, in light of other information known to Chardan at the time, raised or should have raised red flags for the firm. Given the suspicious nature of its customers’ transactions, related red flags, and the requirements of its written policies, Chardan should have filed SARs on numerous occasions and did not produce a written analysis or other records supporting the reasonableness of why SARs did not need to be filed.

7. Beginning in late 2013 through the first half of 2014, Chardan facilitated the sale of billions of shares of low-priced, thinly-traded penny stocks for seven customers, all of which cleared through a single clearing firm, ICBC. This trading in penny stocks led to a large uptick in Chardan’s commissions from equity trading: in December 2013, Chardan generated just over $235,000 in such commissions, while in January 2013, it generated over $797,000.

8. Specifically, seven of Chardan’s customers from the period October 1, 2013 to June 30, 2014 sold over 12.5 billion shares of penny stocks. These sales were often in large volumes, constituting a material percentage of the daily sales volume in the security. Each of the seven customers engaged in at least one transaction where the customer’s sales of a particular penny stock accounted for over 50 percent of the sales volume in that penny stock during a single trading day, and four of the seven customers engaged in at least one such transaction where the customer’s sales exceeded 70 percent of the sales volume in a penny stock during a single trading day.

9. Despite the explicit requirements of Chardan’s Policies, Chardan failed to adequately investigate suspicious activity as these customers engaged in these sales.

10. These liquidations were coupled with other indicia that should have further heightened suspicion and raised concerns for Chardan. For example, its customers were trading in penny stocks where the issuers had ongoing promotional campaigns or had large accumulated deficits. In other instances, Chardan became aware of additional suspicious transactions or other red flags related to its customers or their accounts subsequent to their suspicious trading. For example:

  • After the trades were executed, Chardan received numerous regulatory inquiries concerning certain securities that certain of these seven customers’ effected trading in.
  • Chardan discovered past criminal and regulatory issues with an entity with which certain of these seven customers were associated.
  • Chardan knew, or should have known, that the Commission suspended trading in three securities after the securities had been recently liquidated by certain of these seven customers.

11. Chardan failed to properly investigate its customers’ already suspicious high volume trading in light of these red flags and never filed a SAR with respect to any of these transactions. This contravened Chardan’s Policies, which required that Chardan investigate suspicious transactions and file a SAR as necessary.

Here are some illustrative transactions from the settlement:

Customer A
19. In December 2013 and March 2014, Customer A opened two accounts at Chardan controlled by the same individuals. Customer A traded substantial volumes of the daily market in fourteen microcap issuers in these two accounts from December 2013 through May 2014. Of the 165 dates it sold securities, Customer A accounted for over 20 percent of the sales volume on 129 of those dates and over 50 percent of the sales volume on 59 of those dates. In addition to this high-volume trading, which was a red flag of potential money laundering under its policies, Chardan was or should have been aware of a number of additional red flags that should have further raised suspicions concerning Customer A’s trading, including:

  • Chardan knew or should have known that eight of the issuers were the subject of promotional campaigns just before or during Customer A’s trading.
  • The SEC suspended trading in one of the issuers approximately six weeks after Customer A’s large volume of sales in that security.
  • After the trades were executed, Chardan received regulatory inquiries regarding Customer A’s trading in three securities.

In addition, Chardan never questioned the business purpose of the same individuals havingaccounts in two names, despite its policies identifying a single customer having multiple accounts under multiple names as a red flag requiring further investigation.

20. Chardan was also aware that the individuals involved with Customer A were previously associated with an entity that had been charged by the Commission on August 22, 2012, with securities fraud. In that matter, the Commission charged the entity with conducting an unlawful penny stock scheme in which the entity bought billions of stock shares from small companies and illegally resold those shares in the public market. The purported exemption used in the Commission’s action was the same one that Customer A used to conduct certain of its trading at Chardan. The registered representative at Chardan on Customer A’s account contacted management of Customer A who informed him that the individual charged in the Commission’s action, while not a principal or control person of Customer A, was a consultant to Customer A.
Despite knowing this additional fact, Chardan conducted no further investigation into Customer A’s trading and took no alternative actions, such as heightened scrutiny of Customer A’s transactions, as required under the Chardan’s Policies. Further scrutiny of Customer A’s transactions would have shown that it was engaged in the same type of transactions as the Commission had alleged to be fraudulent.

21. Despite the substantial daily volume of trading by Customer A in these securities and the other red flags associated with the transactions set forth above, Chardan never filed a SAR to report Customer A’s transactions and did not produce a written analysis or other records supporting the reasonableness of why SARS did not need to be filed.

Although I cannot be 100% certain, I believe the “entity that had been charged by the Commission on August 22, 2012, with securities fraud,” was E-Lionheart Associates LLC. The litigation release for that case is dated August 23rd, 2012 and the same phrase is used in that litigation release, “bought billions of stock shares from small companies and illegally resold those shares in the public market.” The docket of the SEC suit against E-Lionheart Associates can be found free at CourtListener.com.  In summer 2017 the SEC won a summary judgment (pdf) in that case. To be clear, “the individual charged in the Commission’s action, while not a principal or control person of Customer A, was a consultant to Customer A.”

Chardan was ordered to pay a penalty of $1,000,000 to the SEC.

Chardan’s AML officer, Jerard Basmagy, also settled (pdf) with the SEC. He was fined $15,000 and barred from associating with any broker or investment adviser for three years and barred from participating in the offering of any penny stock for three years.

From Basmagy’s settlement:

Despite having policies which set forth red flags of suspicious activities and the requirement to review those red flags, Chardan did not conduct the requisite review of significant penny stock liquidations that occurred through seven customer accounts during the relevant period. Chardan’s clearing firm, Industrial and Commercial Bank of China Financial Services LLC (“ICBC”), raised multiple concerns to Chardan about certain of Chardan’s customers and their trading in low-priced securities. In June 2014, ICBC ceased clearing penny stock trades, and Chardan withdrew from the penny stock business. Chardan also knew, suspected, or had reason to suspect that certain of the seven customers were engaged in fraudulent activity based on other red flags listed in their policies. These included the background and identity of the customers, trading suspensions in certain issuers that were the subject of prior trading by the customers, and numerous regulatory inquiries received by Chardan after May 2014 regarding certain of the customer’s trading. Despite the suspiciousness of its customers’ transactions, the related red flags, and the requirements of its written policies to review those red flags, Chardan never investigated these red flags or filed a SAR during the relevant period related to its customers’ suspicious penny stock transactions.

By failing to file SARs as required, Basmagy, as Chardan’s then CCO and AML Officer, willfully aided and abetted and caused  Chardan’s violations of Section 17(a) of the Exchange Act and Rule 17a-8 thereunder.

17. In certain instances, when FINRA staff and the Commission’s staff separately requested any files in the possession, custody, or control of Chardan related to certain transactions in low-priced securities as part of their respective regulatory inquiries and the Commission’s investigation in this case, Basmagy requested that registered representatives contact customers and obtain those documents. Neither he nor any other Chardan employee had previously done so despite the requirements of Chardan’s Policies described in paragraph 12, above. Basmagy then provided the documents to regulatory staff without noting that Chardan obtained those documents only after receiving the request. As a result, the regulatory staff believed that the documents were in Chardan’s files at the time of the transactions when, in fact, Chardan received the documents after the receipt of the regulatory inquiry.

 

Unrelated SEC settlement with Schwab

On July 9, 2018 the SEC announced a settlement with Charles Schwab for failing to file SARs. See the complaint (pdf). The SARs that Schwab should have filed were not for penny stock transactions but instead for “cherry-picking” and excessive fees charged by advisers. From the complaint:

3. In 2012 and 2013, Schwab violated Exchange Act Section 17(a) and Rule 17a-8 by failing to file Suspicious Activity Reports (“SARs”) on suspicious transactions by independent investment advisers (“Advisers”) that Schwab terminated from its custodial platform. Schwab terminated the Advisers for engaging in activity Schwab determined violated its internal policies and presented risk to Schwab or its customers.

4. Schwab’s failure to file the SARs at issue resulted from its inconsistent implementation of policies and procedures for identifying and reporting suspicious transactions under the SAR Rule (31 C.F.R. § 1023.320(a)). Although Schwab investigated and terminated the Advisers, it did not have clear or consistent policies and procedures regarding the types of transactions on which SARs needed to be filed. For example, Schwab did not file SARs in certain instances where it investigated and terminated Advisers for conduct that led, or reasonably should have led, Schwab to suspect that the Advisers had charged certain customers excessive advisory fees, had allowed their state registrations to lapse, or were engaged in schemes involving “cherry-picking” (a fraudulent trade allocation scheme where the Adviser allocates profitable trades to the Adviser’s personal account and unprofitable trades to client accounts). In addition, in a number of instances where Schwab investigated and
terminated Advisers for conduct that led, or reasonably should have led, it to suspect that the Advisers misappropriated or misused client funds, Schwab applied an unreasonably high standard for determining whether to file a SAR on the suspicious transactions.

From the settlement release:

Schwab has agreed to settle the action by consenting, without admitting or denying the allegations of the complaint, to the entry of a permanent injunction and the payment of a $2.8 million civil penalty.

Disclaimer: I have no position in any stock mentioned above. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Brian Sodi aka ‘Mailman’, allegedly responsible for dozens of pump and dump flyers, faces criminal and civil charges

On March 9, 2108 Brian Robert Sodi aka ‘Mailman’ was arrested and criminal and civil charges were announced against him. See the SEC press release and the Department of Justice press release. I have been behind in my blogging and did not realize just how important Brian Sodi allegedly was to the pump and dump industry until I finally got around to reading the criminal indictment and the SEC complaint.

How did Sodi acquire the nickname “mailman”? According to the SEC complaint he ran a large number of stock promotions (both online and physical mail) for 17 years.

91. From 1998 through at least 2015, Sodi’s Penny Stock Promotion Platform was a significant disseminator of penny stock promotional materials, handling, at its peak, as many as two dozen or more such campaigns annually

First, the allegations from the above-mentioned press releases. I start with excerpts from the DoJ press release:

A ten-count indictment filed in U.S. District Court charges BRIAN ROBERT “Mailman” SODI, 46, of Boca Raton, with conspiracy to commit securities fraud and mail fraud, and related charges.

According to the indictment, Sodi used his Florida-based publishing houses to distribute deceptive promotional mailers recommending the purchase of select penny stocks, while hiding from potential investors that he secretly was selling the stocks he was urging them to buy. The indictment also charges that Sodi obscured his involvement in the scheme by using offshore accounts and intermediaries to launder the proceeds of his fraud back to himself and his publishing houses.

According to the indictment, Sodi conducted his scheme as follows:

He would acquire shares of a publicly-traded stock, positioning himself to benefit from selling the shares at inflated prices. Sodi would try to induce the public to purchase the stock by developing and disseminating promotional and marketing mailers that exaggerated the stock’s prospects for growth and urged readers to purchase it. The mailers would falsely and deceptively conceal and fail to disclose that Sodi intended to sell the stock he was urging others to buy. After the stock price rose, Sodi would sell the stock for a profit.

Sodi hid his ownership interest in the promoted stock by trading through Arliss, a Swiss account, instead of through a brokerage account held in his own name. He brought the proceeds of his fraud back to himself and his publishing houses through offshore accounts held by firms in Switzerland, the Cayman Islands, and elsewhere.

Now excerpts from the SEC press release:

The SEC’s complaint alleges that Brian Robert Sodi, known in penny stock circles as “Mailman” for his pervasive participation in direct-mailed penny stock promotions, committed a fraud known as scalping.  He allegedly disseminated promotions recommending the purchase of the stocks in Southern USA Resources Inc. and Goff Corporation without disclosing he owned shares and planned to sell them through a foreign bank.  Sodi also allegedly hid from investors that he was being paid in stock for one of these promotions.  According to the SEC’s complaint, Sodi proceeded to unload hundreds of thousands of his own shares to the detriment of other investors who bought in to the hype.

The SEC’s complaint filed February 26 charges Sodi and two of his publishing houses, Capital Financial Media LLC and List Data Solutions LLC, with violating Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 and Sections 17(a) and (b) of the Securities Act of 1933.  The complaint also charges Sodi with violating Section 13(d) of the Exchange Act and Rule 13d-1 as well as Sections 5(a) and (c) of the Securities Act.  Among other things, the complaint seeks an accounting of all of Sodi’s and his entities’ sales of all U.S. penny stocks that Sodi’s platform promoted within the last five years.

 

Perhaps most interestingly, the list of domestic and foreign regulatory agencies that assisted in the investigation is long:

The SEC appreciates the assistance of the U.S. Attorney’s Offices for the Northern District of Alabama, District of New Jersey, Eastern District of New York, and Eastern District of Virginia as well as the Criminal Fraud Section of the U.S. Department of Justice, Federal Bureau of Investigation, U.S. Postal Inspection Service, U.S. Department of Homeland Security, Alabama State Securities Commission, Financial Industry Regulatory Authority, Alberta Securities Commission, British Columbia Securities Commission, Cayman Islands Monetary Authority, the Cyprus Securities and Exchange Commission, Dubai Financial Services Authority, Guernsey Financial Services Commission, Hong Kong Securities and Futures Commission, Liechtenstein Financial Market Authority, the Malta Financial Services Authority, the Mauritius Financial Services Commission, Investigation Section of the Financial Services Regulation Division of the Government of Newfoundland and Labrador, Ontario Securities Commission, Québec Autorité des Marchés Financiers, Monetary Authority of Singapore, Swiss Financial Market Supervisory Authority, United Arab Emirates Securities and Commodities Authority, and United Kingdom Financial Conduct Authority.

There are three court cases that have been generated by this so far. The first (and least interesting) is United States v. Sodi (9:18-mj-08088) in the US District Court of the Southern District of Florida. All my links to court cases in this post are to the freely-available docket on CourtListener.com. In addition to the docket, some of the court documents are available to download from that website for free.

The criminal indictment was originally filed in the US District Court, Northern District of Alabama before being removed to the Southern District of Florida — where it was promptly transferred back to Alabama. My guess is that the only reason for the brief removal of the case to Florida was because Sodi was arrested there so therefore bond had to be set there. On March 8, 2018, was released on $250,000 bond (pdf).

The second case is  Securities and Exchange Commission v. Sodi (5:18-cv-00313) in the US District Court, Northern District of Alabama. Read the complaint (pdf). As is normal when a defendant is facing parallel civil and criminal charges, Sodi and his companies (Capital Financial Media, LLC and List Data Solutions, LLC) filed a motion to stay the proceedings of the civil case while the criminal case is litigated. From that motion:

Pursuant to Rule 7 of the Federal Rules of Civil Procedure, Defendants Brian Robert Sodi (“Sodi”), Capital Financial Media, LLC, and List Data Solutions, LLC (collectively, “Defendants”), respectfully move the Court for an order staying this matter pending resolution of the criminal case against Sodi in this District.

On June 28th lawyers for the SEC and the defendants had a telephone conference to discuss the motion to stay. On June 29th the judge ordered:

Consistent with discussion on the record during the telephone conference on June 28, 2018 in this matter, on or before July 20, 2018, the parties shall please submit a proposed partial stay order that addresses the Fifth Amendment concerns in this case. The Court STAYS the defendants’ obligations to respond to the complaint in this matter until the Court reviews the parties’ joint submission and enters an appropriate order. Signed by Judge Madeline Hughes Haikala on 6/29/2018.

The third and most important case is  United States v. Sodi (5:18-cr-00056) in US District Court, Northern District of Alabama. Read the criminal indictment (pdf). The indictment was filed under seal on February 22, 2018.

I will skip discussion of the indictment to briefly address the other filings in the case so far, most of which are procedural and uninteresting. Unsurprisingly, both sides moved for the case to be ruled complex (which gives both sides more time to prepare for trial) and the judge ordered that motion approved.  From the motion:

A first production of discovery has already been delivered to the defense and further productions are being prepared. The Government estimates that the organized discovery ultimately made available to the defense will amount to at least 100 gigabytes of data, mostly in the form of thousands of documents, with additional materials to be made available for inspection or copying.
A telephone status conference has been scheduled for July 30, 2018 to discuss the timeline for pretrial motions, plea notification, and trial.

One interesting fact garnered from the government’s motion for alternative victim notification procedures (pdf):

The Indictment alleges that Sodi participated in such fraud schemes involving four separate stock tickers during 2012 and 2013.
Because the frauds alleged in the Indictment were directed at influencing the stock price of each of the targeted stocks, and thereby influencing the market for the stocks as a whole, the number of victims harmed by the defendant’s activities reaches far beyond the typical range for ordinary financial fraud cases. The Government currently estimates that 48,848 investors, in the United States and elsewhere, purchased manipulated stock during Sodi’s frauds.

Considering that the same people would tend to trade many different pumps, rather than dividing 48,848 by 4 to get 12,000 traders/investors during each pump and dump, I would estimate 24,000 traders/investors traded each of the stocks Sodi is alleged to have promoted.

The Indictment

We return to review the indictment (pdf). I will excerpt what I think are the most important parts of the indictment. First, the people and entities involved:

c. The defendant, BRIAN ROBERT SODI, known to others involved in penny stock fraud as “Mailman,” personally controlled companies Capital Financial Media, LLC (CFM), List Data Solutions, LLC (LDS), GLJ Holdings, LLC (GLJ), Trinity Investment Research, LLC (TIR), and other companies using the same business address in Delray Beach, Florida. BRIAN ROBERT SODI and his entities were involved in penny stock promotion s, primarily through the distribution of mailers by postal mail, email, and online advertising.

d. Cooperating Witness 1 (CW-1) and Cooperating Witness 2 (CW-2) were co-conspirators with BRIAN ROBERT SODI as described below

e. Arliss International, Inc. (Arliss) was a corporate entity incorporated in the British Virgin Islands in and around October 2009. BRIAN ROBERT SODI used Arliss to scalp stock during the pump-and-dump schemes described in this Indictment. Although Arliss’s manager was nominally an official of EuroHelvetia Trustco S.A. (EHT), a wealth administration firm headquartered in Geneva, Switzerland, Arliss was in fact used by and operated for the benefit of BRIAN ROBERT SODI.

f. Southern USA Resources, Inc. (SUSA) was a Delaware corporation doing business in Ashland, Alabama, in Clay County, within the Northern District of Alabama. From in and around 2012 to in and around 2013, SUSA operated a gold mine in the Northern District of Alabama. SUSA registered its common stock with the U.S. Securities and Exchange Commission (SEC) under Section 12 of the Securities Exchange Act of 1934 on or about May 10, 2012. SUSA securities were quoted on OTC Link, an electronic inter-dealer quotation system for over-the-counter securities, under the ticker symbol “SUSA.” SUSA shares were available for public trading until on or about March 1, 2013, when the SEC issued an order suspending trading in SUSA stock. BRIAN ROBERT SODI used Arliss to scalp SUSA stock during a promotion by BRIAN ROBERT SODI’s publishing houses that was executed from in and around 2012 to in and around 2013. On or about November 22, 2013, the SEC revoked SUSA’s registration for various violations of the securities laws.

g. Great Wall Builders Ltd. (GWBU) was a Texas corporation. GWBU common stock was registered with the SEC under Exchange Act Section 12(g) and was quoted on OTC Link under the ticker symbol “GWBU.” BRIAN ROBERT SODI used Arliss to scalp GWBU stock during a promotion by BRIAN ROBERT SODI’s publishing houses in and around 2012.

h. Potash America, Inc. (PTAM) was a Nevada corporation headquartered in Boca Raton, Florida (originally named Adtomize Inc.). PTAM common stock was registered with the SEC under Exchange Act Section 12(g) and was quoted on OTC Link under the ticker symbol “PTAM.” BRIAN ROBERT SODI used Arliss to scalp PTAM stock during a promotion by his publishing houses in and around 2012.

i. Goff, Corp. (GOFF) was a Nevada corporation headquartered in Cork City, Ireland. GOFF common stock was registered with the SEC under Exchange Act Section 12(g). BRIAN ROBERT SODI used Arliss to scalp GOFF stock during a promotion run by his publishing houses in and around 2013. GOFF securities were quoted on OTC Link under the ticker symbol “GOFF” and were available for public trading until on or about June 29, 2013, when GOFF terminated its stock registration.

Of the four stocks mentioned in the indictment, two of them (GOFF and GWBU) were also promoted by the infamous AwesomePennyStocks. I wrote a blog post detailing the Goff Corp (GOFF) stock promotion by email and by online landing page and hard mailer (distributed by Capital Financial Media). I wrote about the Great Wall Builders (GWBU) email promotion by Awesomepennystocks and how that campaign was interrupted by SpamHaus and iContact. I previously blogged about the SEC suspending trading in Southern USA Resources (SUSA). Tim Lento posted a scan of the front and disclaimer page of the SUSA hard mailer. Here is a copy of that scan.
The main allegations from the indictment are as follows:
6. It was further a part of the scheme that BRIAN ROBERT SODI’s mailers would falsely, deceptively, and misleadingly conceal and fail to disclose the material fact that BRIAN ROBERT SODI intended to sell the very stock that he was urging others to buy.

8. It was further a part of the scheme that sometimes, accomplices and co-conspirators of BRIAN ROBERT SODI, both known and unknown to the Grand Jury, would use “match trading,” i.e.,coordinated transactions designed to manipulate the stock price, to deceive investors into believing that the public was actively trading in the stock.
9. It was further a part of the scheme that after the stock price rose, BRIAN ROBERT SODI would sell the stock for a profit.
10. It was further a part of the scheme that BRIAN ROBERT SODI would conceal his ownership interest in the promoted stock by trading through Arliss, a Swiss account, instead of through a brokerage account held in his own name.
11. It was further a part of the scheme that BRIAN ROBERT SODI would repatriate the proceeds to himself and his publishing houses through offshore accounts held by firms in Switzerland, the Cayman Islands, and elsewhere.
THE CONSPIRACY TO COMMIT SECURITIES FRAUD
12. From in and around 2012 through in and around 2013, all dates inclusive, BRIAN ROBERT SODI, together with CW-1, CW-2, and others known and unknown to the Grand Jury, conspired to defraud investors in the Northern District of Alabama and elsewhere through the fraud scheme described above by executing trades of SUSA stock.

The SEC complaint (pdf) against Sodi and his companies includes some other details not in the indictment:

IT IS LIKELY THAT SODI HAS ENGAGED IN ADDITIONAL
SCALPING FRAUD WITHIN THE LAST FIVE YEARS
Sodi for Years Had Access to Administrative Firm A’s Network of Offshore Accounts
83. Sodi made regular use of Swiss Administrative Firm A – administered accounts from as far back as 2005 and continuing through at least 2015, as demonstrated by, among other things:
a. both Front Company A and Front Company B being Swiss Administrative Firm A-administered accounts;
b. a third, older account (“Front Company C”), which was active from at least early 2005 through early 2010, and which was also Swiss Administrative Firm A-administered – having been used repeatedly to make payments for Sodi’s benefit to many of the same persons and entities to which Front Company A likewise made payments, including parties who designed, built and landscaped Sodi’s vacation home on Nicaragua’s Pacific Coast, “Casa Sodi”;
c. Swiss Administrative Firm A itself having sent at least one wire, on September 8, 2010, to Sodi’s very same “player account” at the very same Casino to which Front Company A also wired funds (as alleged in paragraph 28 above);
d. other Swiss Administrative Firm A-administered accounts, including “omnibus” accounts, transferring funds to, and/or receiving funds from, the Front Company A account; and
e. other Swiss Administrative Firm A-administered accounts wiring funds to reload the very same Swiss Visa Card that Front Company B, as alleged in paragraph 81.c above, wired funds to reload.

After that section the SEC complaint details alleged scalping in PTAM and GWBU in 2012. One alleged detail of note (emphasis mine):

At the time of these purchases, Sodi knew that the massive GWBU promotional campaign his Penny Stock Promotion Platform had prepared was about to launch, and that it would also coincide and be coordinated with a massive APS campaign likewise promoting GWBU.

The complaint continues to allege other stocks scalped after 2013, although it lists only one stock, Graham & Hill Industries (GHIL):

88. In addition to the Front Company A and Front Company B-linked funds that were routed circuitously to Sodi’s CFM entity in April 2014 via Hong Kong Account A, as alleged in paragraph 81.b above, other funds followed a similar path. These include six transfers totaling $950,000 between June 18 and September 22, 2014 from Hong Kong Account A to Sodi’s LDS entity.

89. Sodi’s Penny Stock Promotion Platform booked all $950,000 of the aforementioned wires from Hong Kong Account A as income relating to the Sodi Platform’s promotion of a marijuana stock called Graham & Hill Industries (GHIL). Every penny of this $950,000 however, was first sent to Hong Kong Account A by the very same account – which happened to be at a Cayman Islands bank – that was selling GHIL stock into the price and volume rises generated by that touting campaign. Moreover, every penny of this $950,000 was funded by sales of GHIL stock.

The SEC complaint also alleges that Sodi lied to SEC staff:

93. During the staff’s investigation leading to the filing of this action, Sodi appeared for testimony. During that testimony, Sodi made false statements, including claims that he (i) never had, and never was given the use of, any foreign accounts; (ii) never received or shared, directly or indirectly, in any proceeds of any sales of any of the stocks his publishing houses promoted; and (iii) had never – apart from a single instance over twelve years ago – been paid in stock for running a promotional campaign.

 

My Records of CFM and LDS stock promotions

I have collected a large number of records of stock promotions on this blog. While this collection is not exhaustive, I do make sure to collect disclaimer info and details of the promotion for each big promotion I have blogged about. Below are all the stocks not mentioned in the SEC complaint or indictment for which I have records showing CFM or LDS as being involved in the promotion. I blogged about many of these but many of the promotions below are linked only to archived webpages at The Internet Archive showing the promotion; others are linked to PDF copies of the online landing pages promoting the stocks that I made at the time of the promotion.

Note that my inclusion of the promotions in this below list does not mean that I believe that Sodi or his companies violated the law in promoting these companies — it is possible to legally promote a company — I only indicate that he and/or his companies promoted these stocks. Dates below are approximate — many of these promotions ran for many months.

Green & Hill Industries (GHIL): List Data Solutions (June, 2014)

Mining Metals of Mexico (WIIM): List Data Solutions (April, 2014)

Black River Petroleum (BRPC): Capital Financial Media (April, 2014)

Guar Global (GGBL): List Data Solutions (December, 2013)

Amazonica Corp (AMZZ): Capital Financial Media (November, 2013)

Xumanii Corp (XUII): Capital Financial Media (July, 2013)

Lot78 Inc (LOTE): Capital Financial Medial (March, 2013)

PacWest Industries (PWEI): Capital Financial Media (March, 2013)

Swingplane Ventures (SWVI): Capital Financial Media (February 2013) (Thanks to Tim Lento for the scan of the mailer)

Graphite Corp (GRPH): List Data Solutions (February 2013)

Lifetech (LTCH): Capital Financial Media (November, 2012)

Stevia Corp (STEV): Capital Financial Media (September, 2012)

Stevia Nutrition (STNT): Capital Financial Media (August, 2012)

Boldface Group (BLBK): Capital Financial Media (August, 2012)

American Energy Development (AEDC): Capital Financial Media (July, 2012)

Psychic Friends Network (PFNI): Capital Financial Media (May, 2012)

Sunpeaks Ventures (SNPK): Capital Financial Media (April, 2012)

North Springs Resources (NSRS): Capital Financial Media (January, 2012)

Xcelmobility (XCLL): Capital Financial Media (January, 2012)

White Smile Global (WSML): Capital Financial Media (November, 2011)

TakeDown Entertainment (TKDN): Capital Financial Media (September, 2011) (Archived copy of promotion landing page)

Allezoe Medical (ALZM): Capital Financial Media (July, 2011) (Archived copy of promotion landing page)

Portage Resources (POTG): Capital Financial Media (June, 2011)

Xinde Technology (WTFS): Capital Financial Media (June, 2011)

OncoSec Medical (ONCS): Capital Financial Media (May, 2011)

First American Silver (FASV): Capital Financial Media (April, 2011)

Avatar Ventures Corp (AVVC): Capital Financial Media (April, 2011) (Archived copy of promotion landing page)

Kunekt Corp (KNKT): Capital Financial Media (February, 2011)

Hiroyoshi Worldwide (HHWW): Capital Financial Media (February, 2011)

 

Many more stock promotions run by List Data Solutions and/or Capital Financial Media can be found by using the Internet Archive Wayback Machine on SmallcapFortunes.com although the pump pages were not accessible directly from the main page, so a reader needs to find the direct link to find the archived page. It appears that at least at one point Capital Financial Media LLC owned SmallCapFortunes.com (another messageboard source from someone I trust saying the same thing). The current owner of the SmallCapFortunes.com domain name is Trinity Investment Research LLC of Florida (per current WHOIS search; screen capture).

Disclaimer: I have no position in any stock mentioned above. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.