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. 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:
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 – KVMD3. 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 1.5million 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 coordinatedGiguiere’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”), whowas 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 – ASNT10. 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 thecooperating 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 onTheMoneyStreet 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.