On July 22nd, the District Court for the Northern District of Ohio unsealed criminal complaints that had earlier been filed against Dror Svorai, Eli Taieb, and Charles Vaccaro. All three men were arrested and there are separate criminal complaints against each of them. Vaccaro will be released after he secures a $1 million secured appearance bond (pdf); Taieb was released on a $1 million personal surety bond and must wear a GPS monitoring device; Svorai was released on a $1 million personal surety bond (pdf) cosigned by his brother. The men are presumed innocent until proven guilty at trial.
Each of the three cases will be heard in the Northern District of Ohio District Court.
United States v. Vaccaro (1:19-mj-03190)
United States v. Svorai (1:19-mj-03191)
United States v. Taieb (1:19-mj-03192)
There was a brief proceeding held in the Southern District of Florida (1:19-mj-03164) where Svorai was arrested; another brief proceeding was held in the Eastern District of New York (2:19-mj-00666) where Vaccaro was arrested.
The charges against all three men are the same:
Conspiracy to commit securities fraud
Each complaint is accompanied by the same affidavit (pdf) of FBI Special Agent Anthony Fry. The introductory section of the affidavit is a good overview:
Upon information and belief, in and around July 2019, within the Northern District of Ohio and elsewhere, the defendants, DROR SVORAI, ELI TAIEB, and CHARLES VACCARO, together with others, did knowingly and intentionally attempt to execute a scheme and artifice to defraud investors and potential investors in connection with securities of issuers with a class of securities registered under Section 12 of the Securities Exchange Act of 1934, specifically PotNetwork Holdings, Inc., Clic Technology, Inc., White Label Liquid, Inc., Canna Corporation, and Vapor Group, Inc. to obtain money and property from investors and potential investors by means of materially false and fraudulent pretenses, representations, and promises in connection with purchases and sales of securities of issuers with a class of securities registered under Section 12 of the Securities Exchange Act of 1934, specifically, PotNetwork Holdings, Inc., Clic Technology, Inc., White Label Liquid, Inc., Canna Corporation, and Vapor Group, Inc. in violation of Title 18, United States Code, Sections 1348 and 1349.
In addition, based on my training and experience and the facts as set forth in this affidavit, there is probable cause to believe that violations of Title 18, United States Code, Sections 1343 (Wire Fraud), 1348 (Securities Fraud), and 1349 (Conspiracy to Commit Wire and Securities Fraud) have been committed by DROR SVORAI, ELI TAIEB, and CHARLES VACCARO and others, known and unknown, in the Northern District of Ohio and elsewhere
The gist of the alleged scheme is that the three men would buy shell companies and then take approximately 20% ownership through debt conversions. They would then transfer shares to an offshore brokerage, sell the shares, and transfer the money back into the United States. One undercover FBI agent (“Undercover Agent 1”) purported to be a middleman with contacts at offshore brokers. A cooperating witness (“CW1”) worked with Undercover Agent 1. A second undercover agent (“Undercover Agent 2”) purported to have a construction business that he could use to transfer that money back into the United States. The three men are alleged to have previously sold shares offshore but had trouble repatriating the proceeds.
The affidavit mentions that the three men had previously used another broker (“Broker 1”) to sell shares but that Taieb stated that they “need to deposit the shares elsewhere because Broker 1 had gotten more complicated.” I presume that what Taieb was referring to was FINRA and the SEC increasing the scrutiny of brokers and brokers thus being more careful about accepting deposits of large blocks of penny stocks, a topic I just wrote about.
The affidavit refers multiple times to the OTC Markets “Caveat Emptor” designation (which is Latin for ‘buyer beware’ and is indicated by an image of a skull and crossbones). I have previously written about how I think this designation has more importance than just serving as a warning to investors and traders. Taieb’s statements cited in the affidavit indicate to me that he did not believe that CLCI and WLAB could be sold with the Caveat Emptor still in effect: “[Taieb] stated the designations will be removed Monday and by the time Undercover Agent 1 started selling shares the stocks will be ready.”
The five stocks mentioned in the affidavit are PotNetworks Holdings Inc. (POTN), Clic Technology Inc. (CLCI), White Label Liquid Inc. (WLAB), Canna Corporation (CNCC), and Vapor Group Inc (VPOR). Two of those stocks, CLCI and WLAB, were designated ‘Caveat Emptor’ by OTC Markets in June. None of the companies listed above are accused of wrongdoing in the complaints.
One allegation that should be of interest to traders and regulators alike is that the men preferred to use pay per click stock promotion rather than emails or postal mailers. According to the affidavit, “SVORAI stated pay per click promotion would generate more volume, and it was harder for OTC to find out about it. SVORAI indicated they could spend $100,000 or $200,000 per week per symbol.”
A year ago, Chares Vaccaro was charged with four misdemeanors in connection with dumping untreated sewage from his 70-foot yacht into Lake Montauk when the boat’s septic tank overflowed. Vaccaro’s alleged apartment is for sale for just under $900,000.
Corrections and changes:
1 August 2019 – Sentence about sewage charges added.