Penny Stock attorney Diane Dalmy sentenced to 3 years in prison

Yesterday attorney Diane Dalmy was sentenced to three years in prison for her work on behalf of penny stock companies and insiders.

From the DoJ press release:

According to court documents and statements made in court, DALMY, an attorney, performed securities-related legal work on behalf of several public companies, including Mammoth Energy Group, Inc., a company that later became known as Strategic Asset Leasing Inc.; and Fox Petroleum, Inc. (the “Subject Companies”).  Between approximately January 2009 and July 2016, DALMY conspired with others, including William Lieberman, of Boca Raton, Florida, and Christian Meissenn, of Suffield, Connecticut, to defraud investors through a stock “pump and dump” scheme.  During the course of the conspiracy, DALMY acted largely at Lieberman’s direction.

Finally, between February 2015 and July 2016, DALMY laundered a portion of the proceeds of the scheme on behalf of the co-conspirators.  DALMY helped Lieberman to incorporate and open bank accounts for a private company, Queen Asia Pacific Ltd. (“Queen Asia”), which was controlled by Lieberman.  These bank accounts were used to receive proceeds of the scheme from a brokerage account in Queen Asia’s name. DALMY periodically received money in Queen Asia’s bank accounts, transferred those funds to her IOLTA, and then transferred the funds again to Lieberman, Meissenn, and their network of stock promoters.  In total, DALMY laundered approximately $825,000 on behalf of the co-conspirators through Queen Asia’s bank accounts and her IOLTA.

Dalmy has been prohibited from representing companies trading on OTCMarkets since September 2009:

Compared to how much money she made, Dalmy is being fined a lot:

DALMY’s total gain from her participation in this conspiracy, and related legal work for the Subject Companies, was approximately $30,000.

Judge Meyer ordered DALMY to pay $2 million in restitution.

On February 6, 2018, DALMY pleaded guilty to one count of conspiracy.

The lesson we can learn from this: don’t commit serious crimes for small amounts of money, especially if you are an attorney.

Dalmy has less than one more month of freedom. She has been ordered to report to prison on June 14, 2018.

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.

USA v. Delaney Equity Group LLC

I just saw that Delaney Equity Group LLC (a small broker and OTC market maker) has been criminally charged in an ongoing ‘shell factory’ investigation. See the Palm Beach Post story. Below I have downloaded the court docket and linked all the documents currently available. I intend to post updates to this occasionally (at least for important filings). Read the complaint. The SEC had filed civil charges against Delaney back in 2015.

Excerpt from the complaint:

7. DELANEY EQUITY GROUP LLC, lndividual A, and Ian C. Kass would prepare Forms 211 on behalf of the issuers and submit them to the Financial Industry Regulatory Authority (“FINRA”) so that shares of the issuers could be quoted and traded over-the-counter. These forms falsely and fraudulently represented that the companies were executing their business plans and were operating under the direction of the straw CEO.

The allegations go on, but the fact that the forms 211 are mentioned is a big deal for OTC Markets in my opinion– this could scare off market makers from filing these forms for any sketchy company in the future.

U.S. District Court
Southern District of Florida (Miami)
CRIMINAL DOCKET FOR CASE #: 1:18-cr-20336-CMA All Defendants

Case title: USA v. Delaney Equity Group LLC Date Filed: 04/26/2018

Assigned to: Judge Cecilia M. Altonaga
Defendant (1)
Delaney Equity Group LLC represented by Ryan Dwight O’Quinn 
DLA Piper LLP (US)
200 South Biscayne Boulevard
Suite 2500
Miami, FL 33131
305-423-8553
Fax: 305-675-0807
Email: [email protected]
LEAD ATTORNEY
ATTORNEY TO BE NOTICEDElan Abraham Gershoni 
DLA Piper LLP (US)
200 S. Biscayne Boulevard
Suite 2500
Miami, FL 33131
305.423.8500
Fax: 305.675.0527
Email: [email protected]
ATTORNEY TO BE NOTICED
Pending Counts Disposition
18:371.F CONSPIRACY TO UNLAWFULLY SELL UNREGISTERED SECURITIES
(1)
Highest Offense Level (Opening)
Felony
Terminated Counts Disposition
None
Highest Offense Level (Terminated)
None
Complaints Disposition
None

Plaintiff
USA represented by Jerrob Duffy 
United States Attorney’s Office
99 N.E. Fourth Street
4th Floor
Miami, FL 33132
305-961-9273
Fax: 305-536-5321
Email: [email protected]
LEAD ATTORNEY
ATTORNEY TO BE NOTICED
Designation: Retained

 

Date Filed # Docket Text
04/26/2018 1 INFORMATION as to Delaney Equity Group LLC (1) count 1 and FORFEITURE COUNT. (wc) (Entered: 04/26/2018)
04/26/2018 2 NOTICE of Similar Action by USA as to Delaney Equity Group LLC (Duffy, Jerrob) (Entered: 04/26/2018)
04/26/2018 3 NOTICE OF ATTORNEY APPEARANCE: Ryan Dwight O’Quinn appearing for Delaney Equity Group LLC . Attorney Ryan Dwight O’Quinn added to party Delaney Equity Group LLC(pty:dft). (O’Quinn, Ryan) (Entered: 04/26/2018)
04/26/2018 4 NOTICE OF ATTORNEY APPEARANCE: Elan Abraham Gershoni appearing for Delaney Equity Group LLC . Attorney Elan Abraham Gershoni added to party Delaney Equity Group LLC(pty:dft). (Gershoni, Elan) (Entered: 04/26/2018)

 

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.

SEC fines Aegis Capital Corporation after it admits to failing to file SARs

On March 28, 2018 the SEC announced in a press release that Aegis Capital Corporation (a broker and investment bank) had settled with the SEC following accusations of failing to file suspicious activity reports (SARs) that brokers are required to file.

From the press release:

Broker-dealers are required to file SARs for certain transactions suspected to involve fraudulent activity or have no business or apparent lawful purpose.  The SEC’s order found that Aegis failed to file SARs on suspicious transactions that raised red flags indicating the transactions were potentially related to the market manipulation of low-priced securities.

“Aegis failed to meet its AML obligations to report suspicious activity, including when it was faced with specific information alerting the firm to suspicious transactions,” said Antonia Chion, Associate Director and head of the Broker-Dealer Task Force of the SEC’s Enforcement Division.  “Given the critical importance of SARs to the regulatory and law enforcement community, brokerage firms must comply with their SAR reporting obligations.”

The SEC’s order found that Aegis willfully violated an SEC financial recordkeeping and reporting rule.  Aegis agreed to pay a $750,000 penalty and retain a compliance expert.  FINRA also announced a settlement with Aegis today that includes an additional $550,000 penalty. 

In addition to the fines against the company, two Aegis employees settled with the SEC and agreed to fines and a third is defending himself against the SEC’s charges:

In a separate settled order, Aegis’ former anti-money laundering (AML) compliance officer Kevin McKenna was found to have aided and abetted the firm’s violations.  Aegis CEO Robert Eide was found to have caused them.  Without admitting or denying the SEC’s findings, Eide and McKenna agreed to pay penalties of $40,000 and $20,000, respectively.  McKenna also agreed to a prohibition from serving in a compliance or AML capacity in the securities industry with a right to reapply.     

In a litigated order, the Enforcement Division alleges that another former Aegis AML compliance officer, Eugene Terracciano, failed to file SARs on behalf of Aegis.  Terracciano is alleged to have aided and abetted and caused Aegis’ violations.  The matter pertaining to Terracciano will be scheduled for a public hearing before an administrative law judge, who will prepare an initial decision stating whether the Enforcement Division has proven the allegations in the order and what, if any, remedial actions are appropriate. 

 

SEC Press Release
FINRA Press Release
SEC Order on Aegis Capital (PDF)
SEC Order on Kevin McKenna and Robert Eide (PDF)
SEC Order on Eugene Terracciano (PDF)

 

The SEC orders have lots of great details, some of which I have excerpted below. While firms and clients and stocks are not named, I was able to determine two of the stocks given as examples in the orders (Issuers A and F).

First, some details about Aegis’ business from the SEC order on Aegis (emphasis mine):

RESPONDENT
Aegis is a dually-registered investment adviser and broker-dealer with multiple branches and is headquartered in New York, NY. For its fiscal year 2014, Aegis had revenues of approximately $123 million and, for its fiscal year 2015, revenues of approximately $98 million. During those fiscal years, Aegis had revenues of approximately $250,000 and $270,000 from its low-priced securities business. Aegis’ business consists of investment banking, venture capital,
and debt market services as well as full-service retail and institutional advisory and brokerage services. Aegis’ CEO is also the firm’s founder and 100% owner.

FACTS
A. Aegis’ Low Priced Securities Business
1. During the relevant period, Aegis had various brokerage customers who transacted in low-priced securities. Several of these customers did so through DVP/RVP accounts. In
DVP/RVP accounts held at Aegis, the customer deposited their shares at another firm in a custodial account, and the sale transactions were effected through Aegis. During the
relevant period, Aegis had relationships with various clearing firms that assisted in effecting low-priced securities transactions.

2. Aegis had customers at their branch offices who transacted in low-priced securities.
Several of these customers were foreign financial institutions that effected transactions on
behalf of their underlying customers, all of whom were unknown to Aegis.

So Aegis penny stock business was very small relative to the size of its business overall and it appears that much of the low-priced securities (penny stock) business was with foreign financial firms. One such client (“customer A”) is described as well as its trading in “Issuer A” (quote from the Order on Aegis; emphasis mine):

Illustrative Examples of Transactions in which Aegis Failed to File SARs
i. Customer A
23. Between October 17 and December 27, 2012, an Aegis customer – Customer A – sold approximately 2.1 million shares of Issuer A, which traded on OTC Link (previously
“Pink Sheets”) operated by OTC Markets Group Inc. (“OTC Link”). Customer A held a DVP/RVP account at Aegis and is a private Swiss bank that traded significant volumes of low-priced securities through an omnibus arrangement with Aegis on behalf of the Swiss bank’s underlying clients who were unknown to Aegis.

24. At the same time Customer A was selling shares of Issuer A, a stock promotion touting the company’s prospects was underway. Coinciding with the promotional campaign,
Issuer A’s share price fluctuated from a low of $0.51 to a high of $0.93 on average daily volume of 558,792 shares. In the two months prior to October 17, 2012, no shares of
Issuer A traded at all. Thus, Customer A’s trading in Issuer A occurred during a period of a sudden spike in price and volume – which were specific AML red flags identified in
Aegis’ written supervisory procedures.

25. Prior to Customer A’s trading in Issuer A, Issuer A had undergone several name changes – again a specific AML red flag identified in Aegis’ written supervisory procedures. Moreover, contrary to the rosy picture of Issuer A painted by the above described promotional campaign, Issuer A’s Form 10-Q for the period ending September 30, 2012 reported that Issuer A had no revenues, a net loss of $143,345, and a “going concern” statement from its management.

 

After doing a search on Edgar Pro I discovered that the only company with a net loss of $143,345 in that quarter was Graphite Corp (GRPH at the time) that was a pump and dump at the time (and multiple times since). Therefore Graphite Corp is Issuer A. Here is a screenshot of the results of my search:

And a screenshot of the 10-Q in question:

 

 

Another stock traded by Customer A was also a purported graphite company undergoing a pump and dump campaign (Issuer B). From the order on Aegis:

In addition to the suspicious trading noted above, there were other indicia that Issuer B likely was the subject of market manipulation. For example, Issuer B reported in 2013 that it was a world-class graphite company, yet two years earlier it had been a Malaysian publishing company that operated under a different name. Recent changes in an issuer’s name and business was one of the specific AML red flags identified in Aegis’ written supervisory procedures.

“Customer B” is also interesting:

37. Customer B is a British Virgin Islands company based in China that offers consulting and advisory services.
38. In an approximately one month period beginning in April 2013, Customer B sold approximately 200,000 shares of Issuer C through Aegis for proceeds of $2.3 million, or
over $10 per share. Issuer C was listed on NASDAQ.

“Customer D” was yet another foreign company:

55. Another Aegis customer – Customer D – engaged in suspicious low-priced securities transactions for which Aegis did not file a SAR. Customer D was a foreign financial
institution with a DVP/RVP account at the firm and traded on behalf of underlying customers who were unknown to Aegis.
56. Over an approximately six-month period beginning in late May 2013, Customer D sold approximately 457,000 shares of Issuer F for proceeds of approximately $2.8 million. Issuer F traded on OTC Link. Just prior to the trading – and coinciding with a promotional campaign – Issuer F’s share price climbed from $3.90 to $9.39 on
substantially increased volume.
57. Customer D was not the only Aegis customer who traded suspiciously in Issuer F. Starting approximately two months before Customer D’s trading, Customers A and E sold a substantial amount of Issuer F shares for substantial proceeds. Customer E was yet another foreign financial institution with a DVP/RVP account at the firm and traded on behalf of underlying customers who were unknown to Aegis; it was incorporated in New Zealand and operated from Switzerland

Based solely on the description of the stock price and volume, I believe that “Issuer F” is Octagon Resources (OCTX), about which I wrote a blog post. In addition to “Customer D” selling shares of “Issuer F”, “Customer A” and “Customer E” also sold many shares:

Starting approximately two months before Customer D’s trading, Customers A and E sold a substantial amount of Issuer F shares for substantial proceeds. Customer E was yet another foreign financial institution with a DVP/RVP  account at the firm and traded on behalf of underlying customers who were unknown to Aegis; it was incorporated in New Zealand and operated from Switzerland.
58. In particular, Customer A sold approximately 638,000 shares of Issuer F for proceeds of approximately $3.7 million while Customer E sold approximately 494,000 shares of Issuer F for proceeds of approximately $3.3 million. Thus, together Customers A and E sold over one million shares of Issuer F for proceeds of approximately $7 million.

 

I am late to reporting this and I apologize for that (I did previously tweet about it on the day it was announced).

 

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.

Reconsidering George Sharp: An Enigmatic penny stock crusader

Motivation is everything. In the penny stock world, most participants’ motivation is plain: greed. The stock manipulators and promoters do what they do so they can get rich quickly. For the most part, their choices are risky and unethical but smart: only some of them pay the ultimate price of going to prison. Many end up paying settlements on only a portion of their fraudulent activity and still end up with a nice profit and a retirement in some sunny locale. On the other hand, the buyers of penny stocks are stupid and greedy: the vast majority will lose most of their money. A few will make nice profits but only those who are cynical, smart, and a little lucky. There are also the regulators: they are motivated by a combination of trying to achieve justice and trying to make themselves look good and advance their careers.

But there is another group involved in penny stocks that many ignore. These are the amateur sleuths, the gadflies, the crusaders against fraud. Some of them are traders, although they are motivated not just by profits — they put effort into research and whistleblower tips to the SEC even when they have no position. But some of the most prolific anti-fraud crusaders don’t even trade penny stocks. There are just a handful of whom I’m aware although I am sure there are others who submit whistleblower complaints to the SEC and never mention things publicly. The most famous is Yolanda Holtzee, who has been doing this for over a decade and seemingly knows every single SEC enforcement agent of note as well as FBI agents and US Attorneys. Janice Shell is also quite well known and she has been posting on investorsHub (primarily on the DD Support Board and Fraud Research Team) for longer than I can remember. The WSJ wrote about her in 2000. Another researcher, known only as ‘nodummy’, has posted on InvestorsHub and then when he saw his research on pump and dumps being used by others to profit from trading those stocks, started a service offering his research (Promotion Stock Secrets, now known as Pennystocks.buzz). I have repeatedly linked to his research, particularly on AwesomePennystocks.

But writing about penny stock frauds and informing regulators about them is one thing. It would be quite another thing to actually do something to directly impede the fraud. That brings me to the most enigmatic penny stock crusader I’ve encountered: George Sharp. The reason to bring him up now is that I just recently came across the news from last June 13th that he had been retained by OTCMarkets.com as a consultant. Before getting into that, I should review what I have previously written about Sharp.

I first became aware of George Sharp (or at least his actions) back in 2011 because of his legal battle with Michael Osborn, a convicted felon at the time who was later convicted of another felony and lost a libel suit brought by Sharp. Also, on May 17th, 2011 George Sharp filed a lawsuit against Writers Film Group (WRIT), an AwesomePennyStocks promotion. This wasn’t even his first lawsuit against a public company. It appears that his first lawsuit was on September 24th, 2010 against Yasheng Eco-Trade Corporation (that suit was filed on 10/19/2009 as 37-2009-00100574-CU-MC-CTL in the Superior Court of California, County of San Diego ). He also acquired some attention by suing Arena Pharmaceuticals (a real biotech; not just a pure pump & dump scam).

If you search for Sharp, George on the Superior Court of California, County of San Diego case locator (in San Diego city only to exclude a few cases that involve a different George Sharp), you can see just how litigious Sharp has been (while I am sure that most of the suits below were filed by Sharp, I have not examined every one and it is possible that one or two of them were filed by a different George Sharp). In chronological order, the public companies that Sharp sued were Yasheng Eco-Trade Corporation (10/19/2009), Arena Pharmaceuticals (ARNA; 9/27/2010), Cuba Beverage Company (CUBV; 4/22/2011), Forex International Trading Corp (FXIT and FXITE; 6/13/2011), IDO Security Inc (IDOI; 7/23/2012), Citadel EFT Inc (CDFT; 2/13/2013), USA Graphite Inc (USGT; 2/20/2013), Xumanii Inc (XUII; 5/13/2013), 3D Eye Solutions Inc (TDEY; 6/24/2013), Clean Enviro Tech Corp (CETC; 6/26/2013), Avis Rent a Car System Inc (this was just a consumer complaint in small claims court; 4/22/2014), America Exploration Resources Inc (AREN; 8/20/2015), and Writ Media Group Inc (WRIT; 7/27/2016). In addition to these lawsuits against public companies (all but Avis and Arena Pharmaceuticals traded over the counter and were allegedly pump and dump scams), Sharp sued LKP Global Law LLP (2/10/2015), which had represented penny stock companies, and Stocktips.com (3/11/2015), a stock promoter. This list is not even exhaustive because Sharp filed other lawsuits in other jurisdictions, including a lawsuit against Writers’ Film Group (WRIT) filed on 9/4/2011 (Los Angeles County Division of California Superior Court Case No. BC461550).

Details on a few of the lawsuits

Note: Most of all of these suits were filed with numerous John Doe defendants whose names were added to the lawsuit once their names became known to Sharp. Rather than show only the names listed in the original complaint for each of the lawsuits I have shown every name listed as a defendant on the list of parties to the lawsuits. In parentheses after each company that was a public company I have included its ticker at the time of the lawsuit.

George Sharp v. Writers’ Film Group (WRIT), Armada International Inc, Christina Kueber, John Diaz, Front Row Networks Inc, Ariella Kapelner, Tal Kapelner, Michael Sullivan, Philip Kueber 

Writers’ Film Group (WRIT) was promoted by Crazypennystocks.com and related websites (a predecessor to AwesomePennyStocks) back in 2011. This is the first lawsuit of Sharp’s I remember seeing. Sharp filed his lawsuit against the company on 9/4/2011 (Los Angeles County Division of California Superior Court Case No. BC461550) and put out a press release about the lawsuit. Defendants Philip Kueber, Christina Kueber, Michael Sullivan, and Armada International were all added as Doe defendants after the suit was filed. Sharp filed for dismissal against defendants Tal Kapelner, Ariella Kapelner, and John Diaz on 2/8/2012. A press release by Writers’ Film Group in 2013 referring to the Kapelners and Diaz states “the settlement stated that they did not engage in any wrongdoing.” Sharp filed for the case against Writers’ Film Group and the remaining defendants to be dismissed on 2/24/2012. In both cases the dismissals were with prejudice (meaning that Sharp could not re-file the suit later). This is one of the most common endings for civil suits and is usually indicative of a settlement of some kind. Unfortunately for bystanders like us, there is no way to know details of such a settlement most of the time — a settlement could be big or small and could favor either side. Sharp litigated the whole case in propria persona (without an attorney). Among Sharp’s suits, this was one of the shortest (lasting about six months).

(Note: the register of parties incorrectly spells the last names of Christina and Philip Kueber as ‘Keuber’. Philip Kueber is best known for pleading guilty to conspiracy to commit stock fraud in the case of Cynk Technology).


However, the settlement was actually made public in George Sharp’s subsequent lawsuit against WRIT Media Group (slightly different name, same corporate shell, same ticker). From that complaint:

On or about February 16, 2012, the remaining parties in the 2011 case
entered into a Settlement Agreement whereby SHARP was to receive $10,000 in cash and ten million free-trading shares of WRIT stock. SHARP received the settlement payment and stock as agreed, thus making SHARP a shareholder of WRIT and entitling him to all the rights and protections afford any shareholder. SHARP remains a shareholder of WRIT to this day.

Perhaps most notable about that settlement is that Sharp did not ever sell those shares. Obviously Sharp is not an idiot and knows how penny stocks work — if he were only in this for the money then the obvious thing to do would be to sell the shares right away. Even for someone who is not just in it for the money, the smart thing to do is sell. But for some reason Sharp did not sell those shares and he was eventually diluted to almost nothing. That brings me to his follow-up suit against the successor company to Writers’ Film Group.

George Sharp v. Writ Media Group (WRIT), Inc & Eric Mitchell

On 7/27/2016 George Sharp filed suit against Writ Media Group, Inc and Eric Mitchell (President & CEO of the company). The case is 37-2016-00025434-CU-FR-CTL in the Superior Court of California, County of San Diego. See the original complaint. Here are a couple excerpts from the complaint (emphasis added by me):

7. On or about May 16, 2011, the Plaintiff filed litigation (“the 2011
case”) against Defendant WRIT and other defendants for Fraud, Negligent Misrepresentation, Violation of California Corporations Code Section 25400 et seq; Violation of California Unfair Business Practices Act – Business & Professions Code Section 17200; and Violation of California Unfair Business Practices Act – Business & Professions Code Section 17500 (LA Superior Court Case No. BC461550).
8. On or about February 16, 2012, the remaining parties in the 2011 case entered into a Settlement Agreement whereby SHARP was to receive $10,000 in cash and ten million free-trading shares of WRIT stock. SHARP received the settlement payment and stock as agreed, thus making SHARP a shareholder of WRIT and entitling him to all the rights and protections afford any shareholder. SHARP remains a shareholder of WRIT to this day.

14. On February 4, 2014 the Defendants executed a one for one thousand reverse split of stock reducing the number of shares outstanding in WRIT from at approximately 5.7 billion shares to approximately 5.7 million shares, effectively wiping out the holdings of small shareholders.
15. From February 4, 2014 to July 24, 2015, the Defendants issued
approximately 455.5 million shares of WRIT.
16. From June 11, 2014 to June 13, 2014 WRIT stock was promoted by various known stock touts who specialize in creating hype for intrinsically worthless penny stocks in order to enable certain insiders to divest themselves of shares. The promotion created an increase in share price and trading volume of WRIT stock. The stock touts usually included a disclaimer within their emails identifying their compensation for services rendered.
17. On July 24, 2015 the Defendants executed a one for five hundred
reverse split of stock reducing the number of shares outstanding in WRIT from at approximately 461.2 million shares to 2,306,061 shares, once again effectively wiping out the holdings of small shareholders

Of the causes of action listed in the complaint, the most interesting to me is the third cause of action, “breach of fiduciary duty”. That cause of action was only asserted because Sharp was a shareholder at the time of the suit. If he had sold his shares after the earlier settlement he would not have been able to assert this cause of action.

On February 28, 2017, Mitchell and Writ Media Group offered to accept judgments of $10,000 each payable to Sharp, with each party paying their own legal costs. These offers were accepted by George Sharp. Those two judgments were quickly paid.

George Sharp v. IDO Security Inc (IDOI), Benchmark Email, Blue House Works Inc, Peter Dunn, Eco-Trade Corporation (BOPT), Emailvision Inc, Empire Post Media Inc (EMPM), EMPRT Group Ltd, Fidelity Ltd, Flaster Knol Ltd, Michael Goldberg, Internacional Publizierende Gruppe Limitada, Lyris Inc, Mendel Mochkin, Mustang Alliances Inc (MSTG), Natti Reach Ltd, Premier Brands Inc (BRND), Promo Kombo Ltd, Irit Pnina Reiner, Henry Shabat, Stand Online Ltd, Leonard Sternheim, Wild Craze Inc (WILD), & Zegal & Ross Capital LLC

This is one of the more interesting and complicated of the suits filed by Sharp. It was also briefly mentioned in a Wall Street Journal article in 2015. This was against a large number of defendants, many of which likely never existed (they were made up companies), promoted by, employed by the promoted companies, or connected to the spam stock promoter that was known most commonly as StockCastle (though they had many names with at least dozens of different websites). See my blog post on some of their pumps. On July 24th, 2012 George Sharp filed a press release about the lawsuit he had just filed. See the complaint. The case lasted for just under two years (until April 8th, 2014 when Sharp requested dismissal). The case was 37-2012-00101057-CU-NP-CTL in the Superior Court of California, County of San Diego. You can find the court documents by searching that case number here. With 377 actions recorded in the case I will not attempt to reproduce the full list here. Below is the list of defendants:

The two causes of action listed in the complaint were “Violations of California Restrictions on Unsolicited Commercial E-mail Advertisers (Cal. Bus. & Prof. Code § 17529.5)”, which is a law prohibiting spam email, and “Violations of Consumers Legal Remedies Act (Cal. Civ. Code§ 1750 et seq.)”. The Consumers Legal Remedies Act (CLRA) “applies to deceptive acts intended to result in the sale or lease of goods or services as well as acts that actually result in the sale or lease of goods or services”.

On January 17th, 2013, Sharp filed a press release announcing that he had subpoenaed Luke Zouvas, an attorney who had “contacted him [Sharp] on behalf of a client, in order to settle in advance any future claims that Mr. Sharp may have against that client.” (Luke Zouvas was sued on April 26, 2016 by the SEC for an unrelated “pump and dump scheme”). Unfortunately, I found no mention of Zouvas in the court documents from around January 17, 2013 or in any of the other court documents I read.

Of all the parties named in the suit, most of the presumed promoters (the various names they used in their spam emails) were dismissed from the case presumably because they did not actually exist. IDO Security and Mustang Alliances Inc litigated the case and Sharp did not win judgments against them (he likely settled with them — he filed to have both dismissed from the case with prejudice and the dismissal minute order states “Attorney David Harter notifies the Court, case has settled except as to defaulted defendants“).

Empire Post Media litigated and lost. Premier Brands Inc and Wild Craze Inc did not litigate and Sharp won default judgements against them. George Sharp apparently reached a settlement with defendant Blue House Works Inc (see Blue House Works’ earlier first amended answer to the complaint). Blue House Works Inc “provided the MyNewsletterBuilder email marketing service platform from which Plaintiff alleges that he received unsolicited emails.”

On April 8th, 2014 Sharp was awarded a judgment for $30,000 against Empire Post Media (EMPM, one of the promoted companies).

On April 11th, 2014 Sharp was awarded a judgment for $36,080 against Premier Brands Inc (BRND) and $11,300 against Wild Craze Inc (WILD; both companies promoted by the spammers).

Both of these were judgments by default:

Perhaps the most interesting thing I found in all the filings from this case is the following declaration of David J. Harter, George Sharp’s attorney, from a motion to compel IDO Security to produce a PMK (primary most knowledgeable person) to depose. That link also contains the full deposition of Michael Goldberg of IDO Security.

In January 2000, I formed the Law Offices of David J. Harter, APC. My standard hourly rate for litigation cases is between $400.00 and $450.00 per hour depending on the nature of the case. I am billing
Mr. Sharp based on my lowest standard hourly rate for my services in connection with this action.

Hence, the total legal time expended with respect to this motion to compel the deposition totals 10 hours. Based on my lowest standard
hourly rate the reasonable attorney’s fees incurred total $4,000.00.

That is certainly a reasonable rate for an experienced litigator. The point is, with that kind of work required by his lawyer, a not insignificant portion of the settlements Sharp received and judgments he was awarded and able to collect on must have gone to his lawyer. In this case, while Sharp “filed this action in propria persona, he substituted in counsel [David J. Harter] on December 30, 2013 ” (that is from this minute order).

George Sharp filed on 3/24/2014 for dismissal with prejudice of the lawsuit against IDO Security et al (and his attorney notified the court that the case had settled except for the defendants that defaulted). On 4/3/2104 Sharp was awarded a judgment by stipulation in the amount of $30,000 ($25,000 in damages plus $5,000 in attorney fees) against Empire Post Media, Inc (EMPM). The case was dismissed without prejudice.

George Sharp v. LKP Global Law LLP, Ahmad Ashari, Deelaw Ashari, Waleed Ashari, Albert T Liou, and Luan K Phan

George Sharp filed a suit against LKP Global Law LLP and some of the lawyers there on 2/10/2015. Below is the list of parties in the suit:

Unlike some of his other suits, Sharp did not file this pro se / in propria persona but was represented by his long-time lawyer David Harter. The case was 37-2015-00004673-CU-NP-CTL in the Superior Court of California, County of San Diego. At the end of 2016 the case was transferred from San Diego to Los Angeles. See the original complaint (pdf). This lawsuit was a complaint for “1) MALICIOUS PROSECUTION 2) ABUSE OF PROCESS” against the law firm representing pump and dump Xumanii (XUII), which had sued Sharp for exposing Xumanii. To quote from Sharp’s complaint:

9. This action arises out of the Ashari Class Action wherein Ashari, LKP, Phan and Liou filed a frivolous class action complaint against Plaintiff alleging that Plaintiff engaged in market manipulation and fraud concerning the stock of Xumanii, Inc. (“XUII”) in violation of
Corporations Code sections 25400(d) and 25500. The class action was filed in retaliation, among other things, for SHARP’s exposure of the XUII stock manipulation and for his own action against XUII alleging violations of California’s anti-SPAM email statute.
10. In response to the Ashari Class Action, Plaintiff filed a motion to strike the complaint pursuant to Code of Civil Procedure section 425.16, known as the Anti-SLAPP Statute. The Court granted the Anti-SLAPP motion and dismissed the Ashari Class Action with prejudice finding, among other things, that Ashari and his attorneys had failed to present evidence to establish any element of Ashari’s one and only cause of action. The Court also awarded Plaintiff his fees and costs in the Ashari Class Action in excess of $33,000. True and correct copies of the Notice of Ruling granting the Anti-SLAPP motion and the Notice of Entry of Judgment are attached hereto respectively as Exhibits A & B. The Ashari Class Action was frivolous and filed without probable cause because Ashari and his attorneys had failed to present evidence to establish any element of Ashari’s one and only cause of action and because LPK, Phan and Liou admitted to the Court that they had no evidence to establish any element of Ashari’s one and only cause of action.

Prior to that lawsuit against Sharp, LKP had litigated another lawsuit by a penny stock company against Sharp. That suit was:

known as  Forex International Trading Corp. v. George Sharp, San Diego Superior Court Case No. 37-2011-00092840 (the “Forex Action”). That suit was also dismissed as frivolous pursuant to Plaintiff’s Anti-SLAPP motion. The Court also awarded Plaintiff his fees and costs in the Forex Action in excess of $12,000.

The quote above is again from the complaint against LKP Global Law LLP.

See the San Diego register of actions (click to enlarge):

The case in the Superior Court of California, Los Angeles County, is Case Number: BC583586 GEORGE SHARP VS LKP GLOBAL LAW LLP ET AL. Filing Date: 06/02/2015. See the summary here by searching the case number. The case was dismissed on 6/15/2017. See Sharp’s motions to compel from 4/22/2016, 4/26/2016, and 4/26/2016. There was a settlement conference scheduled for May 10, 2017 and with the case having not gone to trial and being dismissed with prejudice I believe the parties settled (although there is no way for me to know what any settlement entailed).

Below is the register of actions:

06/15/2017 Request and Entry of Dismissal (W/PREJUDICE AND AS TO THE ENTIRE ACTION OF ALL PARTIES AND ALL CAUSES OF ACTION )
Filed by Attorney for Plaintiff/Petitioner

05/22/2017 Notice of Change of Address
Filed by Attorney for Plaintiff/Petitioner

02/21/2017 Notice-Change of Address
Filed by Attorney for Plaintiff/Petitioner

01/19/2017 Stipulation and Order (STIPULATION AND ORDER CONTINUING TRIAL AND RELATED DATES: MSC c.f. 5-10-17 to 9-12-17; FSC c.f. 5-19-17 to 9-21-17; J.T. c.f. 5-30-17 to 10-2-17 )
Filed by Attorney for Deft/Respnt

12/19/2016 Notice of Continuance
Filed by Clerk

11/23/2016 Notice (OF DISASSOCIATION OF COUNSEL )
Filed by Attorney for Pltf/Petnr

10/21/2016 Declaration (SUPPLEMENTAL DECLARATION OF JODY BORRELLI IN SUPPORT OF DEF MOTION TO COMPEL )
Filed by Attorney for Deft/Respnt

10/19/2016 Opposition Document (TO MOTION TO COMPEL FURTHER RESPONSES TO FORM INTERR HRG: 11/1/16 )
Filed by Attorney for Deft/Respnt

10/19/2016 Statement of Facts (SEPARATE STATEMENT IN SUPPORT OF OPPO TO MTN TO COMPEL FURTHER )
Filed by Attorney for Deft/Respnt

10/18/2016 Opposition Document (TO MOTION TO COMPEL FURTHER HRG: 10/31/16 )
Filed by Attorney for Deft/Respnt

10/18/2016 Statement of Facts (SEPARATE STATEMENT IN SUPPORT OF OPPOSITION TO MOTION TO COMPEL HRG: 10/31/16 )
Filed by Attorney for Deft/Respnt

10/17/2016 Reply/Response
Filed by Attorney for Pltf/Petnr

10/13/2016 Opposition Document (CORRECTED OPPOSITION TO PLTF MOTION TO COMPEL FURTHER RESPON TO REQUEST FOR PROD OF DOCU/ DECL OF JODY BRRELLI )
Filed by Attorney for Deft/Respnt

10/13/2016 Opposition Document (NOTICE OF ERRATA RE: OPPOSTION TO PLT’S MOTION TO COMPEL FURTHER RESPONSES/SEPARATE STATEMENT )
Filed by Attorney for Deft/Respnt

10/13/2016 Statement of Facts (CORRECTED SEPARATE STATEMENT IN SUPPORT OF OPPO TO PLTF MTN TO COMPEL FURTHER HRG: 10/24/16 )
Filed by Attorney for Deft/Respnt

10/11/2016 Opposition Document (TO PLAINTIFF MOTION TO COMPEL FURTHER RES TO PROD OF DOC )
Filed by Attorney for Deft/Respnt

10/11/2016 Opposition Document (TO MTN TO COMPEL FURTHER RESP TO REQ FOR PRODU DECL OF J. BORRELLI/SEP STATE IN OPPO )
Filed by Attorney for Deft/Respnt

09/27/2016 Notice of Association of Attorneys
Filed by Attorney for Pltf/Petnr

09/26/2016 Stipulation and Order (STIPULATION AND ORDER CONTINUING MANDATORY SETTLEMENT CONFERENCE FROM 4-13-17 TO 4-20-17; [NOTE: MSC WAS CONTINUED PREVIOUSLY FROM 10-5-16 TO 4-13-17 PER STIP. AND ORDER OF 6-23-16])
Filed by Attorney for Pltf/Petnr

06/23/2016 Stipulation and Order (STIPULATION AND ORDER CONTINUING TRIAL AND FINAL STATUS CONFERENCE FROM 11-14-16 AND 11-4-16, RESPEC- TIVELY, TO 5-30-17 AND 5-19-17, RESPECTIVELY; MSC SET FOR 4-13-17; DISCOVERY/MOT. CUT-OFFS EXTENDED)
Filed by Attorney for Pltf/Petnr

06/10/2016 Response (TO DEFEF’S NOTICE OF RELATED CASES )
Filed by Attorney for Pltf/Petnr

06/03/2016 Notice-Related Cases
Filed by Attorney for Deft/Respnt

04/26/2016 Motion to Compel (FURTHER RESPONSES HRG 10/31/16 )
Filed by Attorney for Pltf/Petnr

04/26/2016 Statement of Facts (SEPARATE STATEMENT OF ITEMS IN DISPUTE RE: FORM INTERROGATORIES )
Filed by Attorney for Pltf/Petnr

04/26/2016 Motion to Compel (FURTHER RESPONSES HRG: 11/1/16 )
Filed by Attorney for Pltf/Petnr

04/26/2016 Statement of Facts (SEPARATE STATEMENT OF ITEMS IN DISPUTE RE REQUESTS FRO ADMISIONS, SET ONE, )
Filed by Attorney for Pltf/Petnr

04/22/2016 Motion to Compel (FURTHER RESPONSES )
Filed by Attorney for Pltf/Petnr

04/22/2016 Statement of Facts (separate statement in dispute )
Filed by Attorney for Pltf/Petnr

04/22/2016 Motion to Compel (FURTHER RESPONSES HRG: 10/24/16 )
Filed by Attorney for Pltf/Petnr

04/18/2016 Notice (OF WITHDRAWAL OF MOTION TO COMPEL )
Filed by Attorney for Deft/Respnt

04/18/2016 Declaration (NOTICE OF TERMNATION OR MODIFICATION OF STAY )
Filed by Attorney for Pltf/Petnr

04/18/2016 Request to Enter Default (IS REJECTED AS ASHARI #28. )
Filed by Attorney for Pltf/Petnr

04/13/2016 Opposition Document (TO MOTION TO COMPEL RESPONSES )
Filed by Attorney for Pltf/Petnr

04/13/2016 Statement of Facts (SEPARATE STATEMENT IN SUPPORT OF OPPOSITION TO MOTION TO COMPEL )
Filed by Attorney for Pltf/Petnr

04/04/2016 Statement-Case Management (HRG: 3/29/16 )
Filed by Attorney for Pltf/Petnr

03/21/2016 Statement-Case Management
Filed by Attorney for Defendant/Respondent

03/15/2016 Statement-Case Management
Filed by Attorney for Deft/Respnt

01/26/2016 Statement of Facts (SEPARATE STATEMENT IN SUPPORT OF MOTION TO COMPEL HRG: 4/22/16 )
Filed by Attorney for Deft/Respnt

01/26/2016 Motion to Compel (FURTHER RESPONSES TO REQUEST FOR ADMISSIONS )
Filed by Attorney for Deft/Respnt

01/12/2016 Statement-Case Management
Filed by Attorney for Pltf/Petnr

01/08/2016 Statement-Case Management
Filed by Attorney for Deft/Respnt

01/04/2016 Statement-Case Management
Filed by Attorney for Deft/Respnt

10/09/2015 Notice (OF ERRATA RE NTC OF CMC )
Filed by Attorney for Pltf/Petnr

10/09/2015 Statement-Case Management
Filed by Attorney for Pltf/Petnr

10/09/2015 Proof-Service/Summons
Filed by Attorney for Pltf/Petnr

09/14/2015 Statement-Case Management
Filed by Attorney for Deft/Respnt

09/08/2015 Notice (TAKING MOTION TO QUASH OFF CALENDAR 2/8/16 )
Filed by Attorney for Pltf/Petnr

09/08/2015 Notice (OF WITHDRAWAL OF MOTION TO STAY AND QUASH DEPOSTITION SUBPOENA FOR THE PRODUCTION OF BUSINESS RECORDS )
Filed by Attorney for Deft/Respnt

09/04/2015 Answer to Complaint
Filed by Attorney for Deft/Respnt

09/03/2015 Answer to Complaint
Filed by Attorney for Deft/Respnt

07/27/2015 Joinder (TO NONPARY TO MOTION TO STAY )
Filed by Attorney for Pltf/Petnr

07/24/2015 Statement of Facts (for pumpsanddumps. com )
Filed by Attorney for Real Pty in Interest

07/24/2015 Motion to Quash
Filed by Attorney for Real Pty in Int

07/21/2015 Motion to Quash (DEPOSITION )
Filed by Attorney for Pltf/Petnr

07/21/2015 Statement of Facts
Filed by Attorney for Pltf/Petnr

07/20/2015 Objection Document (TO DEPOSITION SUBPOENA (ISSUED TO SCOTTRADE, INC.) )
Filed by Attorney for Pltf/Petnr

07/20/2015 Objection Document (TO DEPOSITION SUBPOENA )
Filed by Attorney for Pltf/Petnr

07/20/2015 Objection Document (TO DEPOSITION SUBPOENA/ (ISSUE TO FMR, LLC) )
Filed by Attorney for Pltf/Petnr

07/20/2015 Objection Document (TO DEPOSITION/ ISSUED TO TRADEKING GROUP, )
Filed by Attorney for Pltf/Petnr

07/20/2015 Objection Document (TO DEPOSITION SUBPOENA (ISSUED TO THE CHARLES SCHWAB CORP.) )
Filed by Attorney for Pltf/Petnr

07/20/2015 Objection Document (TO DEPOSITION SUBPOENA (ISSUED TO OMGEO, LLC) )
Filed by Attorney for Pltf/Petnr

07/20/2015 Objection Document (TO DEPOSITION SUBPOENA (ISSUED TO THE DEPOSITORY TRUST & CLEARING CORP.) )
Filed by Attorney for Pltf/Petnr

07/20/2015 Objection Document (TO DEPOSITION SUBPOENA (ISSUED TO PROFESSIONAL TRADING SOLUTIONS, INC.) )
Filed by Attorney for Pltf/Petnr

07/20/2015 Objection Document (TO DEPOSITION SUBPOENA (ISSUED TO SCOTTSDALE CAPITAL ADVISORS CORP) )
Filed by Attorney for Pltf/Petnr

07/20/2015 Objection Document (TO DEPOSITION SUBPOENA (ISSUED TO TD AMERITRADE, INC. )
Filed by Attorney for Pltf/Petnr

07/20/2015 Objection Document (TO DEPOSITION SUBPOENA (ISSUED TO TRADE STATION GROUP, INC.) )
Filed by Attorney for Pltf/Petnr

07/06/2015 Amendment to Complaint (DOE 1, 2,3,4,5,6,7,8,9 )
Filed by Attorney for Pltf/Petnr

06/30/2015 Substitution of Attorney
Filed by Attorney for Deft/Respnt

06/23/2015 Notice
Filed by Attorney for Pltf/Petnr

06/18/2015 Notice (of cmc )
Filed by Attorney for Pltf/Petnr

06/12/2015 Notice-Case Management Conference
Filed by Clerk

06/09/2015 Notice-Case Management Conference
Filed by Court Attendant

06/08/2015 Affidavit of Prejudice–Peremptory (DEFT LUAN K PHAN’S MTN FOR PEREMPTORY CHALLENGE AND DECL OF JANET LY IN SUPP THEREOF )
Filed by Attorney for Defendant/Respondent

06/02/2015 Complaint

06/02/2015 Summons Filed
Filed by Attorney for Plaintiff/Petitioner

06/02/2015 Notice-Stay (AUTMOATIC STAY CAUSED BY A FILING IN ANOTHER COURT FILED 4/7/15 )
Filed by Attorney for Plaintiff/Petitioner

06/02/2015 Proof of Service
Filed by Attorney for Plaintiff/Petitioner

06/02/2015 Notice of Incoming Case Transfer
Filed by Clerk

Proceedings Held (Proceeding dates listed in descending order)

06/15/2017 at 09:45 am in Department 74, Joseph R. Kalin, Presiding
Court Order – Case Dismissed/Disposed

05/01/2017 at 08:30 am in Department 74, Teresa Sanchez-Gordon, Presiding
Order Re: Related Cases – Completed

10/24/2016 at 09:00 am in Department 74, Kevin C. Brazile, Presiding
Motion to Compel – Motion Denied

10/05/2016 at 09:30 am in Department 74, Teresa Sanchez-Gordon, Presiding
Mandatory Settlement Conference ([c.t. 4-13-17 per stip. and orderof 6-23-16]) – Matter continued

04/22/2016 at 09:00 am in Department 74, Teresa Sanchez-Gordon, Presiding
Motion to Compel – Off Calendar

03/29/2016 at 01:30 pm in Department 74, Teresa Sanchez-Gordon, Presiding
Conference-Case Management ((c.f. 1-14-16)) – Trial Date Set

01/14/2016 at 09:00 am in Department 74, Teresa Sanchez-Gordon, Presiding
Conference-Case Management ((c.f. 9-29-15)) – Matter continued

09/29/2015 at 01:30 pm in Department 74, Teresa Sanchez-Gordon, Presiding
Conference-Case Management – Matter continued

06/11/2015 at 08:30 am in Department 34, Michael P. Linfield, Presiding
Affidavit of Prejudice – Granted

 

The Other Side: Leslie Howard & First Microcap Report

Back in early 2012 I started noticing ads on Pumpsanddumps.com for FirstMicrocapReport.com which was run by Leslie Howard. The service started out free and purported to identify stocks that were likely to undergo promotion. I wasn’t a huge fan of the service because by its very nature trying to identify and buy stocks pre-pump will lead to trading illiquid stocks and if the pump doesn’t happen then the stock can drop big. (That being said, I did trade a number of the picks, buying quickly and selling to slower traders for over $1500 in total profits.) FirstMicrocapReport acquired a bit of a following and then in late May 2012 Leslie Howard released a paid stock promotion of the Biostem US Corporation (ticker:HAIR and unrelated to current ticker HAIR, Restoration Robotics). For this promotion, Leslie disclosed payment of $15,000 and ownership of the stock. After this stock promotion was over, Leslie Howard continued to release uncompensated picks and did not promote any other stocks for money.

Here is the disclaimer from the first email I received (May 24, 2012) promoting Biostem US Corporation (HAIR):

After this I gave little thought to ‘Leslie Howard’. It wasn’t until October 2013 that I came across a lawsuit George Sharp had filed against Biostem US Corporation (HAIR). It became clear reading the lawsuit that Leslie Howard was the alter ego of George Sharp. I was a bit puzzled about the lawsuit and why Sharp had promoted a company like Biostem US Corp but I really didn’t give it any further thought. I finally have reason to revisit this case (as I will get into below) so I looked back into it and it still doesn’t make a lot of sense to me.

See the first complaint by George Sharp (and his company Market Broadcast, LLC) against Biostem et al. Below are a series of allegations from Sharp’s third amended complaint (emphasis added by me):

32. On or about May 9, 2012, Defendants ELCO, LONDON and MAZUR, with the consent and participation of BIOSTEM entered into a contract with the Plaintiff MARKET,
entitled “Engagement Agreement for Marketing Services” (“AGREEMENT”). A true and correct copy of that agreement is attached hereto as Exhibit “A,” and incorporated herein by
reference. The AGREEMENT required the Plaintiff MARKET to be provided 300,000 freetrading shares at the time that the investor awareness program began. The AGREEMENT
further provided that Defendants to disclose all known material facts to the Plaintiff MARKET regarding BIOSTEM. The AGREEMENT required Plaintiff MARKET to be kept informed of key developments regarding BIOSTEM.

34. On or about May 24, 2012, Defendants breached the AGREEMENT by failing to provide the stock when required under the AGREEMENT.
35. Defendants further breached the AGREEMENT by failing to inform the Plaintiff of all known facts and failing to keep Plaintiff informed of key developments as required under the AGREEMENT, including but not limited to failing to inform Plaintiff that the equity financing agreement between Defendants BIOSTEM and ELCO that was announced on May 24, had not been consummated and would not be consummated

41. In that April 12, 2012 meeting Defendants MAZUR and Ari Kaplan made the following false statements to Plaintiffs: (1) that BIOSTEM was a reputable and viable business in the hair restoration industry, (2) that BIOSTEM had reached and consummated an equity financing agreement for $5,000,000 with Defendant ELCO, (3) that BIOSTEM had entered into
a medical affiliate agreement with Pizarro Hair Restoration Clinics, and (4) that there was an increasing market demand for BIOSTEM shares.

45. The facts were that BIOSTEM was a sham business and it had no equity financing agreement for $5,000,000 or any other amount and had no medical affiliate agreement with Pizarro Hair Restoration Clinics which was in fact an actual reputable company in the hair restoration industry.

71. As a further result of this fraud, most subscribers to the newsletters retained by MARKET to bring investor awareness to BIOSTEM and who purchased the common stock of
BIOSTEM, lost a significant portion, if not all of their investment, and MARKET has since been unable to retain additional paying clients for investor awareness programs.
72. SHARP was further damaged in reliance on these false statements in that he was induced to purchase additional shares of BIOSTEM stock on the open market. Sharp made 23 separate purchases of BIOSTEM stock during the relevant period all to his damage in an amount to be proven at the time of trial

73. As a further result of this fraud, the reputation of SHARP as a forthright and credible source of information and as a crusader against stock fraud was compromised, causing damages in an amount to be proven at the time of trial

A few things from the above allegations strike me as odd. First, it seems odd that a stock promoter would specify in his contract that his client “disclose all known material facts” about the company and “be kept informed of key developments.” The typical promoter just parrots whatever the pump and dump mastermind wants him to say or makes up his own puffery. He does his sales job and doesn’t worry about the details of the company. Second, Sharp made 23 open market purchases of Biostem stock — again I have only rarely heard of a stock promoter buying stock in the open market in an ongoing paid pump & dump scheme. Also odd was that Sharp filed the suit seven months after the arrest of most of the participants in the pump and dump scheme — obviously he wouldn’t have a chance of collecting any damages from any of the defendants except maybe Crocs (yes, that Crocs — the executives of Biostem had come from Crocs), and Crocs as a defendant seems to me a very long-shot.

Sharp and his company dropped the suit on October 1st, 2014 after filing a notice on September 22nd, 2014 stating that the case had been settled. Crocs had filed a demurrer that was then sustained by the court on August 7th, 2014 so it was not part of the settlement. The order sustaining the demurrer essentially stated that Sharp had failed to prove that Crocs was sufficiently involved in the alleged conspiracy.

Even among promoted stocks, Biostem US Corp was a total disaster — in early 2013 the FBI arrested fourteen people for market manipulation in Biostem and four other companies. The case was USA v. Sherman Mazur et al and is Case 2:13-cr-00062-SVW in the US District Court, Central District of California, Western Division. Read the indictment. I have not had time to read through everything in the case but it looks like the FBI messed up in a very big way. See the transcript of the proceedings in the application by Sherman Mazur’s lawyer for review/reconsideration of order setting conditions of release/detention (docket 460 from 4/16/2014). The charges against Mazur and the other defendants were dropped in late March, 2014 “because of problems with a wiretap application”.

What does this all mean? Was it just a coincidence that the first (and only) stock George Sharp promoted later resulted in a number of arrests and criminal prosecutions (criminal prosecutions of pump and dump schemes are rare). Did he get involved to try to assist the already ongoing investigation? I really don’t know but that wouldn’t surprise me.

George Sharp, helping to put promoter scum in prison?

Sharp took partial credit for the indictment of Jamie Boye and Eric Cusimano. See update on Cusimano’s guilty plea. Presumably that is because he obtained information relevant to the prosecution and sent it to the authorities, but of course there is no way to confirm or disprove this with access only to public records.

George Sharp working for OTC Markets

For the following few years George Sharp continued to periodically sue penny stock companies and promoters. Other than that, I paid him little thought. I figured that he had just gotten greedy and that in his lawsuits he was looking for quick settlements. In the case of a promoted stock, many of which have management in on the scam, it is good business to settle quickly to get someone like Sharp to go away rather than risk going to discovery and having the whole scheme revealed. Despite that logic, many of Sharp’s lawsuits were long and drawn-out affairs.

I did not reconsider any of this until I saw the news this summer that Sharp had been hired by OTCMarkets.com as a consultant. Below is the full text of the press release:

OTC Markets Group Inc. (OTCQX: OTCM), operator of financial markets for 10,000 U.S. and global securities, today announced it has retained well known, market analyst George Sharp, as a consultant. Mr. Sharp will assist OTC Markets as we develop compliance processes to bring more timely and actionable data to the OTC market.

“George’s expertise in tracking small and microcap market activity makes him a valuable asset as we improve market transparency.” said Matthew Fuchs, Executive Vice President of Market Data and Strategy at OTC Markets Group. “Our goal is to use data to bring greater transparency to the market, arming investors, issuers and market participants with information they need to make informed decisions and identify unusual activity.”

“I am pleased to work with OTC Markets Group as they take a proactive approach to improve the small and microcap market by providing more information to investors,” stated George Sharp. “Information availability and investor education are key elements of a trusted, efficient markets.”

Obviously I had to reconsider my earlier opinion that Sharp was mostly in it for the money. I can’t imagine that OTC Markets Group pays fabulously well and if Cromwell Coulson considered Sharp to be just a pro-se ambulance chaser and stock promoter then he would not have hired Sharp. I do believe that Coulson is a man of good faith and has worked to reduce the prevalence of scams that trade on OTC Markets (although I don’t think he has done nearly enough). At the end of the day, of course Sharp likes the money he wins in his lawsuits. But he is suing many bad people (although I’m sure at least some of the CEOs of promoted companies in his suits were not involved in any promotion) and I no longer doubt that he does consider himself a crusader against penny stock fraud. Maybe he uses his lawsuits to gather useful information (during discovery) about penny stock companies that he then uses in other ways. I can’t know for sure. Two things are certain: George Sharp will keep suing people and the world is a better place as a result of his lawsuits. I can only hope that his anti-scam fervor spreads throughout the OTC Markets organization and that he really does as much behind the scenes to inform regulators as he has claimed (such as in his tweets about Cusimano).

 

 

 

Appendix: George Sharp’s lawsuits against other penny stock companies

In the near future I aim to add a brief description of all the lawsuits mentioned above including the outcome of each suit. This post is being published before this is complete because frankly this is an exhausting task. I may never get around to posting all the lawsuits.

George Sharp v. Stocktips.com, Alkame Holdings Inc (ALKM), Amerada Corp, Aweber Communications, Aweber Systems Inc, Robert Bandfield, Coastal Integrated Services Inc (COLV), Ecrypt Technologies Inc (ECRY), Empire Stock Transfer Inc, Harold Gewerter, Laluna Services Inc, Quicksilver Stock Transfer LLC, Telupay International Inc, Adrian Herman Thomas, Tiger Oil and Energy Inc (TGRO), & Well Power Inc (WPWR)

George Sharp filed case 37-2015-00008210-CU-NP-CTL in the Superior Court of California, County of San Diego on 3/11/2015 and dismissed on August 15, 2017. (Read the first amended complaint filed May 27, 2016.) I cannot find any evidence of the case being settled and Sharp requested dismissal of the case a few days before a hearing on an order to show cause (OSC).

Following are some of the documents from the case:

37-2015-00008210-CU-NP-CTL_ROA-110_08-05-16_Minute_Order_1509378411802
37-2015-00008210-CU-NP-CTL_ROA-137_10-07-16_Minute_Order_1509378411880
37-2015-00008210-CU-NP-CTL_ROA-142_10-06-16_Request_for_Dismissal_with_Prejudice_Party_1509378411974
37-2015-00008210-CU-NP-CTL_ROA-147_10-27-16_Request_for_Dismissal_with_Prejudice_Party_1509378412083
37-2015-00008210-CU-NP-CTL_ROA-162_11-04-16_Minute_Order_1509378412161
37-2015-00008210-CU-NP-CTL_ROA-169_12-02-16_Minute_Order_1509378412224
37-2015-00008210-CU-NP-CTL_ROA-180_08-04-17_Notice_of_Hearing_SD_1509405496917
37-2015-00008210-CU-NP-CTL_ROA-181_08-15-17_Request_for_Dismissal_with_Prejudice_Entire_Acti_1509378412333
37-2015-00008210-CU-NP-CTL_ROA-179_08-04-17_Minute_Order_1509405496839 37-2015-00008210-CU-NP-CTL_ROA-44_01-08-16_Minute_Order_1509378410708 37-2015-00008210-CU-NP-CTL_ROA-45_01-19-16_Order_to_Show_Cause_Sanctions_SD_1509378410817 37-2015-00008210-CU-NP-CTL_ROA-53_01-29-16_Minute_Order_1509378410911
37-2015-00008210-CU-NP-CTL_ROA-55_01-29-16_Minute_Order_1509378410989
37-2015-00008210-CU-NP-CTL_ROA-65_03-26-16_Order_Other_1509378411098
37-2015-00008210-CU-NP-CTL_ROA-91_05-27-16_Amended_Complaint_1509378411208
37-2015-00008210-CU-NP-CTL_ROA-92_05-20-16_Amendment_to_Complaint_Cross_Complaint_naming_Doe_1509378411333

37-2015-00008210-CU-NP-CTL_ROA-99_06-20-16_General_Denial_1509378411458
37-2015-00008210-CU-NP-CTL_ROA-101_06-20-16_General_Denial_1509378411552
37-2015-00008210-CU-NP-CTL_ROA-106_08-09-16_Demurrer_1509378411630
37-2015-00008210-CU-NP-CTL ROA -89 05-25-16 Motion to Compel Discovery from COLV
37-2015-00008210-CU-NP-CTL — Subpoena to Aweber (dated 8-31-2015)

George Sharp v Xumanii (XUII), African Copper Corporation (ACCS), Amwest Imaging Inc (AMWI), John Babikian, De Groupa Tenner Morales Media Corp, Goff Corporation (GOFF), Harbor Island Development Corp (HIDC), Intertech Solutions Inc (ITEC), Pacific Clean Water Technologies Inc (PCWT), Pacwest Equities Inc (PWEI), Pharmagen Inc (PHRX), Pub Crawl Holdings Inc (PBCW), Red Giant Ventures Inc (REDG), Swing Plane Ventures Inc (SWVI), Taglikeme Corp (TAGG), Victory Mark Corp Ltd, Vumee Inc (VUME), & World Moto Inc (FARE)

George Sharp filed suit against Xumanii and other companies promoted by Awesomepennystocks and Victory Mark Corp on 5/13/2013. The case is 37-2013-00048310-CU-MC-CTL, in the Superior Court of California, County of San Diego.

See the judgment won by Sharp. All the judgments in this case were default judgments. I know at least in the case of his judgment against Goff the judgment has not been collected.

Default judgment is entered in favor of Plaintiff George Sharp and against Defendants Vumee, Inc., Intertech Solutions, Inc. fka Amwest Imaging, Inc , Goff Corporation, and Excelsis Investments, Inc..
Plaintiff George Sharp to recover from Defendant Vumee, Inc. the total amount of$19,700, consisting of statutory damages in the amount of $18,000 and attorney’s fees in the amount of $1,700.
Plaintiff George Sharp to recover from Defendant Intertech Solutions, Inc. fka Amwest Imaging, Inc. the total amount of $43,220, consisting of statutory damages in the amount of$41,000 and attorney’s fees in the amount of $2,220.
Plaintiff George Sharp to recover from Goff Corporation the total amount of $57,450, consisting of statutory damages in the amount of $55,000 and attorney’s fees in the amount of $2,450.
Plaintiff George Sharp to recover from Defendant Excelsis Investments, Inc. the total amount of $19,700, consisting of statutory damages in the amount of $18,000 and attorney’s fees in the amount of $1,700.

George Sharp v America Exploration Resources Inc (AREN), Agrieuro Corp (EURI), Aweber Systems, & iContact LLC

George Sharp filed suit against America Exploration Resources on 8/20/2015. The case is 37-2015-00028270-CU-BT-CTL in the Superior Court of California, County of San Diego. Sharp posted the original complaint to Scribd. See his subpoena to iContact from 8/31/2015.

George Sharp v. Citadel EFT (CDFT), Buzzbahn LLC, Diane Dalmy, Gary Deroos, & Nancy Figueiredo

See George Sharp’s press release about his lawsuit against Citadel EFT. The case (37-2013-00034768-CU-FR-CTL) was filed on February 13, 2013 in the Superior Court of California, County of San Diego.

Appendix 2: Further Info

George Sharp’s Scribd profile
George Sharp’s blog

Disclaimer: No position in any stocks mentioned and other than being a subscriber to Pennystocks.buzz and having interacted with all of the anti-fraud crusaders mentioned above I have no business or close relationship with anyone mentioned in this post. 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 Sues Micheal A. Skerry for allegedly pumping and dumping and scalping shares of Success Holding Group International

On September 29, 2017 the SEC filed suit against Michael A. Skerry of British Columbia for “an alleged scheme to manipulate the shares of a penny stock.” The penny stock in question was Success Holding Group International Inc. (SHGT).

This appears to be a standard scalping case: Skerry allegedly bought shares from Success Holding Group International and then allegedly sold those shares at the same time he was was promoting the stock (without disclosing his ownership or share sales). This kind of case has been rare for over a decade — many stock promoters switched to being paid in cash to reduce the risk of getting sued for this. Of course the most famous case of scalping was Tokyo Joe back in 2001.

From the SEC press release:

The SEC’s complaint alleges that Micheal A. Skerry, of New Westminster, British Columbia, Canada, illegally profited by manipulating the price and demand of Success Holding Group International, Inc., a penny stock whose securities were quoted on OTC Link, through a practice known as “scalping.” The SEC alleges that he entered into agreements with Success Holdings to provide investor relations services and to purchase shares of Success Holdings stock at a discount. Skerry allegedly paid $36,000 to Success Holding in exchange for 360,000 shares of Success Holding stock and immediately began taking steps to generate interest in the company through a fraudulent campaign to drive up public demand for Success Holding stock. Among other things, the SEC’s complaint alleges that Skerry posted misleading messages on public websites and sent blast emails to potential investors urging them to buy Success Holding stock without telling them that he owned the stock and intended to sell it at the earliest opportunity. The SEC alleges that Skerry sold all his shares of Success Holding stock to the public for a profit of over $950,000. Skerry’s sales allegedly made up more than 60% of the trading volume during the period, including 100% of the trading volume on certain days.

The SEC’s complaint charges Skerry with violating Sections 5 and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The SEC seeks a permanent injunction, a penny stock bar, disgorgement, pre- and post-judgment interest, and a civil penalty.

See also SEC Complaint.

Related to this complaint, Success Holding Group International Inc agreed to settle with the SEC for a total of $139,737, without admitting or denying the allegations that it “sold shares of its stock in an unregistered transaction to Skerry while knowing that he planned to immediately resell the shares to the public, and with failing to file Forms 10-Q or Forms 10-K for any periods since the period ended June 30, 2015”

 

Disclaimer. No position in any stocks mentioned and I have no relationship with anyone mentioned in this post. 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 Sues Jason McDiarmid & Kenneth George Cedric Telford for allegedly pumping & dumping Interactive Multi-Media Auction Corp (IMMA)

On September 29, 2017 the SEC filed suit against Jason McDiarmid & Kenneth George Cedric Telford for their alleged involvement in the pump and dump of Interactive Multi-Media Auction Corp (IMMA). See the SEC press release.

Excerpt:

According to the complaint, McDiarmid and Telford incorporated IMMA and took it public through a 2013 Form S-1 registration statement, registering a public offering of the company’s common stock by selling shareholders, including two of McDiarmid’s and Telford’s nominees. IMMA’s Form S-1 and its amendments allegedly falsely claimed that IMMA’s chief executive officer, McDiarmid’s friend who had no corporate experience, ran the company, when in fact it was secretly run by McDiarmid and Telford. The complaint also alleges that the S-1s also included lies that certain selling stockholders purchased their shares in IMMA through private placements, which were sham transactions. The complaint also alleges that, after learning that the SEC had subpoenaed testimony from the sister of IMMA’s CEO, who was one of the parties in the sham transactions, McDiarmid suggested a “script” for her testimony, which included false information about her relationship with Telford.

The complaint further alleges that once the Form S-1 went effective, McDiarmid repeated these lies, along with others, to a market maker for IMMA’s stock, who included them in its successful application to obtain clearance from FINRA to quote IMMA’s stock, which was needed for the company to be publicly traded.

According to the complaint, McDiarmid and Telford opened brokerage accounts in the names of nominees in order to sell their stock and, when they deposited IMMA shares into the accounts, they lied about how much stock they owned, how they obtained it, and the relationship of the nominees to them. McDiarmid and Telford also prepared IMMA’s periodic filings made with the SEC, which largely repeated the same lies in the Forms S-1. The complaint further alleges that McDiarmid and Telford organized and implemented a promotional campaign, including email blasts and a boiler room that targeted senior citizens. IMMA’s stock price increased, from $0.93 per share on September 30, 2014 to $1.62 per share on May 1, 2015, during which time McDiarmid and Telford dumped their shares through the nominees, earning them net illegal profits of about $3.1 million.

See the SEC’s complaint (pdf).

From the complaint:

Lastly, from October 2014 to May 2015, McDiarmid and Telford
organized and implemented a promotional campaign, including email blasts and a
boiler room to target senior citizens. As a result of their campaign, IMMA’s stock
price increased significantly, from $0.93 per share on September 30, 2014 to $1.62
per share on May 1, 2015, during which time McDiarmid and Telford dumped their
shares through their nominees for net proceeds of about $3.1 million.

See also the Stockwatch article about the suit (full text available only to subscribers).

Disclaimer. No position in any stocks mentioned and I have no relationship with anyone mentioned in this post. 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 Sues alleged boiler room operators involved in New Generation Energy (NGEY) pump & dump

On September 27th, 2017 the SEC sued individuals and companies that it alleges illegally sold shares in multiple penny stock companies through boiler rooms. From the SEC press release:

The Securities and Exchange Commission has charged six unregistered broker-dealers located in California and Colorado with illegally selling securities in penny stock companies.

The SEC’s complaint alleges that brothers David H. Welch and Marc J. Bryant, both located in southern California, and John C. Knight, located in Colorado, sold securities in New Global Energy Inc., its predecessor company, Global Energy Technology Group, Inc., and other companies in unregistered transactions using sales agents located in boiler rooms, both nationally and internationally, raising over $10 million from investors over four years. Welch, Bryant and Knight used various entities, including Defendants Bio-Global Resources, Inc., Diversified Equities Inc. (DEI), and Diversified Equities Development Inc. (DED), to make these illegal sales. In addition, according to the complaint, all of the defendants, including New Global and its CEO, Florida attorney Perry D. West, sold securities without filing a registration statement with the SEC.

See the SEC’s legal complaint (pdf). Excerpt from the complaint:

This case involves numerous individuals and entities acting as brokerdealers
– including operating a boiler room “cold-calling” operation – despite failing
to register with the SEC in violation of Section 15(a) of the Exchange Act. In
addition, all of the Defendants, operating through a web of controlled entities, sold
stock in two successive companies to the public in unregistered transactions in
violation of Sections 5(a) and 5(c) of the Securities Act, thereby depriving investors
of important and legally required information. Through their illegal plan the
Defendants effected millions of dollars of securities transactions in the stock of two
entities: Global Energy Technology Group, Inc. (“Global Energy”) and Defendant
New Global Energy, Inc. (“New Global”).

From their sales of the securities of Global Energy and New Global, the
Welch, Bryant, Knight, Bio-Global, DEI and DED raised over ten million dollars
from more than 500 investors. As a result of conduct alleged in this Complaint, these
Defendants violated the broker-dealer registration provisions of Section 15(a)(1) of
the Exchange Act, 15 U.S.C. § 78o(a)(1)

New Global Energy (NGEY) was the stock that is mentioned in the complaint. Below is the weekly candlestick chart.

The case is Securities and Exchange Commission v. David Howard Welch, et al, No. 17-cv-01968. It was filed in the Central District of California.

 

Disclaimer. No position in any stocks mentioned and I have no relationship with anyone mentioned in this post. 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.

Jason Napodano of Zacks Small Cap Research sued by SEC (and settles with them) and charged with criminal stock fraud for insider trading

Yesterday the SEC sued Jason Napodano of Zacks Small Cap Research as well as two other men, Bilal Basrai and Bryce Stirton. All three settled the civil suit without admitting or denying the allegations. See the SEC press release. In addition, the employer of all three men, LBMZ Securities (owner of Zacks), agreed to “pay a $240,000 penalty without admitting or denying the SEC’s findings that the firm failed to enforce policies and procedures designed to prevent its employees from misusing nonpublic information.”

The Securities and Exchange Commission today charged a stock market analyst with insider trading prior to the publication of research reports and articles he authored with the false disclaimer that he wasn’t trading in the companies being covered.  He agreed to settle the charges and be barred from trading in penny stocks for the rest of his life.

The SEC alleges that Jason Napodano, who headed a division called Zacks Small Cap Research within a larger investment research firm, misled investors in penny stocks by representing that he wasn’t trading or holding positions in the companies he was writing about while secretly trading the same stocks based on nonpublic information about the publication date of his research.  In an effort to evade detection, Napodano allegedly limited his profits from each illegal trade by taking small positions and closing the positions shortly after his reports and articles were published.

In addition to a permanent penny stock bar, Napodano agreed to pay full disgorgement of his insider trading profits totaling $143,865.48 plus interest of $17,620.87 and a penalty of $143,865.48.  The settlement is subject to court approval.

Basrai agreed to settle the charges by paying disgorgement of his insider trading profits of $39,668.37 plus interest of $4,617.89 and a penalty of $39,668.37.  Stirton agreed to settle the charges without admitting or denying the allegations by paying disgorgement of his insider trading profits totaling $2,218.87 plus interest of $257.43 and a penalty of $2,218.87.  Basrai and Stirton also agreed to be barred from trading penny stocks and from working in the securities industry, with Stirton having the right to reapply after five years.

The parallel criminal charges (one count each of stock fraud) were filed in the Northern District of Illinois (press release) against Napodano and Basrai. Stirton was not criminally charged. From the press release about the criminal charge:

JASON NAPODANO, a former Managing Director of a Chicago investment research firm, used material, non-public information he obtained while preparing equity research reports about companies to purchase and sell stock in those companies, according to a criminal information filed in federal court in Chicago. The illegal trading profits netted Napodano approximately $143,000, the information states.

In a related case, BILAL BASRAI, a former Managing Director of a Chicago investment banking firm, used material, non-public information to earn approximately $37,157 in illegal profits from the purchase and sale of stock in three companies.  Through his legal counsel, Basrai authorized the U.S. Attorney’s Office to disclose that Basrai has cooperated with the government’s investigation and intends to plead guilty to the charge contained in the information.

This case seems to signal increasing aggressiveness on the part of the SEC — while I do know that the SEC is more aggressive against insider trading than many other violations of securities laws, I cannot recall any other time that the settlement (for anything) has included a complete ban from trading penny stocks as opposed to just a bar from participating in penny stock offerings (“barred from trading in penny stocks for the rest of his life.”).

According to the Charlotte Observer, Jason Napodano is currently running a biotech newsletter called Bio5C:

According to LinkedIn, Napodano worked at Zacks from 2003 to 2015. He then came to Charlotte, where he started a company called BioNap Consulting, then Bio5C. His biography says he “has significant experience as a pharmaceutical and biotechnology stock analyst,” as well as degrees from Virginia Tech and Wake Forest.

The “code of conduct” page on the Bio5C web site includes this statement without attribution: “I have made terrible mistakes in the past when it comes to disclosure and personal trading. For these mistakes, I am truly ashamed and sorry. My mistakes, although now just public, were between 2013 and 2015. I learned a tough lesson. I’m committed to impeccable disclosure and ethics on Bio5C.”

 

Disclaimer. No position in any stocks mentioned and I have no relationship with anyone mentioned in this post. 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 belated updates on John Babikian, Awesome Pennystocks, Jay Fung, Eric Van Nguyen, & Anthony Thompson

I haven’t kept up with John Babikian (evidently the man behind Awesomepennystocks.com, perhaps the most successful stock promoter of its time) for the last couple years as not much has happened with him. But I did notice a few things have happened that I had not recorded on this blog, so here they are.

Babikian’s (now ex-) wife dropped her suit against Babikian in LA Superior Court three years ago. I have no clue what happened to the divorce proceedings (those are normally sealed in Quebec).

Request to drop suit (pdf)
Order dropping suit (pdf)

In October 2016 Jean-François Cloutier of Journal de Montreal wrote about Babikian’s former associate Robert Kalfayan and his alleged attempts to remove money from Canada to allegedly escape seizure by the tax authority (article in French). See previous article on Revenue Québec getting a lien on Kalfayan’s home.

Meanwhile, the SEC’s case against Anthony Thompson, Jay Fung, and Eric Van Nguyen (associated with Awesomepennystocks predecessor websites) continues. That case is:

1:14-cv-09126-KBF Securities and Exchange Commission v. Thompson et al
Katherine B. Forrest, presiding
Date filed: 11/17/2014

Currently the case is stayed pending the resolution of the parallel criminal case against Thompson, Fung, and Nguyen and the CEOs of five penny stock companies. If the criminal case (supposed to go to trial on September 27, 2017) does not immediately go to trial the civil case may continue per request of Thompson’s attorneys (docket 70; PDF copy). Below is the judge’s decision (hand-written on the last page of docket 70)

The criminal matter is New York State Court (Manhattan Supreme Court) case 3853/14. See the press release about the original indictment.

Back on May 16th, 2016 the judge ordered a bunch of the charges dropped, including larceny charges, because they were deemed not to fit the crime. The order described in that article can be found on Justia.

I should mention that while the promoters were the ones who became infamous, they were not the alleged mastermind(s). Instead, that was allegedly Kevin Sepe (who was not charged in the case). From the statement of facts in the order I linked above:

STATEMENT OF FACTS

The indictment arises from 9 alleged fraudulent “penny stock” “pump and dump” schemes. A penny stock is one which trades for less than $5 per share, is not listed on the NASDAQ and requires limited disclosure, making investments more risky and volatile. The company shares in this case traded for pennies or fractions of pennies but the conduct here also involved millions of shares. Those companies and their ticker symbols (the symbols which designated the companies on the market) were: Blast Applications (BLAP), Blue Gem Enterprises (BGEM), Recyle Tech (RCYT), Hydrogenetics (HGYN), Xynergy Holdings (XYNH), Mass Hysteria Entertainment Company Inc. (MHYS), Lyric Jeans (LYJN), SunPeaks Ventures (SNPK) and Smart Holdings (SMHS) (hereinafter sometimes referred to as the “subject companies”).

The architect and orchestrator of the scheme was Kevin Sepe. The remaining defendants, as described infra, were either affiliates of Kevin Sepe or stock promoters who worked with him to implement the alleged frauds. The Defendants’ work with the companies followed a similar pattern. A publicly traded “shell” company (a company with no substantial business) would be [*3]identified and Mr. Sepe and his affiliates would then act to merge a private company they controlled into the shell company. This allowed the shares of the new company to be freely traded without a waiting period. Money would be loaned to the company and then the loan would be converted into equity through the receipt of shares of the company stock as a substitute for the repayment of the debt. A stock promotion would then take place. Typically, there would have been very little trading in the company’s stock prior to the promotion. Immediately prior to the beginning of the promotion, however, some shares might be leaked into the market so that regulators would not see that a company went immediately from having no shares traded to a large trading volume.

The shares held by Sepe and his affiliates would rise in value following the promotion. Sepe and his affiliates would sell the shares at huge profits. The promotional campaign would then end. The share price would then rapidly decline. Kevin Sepe and his affiliates knew, in advance, that the stocks would follow this pattern pursuant to the beginning and end of internet marketing campaigns and scheduled and coordinated their stock sales accordingly. In each case, the sales and profits followed the pre-arranged pattern.

A key part of the scheme was to conceal the fact that Kevin Sepe controlled a vast portion of the trading shares. To conceal his ownership, his shares were placed in the names of multiple loyal nominees including Defendants Luz Rodriguez and Joseph Dervali who then sold their shares and split the profits with Kevin Sepe. In addition to concealing his ownership and control, having shares held by these nominees allowed Sepe to evade requirements that persons who held more than 5% of the shares of a company be disclosed.

Kevin Sepe was sued by the SEC back in 2012 for his involvement in the pump and dump of Recycle Tech and HydroGenetic and he settled that case. “Sepe agreed to disgorgement of $1,416,466.16, prejudgment interest of $126,761.86, and penalties of $185,000 as well as a permanent bar from participating in an offer or sale of penny stocks.” As with most SEC settlements, Sepe neither admitted nor denied the allegations in the settlment.

 

Disclaimer. No position in any stocks mentioned and I have no relationship with anyone mentioned in this post. 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.

 

Another day, another Bitcoin-related penny stock trading suspension: American Security Resources Corp $ARSC

Just yesterday trading in First Bitcoin Capital Corp was suspended by the SEC. Today, the SEC suspended trading in American Security Resources Corp (ARSC).

SEC trading suspension release (PDF)
SEC trading suspension order (PDF)

The reason given for the trading suspension:

The Commission temporarily suspended trading in the securities of ARSC because of questions
that have arisen regarding publicly available information about the company in press releases on
OTCMarkets.com, dated August 1, and August 8, 2017, concerning, among other things, the
company’s business transition to the cryptocurrency markets and early adoption of blockchain
technology.

Following are links to and excerpts from the above-mentioned press releases:

American Security Resources Corp. (OTC PINK: ARSC) Officially Changes Name to Bitcoin Crypto Currency Exchange Corporation (August 1st, 2017)

HOUSTON, TX / ACCESSWIRE / August 1, 2017 / American Security Resources Corporation (OTC PINK: ARSC) is pleased to announce that the Company has officially changed its name to Bitcoin Crypto Currency Exchange Corporation in Nevada, the State of incorporation, as it prepares to enter the booming Crypto currency markets.

“We have decided to make this change to better reflect the new activities of our company. We have already taken steps to bring the company into compliance with OTC Markets and expect to have more announcements soon,” said CEO Frank Neukomm.

He further added, “The Company, today, has appointed Jay Jordon, Michel Beaulieu, and Duncan Brown to its Advisory Board as they have more than 50 years of combined experience in emerging digital technologies. We believe the Company is now positioned to aggressively pursue crypto-currencies and Bitcoin opportunities, and have changed our name to accurately reflect our new direction.”

Bitcoin Crypto Currency Exchange Corporation (OTC PINK: ARSC) Announces the Acquisition of Kachingpay.com

HOUSTON, TX / ACCESSWIRE / August 8, 2017 / Bitcoin Crypto Currency Exchange Corporation (OTC PINK: ARSC), formerly known as American Security Resources Corporation, announces today that it has acquired 100% of Kachingpay.com Incorporated (“KaChing”), in a cash and stock transaction. KaChing will be merged in to ARSC as a wholly owned subsidiary.

About Kachingpay.com:

KaChing is a smartphone-based payment and money transfer system created by Prometheus Software. KaChing is fast, free, and failsafe. KaChing recognizes that current user fees and charges with existing payment and money transfer systems are excessive. Today’s payment transactions and systems are burdened by their complexity and cost.

KaChing will drive down user fees and charges so that purchase payment processing will become a low cost, commodity utility. Using the free KaChing mobile app, consumers purchase tokens for their digital wallet. KaChing gift card tokens are then used for purchases with merchants. Consumers do not need credit cards, debit cards or specialized hardware. Merchants use existing hardware as well: computers, smartphones or tablets. KaChing uses Apple iOS and Android mobile devices for payment.

Management considers this acquisition significant as it provides a mobile front end on iOS and Android to the BitcoinMWallet mobile exchange platform for crypto currencies, which will be created by the Company.

 

ARSC will resume trading on the grey market (no market makers) at the open on September 11th.

 

Disclaimer. No position in any stocks mentioned and I have no relationship with anyone mentioned in this post. 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.