FBI: Investigators ‘Wrapping Up’ Decade-Long Probe Into ‘Pump And Dump’ Penny-Stock Schemes That Caused ‘Hundreds Of Millions’ In Losses

Source: FBI

UPDATED 2:46 P.M. ET (U.S.A.) And to think a cheerleader for AdSurfDaily once boasted online that Megalido was “offshore” and therefore safe from government meddling, after earlier suggesting that ASD members who did not support the company after Ponzi allegations surfaced perhaps would get dragged off in handcuffs while supporters remained free.

To further chill ASD defectors, the cheerleader even shared his version of lyrics from the television program “COPS.”

“Bad Boys, Bad Boys, Whatcha Gonna Do?” he chanted on the now-defunct AdSurfZone forum, a predecessor site to the Pro-ASD Surf’s Up forum. “Whatcha Gonna Do>WHEN<THEY COME FOR YOU ?!!!”

Could an adult be so out of touch he actually believed law enforcement did not have a clue about how fraudsters operate and had no experience at all investigating intricate and elaborate crimes that touched all 50 U.S. states, Canada, the Caribbean and other parts of the world?

The plain answer is yes.

Even as the apologist chanted, however, the FBI was in the seventh year of one of the most intricate and exhaustive probes in its history, a history that dates back to 1908.

Now the FBI, which has 456 satellite offices in the United States and 60 offices overseas, says it is “wrapping up” a penny-stock investigation “that was so massive it took the better part of a decade to unravel.”

Operation “Shore Shells” included probes into 40 separate schemes and, to date, has resulted in 40 convictions, the agency said. The FBI and partner agencies chose the “Shore Shells” name because the probe originated on New Jersey’s Atlantic coast and involved “fake” companies or “shell” firms.

Targeted in the probe were CEOs, stock brokers, CPAs, financial advisers and attorneys who conspired to pump up the price of penny stocks with bogus news releases, false postings on Internet forums and fraudulent information delivered in newsletters, the FBI said.

Perhaps the most notable conviction to date was that of Robert P. Gordon, 57, of
St. Petersburg, Fla. Gordon was sentenced in New Jersey to 20 years in prison, after a jury found him guilty of conspiracy to commit securities and wire fraud and conspiracy to commit money-laundering.

Investors lost $15 million in the pump-and-dump scheme, which included company names such as TeleServices Internet Group Inc. (TSIG) and Phoenix Information Systems Inc.

“Gordon and several of his co-conspirators executed fraudulent agreements between TSIG and offshore entities, which they secretly controlled,” prosecutors said. “Typically, the offshore entities were located in the Cayman Islands.”

The elaborate scheme involved fraudulent consulting agreements with other entities, and co-conspirators “caused millions of shares of the TSIG stock to be issued in the name of the entities,” prosecutors said. The conspirators attempted to skirt securities laws, and
fraudulently received shares that were laundered in Canada and the United States.

“Afterward, the ill-gotten proceeds were often laundered by wire transferring those funds from the brokerage accounts to an attorney trust account located in Denver and then dispersed to the co-conspirators,” prosecutors said.

Investors dump their life savings into pump-and-dump schemes, which deliberately are designed to be elaborate to line the pockets of insiders.

Now the FBI has disclosed some details about the victims — the people the AdSurfZone poster would have ASD members believe were the “Bad Boys” for not cheerleading for the international scammers.

Here, according to the FBI, are some victims’ stories in brief:

  • A man suffering from multiple sclerosis. His stockbroker liquidated the man’s pension and IRA, “and left him nearly penniless.”
  • A woman who invested her savings and pension. She also took out a second mortgage to bolster her stake, and “lost everything.”
  • A husband and wife who both developed dementia during the probe. FBI agents spent hours with the victims and their family members at a nursing home, while also meeting with the victims’ accountants to reverse-engineer their losses.
  • A physician from a “prestigious hospital.” The doctor “began suffering from severe depression after learning of the scam and became unable to work.”

As operation “Shore Shells” expanded, it grew to include more than 100 seizure and forfeitures actions totaling more than “$70 million in cash, artwork, jewelry, homes, cars, and other valuables.”

The real “Bad Boys” have been ordered to pay more than $130 million in restitution.

“We expect millions more to be forfeited and repaid to the victims,” the FBI said. “We spent years interviewing more than 600 mainly elderly victims, painstakingly documenting their sometimes heartbreaking losses.”

Others convicted in operation “Shore Shells” include Gary Brown, 61, of Sarasota, Fla.; Joseph Morgan, of St. Pete Beach, Fla.; and Gary Brown, also of Florida, for their roles in a scheme involving a company known as Skylynx Communications.

Brown pleaded guilty to conspiracy to commit securities fraud, wire fraud, and money laundering. His sentencing is set for for May 7.

“At his plea hearing, Brown admitted that beginning in May 2002 and continuing through October 2005, he operated a sophisticated scheme, involving more than five co-conspirators, which used deceptive and manipulative practices in connection with the fraudulent issuance, purchase, and re-sale of shares of stock of Skylynx Communications,” prosecutors said.

More than 50 Skylynx investors were defrauded. Brown admitted that he conspired with Morgan, who already has been sentenced to two years in prison, and McPhee, whose sentencing is pending, prosecutors said.

Brown agreed to forfeit about $650,000, as part of his plea.

Read more about operation “Shore Shells” and pump-and-dump schemes.

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4 Responses to “FBI: Investigators ‘Wrapping Up’ Decade-Long Probe Into ‘Pump And Dump’ Penny-Stock Schemes That Caused ‘Hundreds Of Millions’ In Losses”

  1. http://www.justice.gov/usao/nj/press/files/pdffiles/gordonindict1017.pdf

    The number of companies, reverse mergers and name changes are enough to give me a headache.

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  2. Tony H: http://www.justice.gov/usao/nj/press/files/pdffiles/gordonindict1017.pdfThe number of companies, reverse mergers and name changes are enough to give me a headache.  (Quote)

    It is intended too. They do it so it makes it harder for law enforcement to track them all down. They are hoping they will just give up since the trail keeps twisting and turning, going down rat holes, and then into more tangled entities. This time they figured wrong.

    Patrick: Did you really meant to say 1908, or 1998 in the article?

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  3. >> Patrick: Did you really meant to say 1908.

    Hi Lynn,

    Indeed, the FBI speaks about its 1908 beginnings on the agency’s website.

    Patrick

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  4. Tony H: http://www.justice.gov/usao/nj/press/files/pdffiles/gordonindict1017.pdf

    The number of companies, reverse mergers and name changes are enough to give me a headache.

    Let’s hope it’s not followed by the dreaded dry heaves — and, perhaps, projectile vomiting.

    And people actually cheerlead for this stuff, even as banks are failing, charities are getting robbed and widows with dementia are getting fleeced.

    Patrick

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