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Tag: pump and dump schemes

  • BULLETIN: SEC Suspends Trading In 379 Penny Stocks; Initiative Dubbed ‘Operation Shell-Expel’ Leads To Unprecedented Number Of Shutdowns

    BULLETIN: In an unprecedented move, the SEC today announced that it had suspended trading in 379 penny stocks, saying the companies were delinquent in filings and ripe for hijacking and scams involving reverse mergers and pump-and-dump schemes.

    “The trading suspension marks the most companies ever suspended in a single day by the agency as it ramps up its crackdown against fraud involving microcap shell companies that are dormant and delinquent in their public disclosures,” the agency said.

    The previous one-day record for trading suspensions was 35. That mark was set in 2005, but the SEC now says “enhanced intelligence technology” has enabled it to spot dormant companies more effectively and head off trouble at the pass.

    “Empty shell companies are to stock manipulators and pump-and-dump schemers what guns are to bank robbers — the tools by which they ply their illegal trade,” said Robert Khuzami, director of the SEC’s Division of Enforcement. “This massive trading suspension unmasks these empty shell companies and deprives unscrupulous scam artists of the opportunity to profit at the expense of unsuspecting retail investors.”

    Regulators such as the SEC and FTC and agencies such as the FBI long have fretted about the use of shell companies to pull off fraud schemes, dupe investors, customers and vendors and conceal crimes and civil offenses.

    “It’s critical to assess risks to investors in the capital markets and, through strategic planning, develop ways to neutralize them,” said Thomas Sporkin, director of the SEC’s Office of Market Intelligence. “We were able to conduct a detailed review of the microcap issuers quoted in the over-the-counter market and cull out these high-risk shell companies.”

    As part of an initiative dubbed “Operation Shell-Expel” undertaken by the SEC’s Microcap Fraud Working Group, the trading suspensions announced today affect “clearly dormant shell companies in 32 states and six foreign countries that were ripe for potential fraud,” the agency said.

    “The existence of empty shell companies can be a financial boon to stock manipulators who will pay as much as $750,000 to assume control of the company in order to pump and dump the stock for illegal proceeds to the detriment of investors,” the SEC said. “But with this trading suspension’s obligation to provide updated financial information, these shell companies have been rendered essentially worthless and useless to scam artists.”

    Here is the list of the 379 companies.

  • BULLETIN: FLORIDA — AGAIN: SEC Says Penny-Stock Scammer With Complicit Attorneys Hatched Scheme To Take Advantage Of Devastating January 2010 Earthquake In Haiti

    BULLETIN: Miami penny-stock scammer Kevin Sepe — along with two attorneys in Florida and one in Utah — engaged in illegal stock-selling schemes, the SEC said.

    One of the schemes “sought to capitalize on circumstances in Haiti following the earthquake that destroyed much of the country’s infrastructure in January 2010,” the SEC said.

    Sepe, 51, and 10 “cohorts,” including the attorneys, have been charged in the schemes, which allegedly featured pump-and-dump components. The attorneys include Ronny Halperin, 63, of Aventura, Fla.; Melissa Rice, 51, of Miami; and David Rees, 44, of Salt Lake City.

    As part of its probe, the SEC has suspended trading in the securities of entities known as Recycle Tech and HydroGenetics.

    “The Recycle Tech scheme involved a promotional campaign to pump the price and volume of the purported home container building company’s stock in the wake of the Haiti earthquake,” the SEC said. “The HydroGenetics scheme took millions of unregistered shares of the company — purportedly in the business of acquiring emerging alternative energy companies — and improperly converted its debt into free-trading shares that were dumped on the investing public.”

    Halperin did legal work for both firms, and Rice did legal work for HydroGenetics. Rees did legal work for Recycle Tech, the SEC said.

    All three attorneys and Sepe have agreed to settle the charges without admitting or denying the allegations, the agency said.

    From the SEC:

    • 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.
    • Halperin agreed to disgorgement of $427,609.95, prejudgment interest of $33,595.33, and a penalty of $100,000 as well as a permanent penny stock bar and a five-year officer and director bar. He also agreed to surrender 1.97 million shares of HydroGenetics stock.
    • Rees agreed to disgorgement of $5,982, prejudgment interest of $406.25, and a penalty of $7,500 as well as a one-year prohibition from providing professional legal services connected to the offer or sale of securities.
    • Rice agreed to disgorgement of $422,445, prejudgment interest of $39,239.18, and a penalty of $60,000 as well as a five-year penny stock bar and three-year prohibition from providing professional legal services connected to the offer or sale of securities.

    The schemes netted more than $3.5 million in illegal profits, the SEC said.

    From one of the Sepe (et al.) complaints (emphasis added by PP Blog):

    HydroGenetics is a Florida corporation with its principal place of business in Fort Lauderdale, Florida. Hydro Genetics, company name was originally Pop Starz, an entity that operated dance studios. On April 23, 2008, after Sepe and others had contracted to purchase Pop Starz, the company changed its name to Global Entertainment Acquisition, Inc. and was purportedly in the film-making business. On August 1, 2008 the company changed its name to HydroGenetics and stated it was in the business of acquiring emerging alternative energy companies.

    From the other Sepe (et al.) complaint:

    Recycle Tech is a Colorado company. From February 16, 2010 through June 2010 its principal place of business was Miami, Florida. Its common stock is quoted on the OTC Link (formerly, “Pink Sheets”) operated by OTC Markets Group Inc. under the symbol “RCYT.” From no later than February 2010 to June 2010, Recycle Tech purported to be a development and engineering firm specializing in “green building.”

    Read the SEC news release for the full list of the alleged cohorts and links to the complaints.

  • BULLETIN: NOTRE DAME HEARTBREAKER: Legendary Fighting Irish Football Walk-On Daniel ‘Rudy’ Ruettiger Charged With 12 Others In Alleged $11 Million ‘Pump And Dump’ Penny-Stock Swindle

    BULLETIN: The SEC has charged Daniel “Rudy” Ruettiger and 12 others — including a disbarred attorney — in an alleged penny-stock swindle that gathered $11 million.

    The civil case is filed in U.S. District Court in Nevada.

    Ruettiger, 63, of Las Vegas, was the inspiration behind the movie “Rudy,” which depicted his drive to make the Notre Dame football team as a walk-on despite being undersized.

    A motivational speaker who became famous after the movie, Ruettiger founded a company known as Rudy Nutrition, positioning its sports drink against Gatorade, the SEC said. The stock traded under the symbol RUNU, and stock promoter Stephen DeCesare of Las Vegas “put the RUNU scheme together,” the agency charged.

    “Investors were lured into the scheme by Mr. Ruettiger’s well-known, feel-good story but found themselves in a situation that did not have a happy ending,” said Scott W. Friestad, associate director of the SEC’s Division of Enforcement. “The tall tales in this elaborate scheme included phony taste tests and other false information that was used to convince investors they were investing in something special.”

    The SEC identified the disbarred attorney as Kevin J. Quinn of Santa Monica, Calif.

    As part of the scheme, the SEC said, potential investors received a promotional mailer that “falsely claimed that in ‘a major southwest test, Rudy outsold Gatorade 2 to 1!”

    A promotional e-mail, the SEC said, “falsely boasted that in ‘several blind taste tests, Rudy outperformed Gatorade and Powerade by 2:1.’”

    At the same time, “the scheme’s promoters engaged in manipulative trading to artificially inflate the price of Rudy Nutrition stock while selling unregistered shares to investors,” the SEC said.

    Ruettiger has agreed to pay $382,866 to settle the charges without admitting or denying the allegations, the SEC said. Ten other defendants also entered settlement agreements without admitting or denying wrongdoing, and all of the agreements must meet with court approval.

    In bringing the complaint, the SEC described a “classic pump-and-dump” swindle that featured a reverse merger, fraudulent touting, bogus press releases, videos, ceaseless hype and Internet postings.

    See full list of defendants here.

    Read the SEC complaint here.

  • CLOAK-BUSTING RULING IN SCAM LAND: Court Records Show SEC Served Subpoena On Google Aimed At Unmasking Identity Of Possible Touter In ‘Pump And Dump’ Probe Into Price Of Jammin Java Corp. Stock; ‘John Doe’ Moved To Quash, But Judge Says No

    A judge yesterday upheld the SEC’s ability to investigate potential fraud schemes by issuing administrative subpoenas to vendors whose services potentially are being used to help scammers cloak themselves while they harvest illegal profits. The ruling is apt to cause great unease in the corners of the Internet occupied by murky HYIP, autosurf and pump-and-dump hucksters because it reinforces the principle that anonymous fraudsters cannot shield themselves from prosecution by citing their First Amendment right to free speech while they’re picking the pockets of their marks.

    The case speaks to the issues about whether federal agencies that suspect wrongdoing can turn to third parties — in this case, Google — to determine the identities of anonymous posters on the Internet and whether the posters can quash subpoenas by arguing that disclosure of their personal information is a violation of their right to anonymous free speech under the First Amendment.

    In the case, the SEC said it had reason to believe that an anonymous poster using a Google gmail address was participating as a touter in a pump-and-dump scheme designed to harvest illicit profits by driving up the price of Jammin Java Corp. stock.

    The SEC issued a subpoena to Google under the Electronic Communications Privacy Act (ECPA), which requires “a provider of electronic communication service or remote computing device” to “disclose to a governmental entity the (A) name; (B) address; (C) local and long distance telephone connection records, or records of session times and durations; (D) length of service . . . and types of service utilized; (E) telephone or instrument number or other subscriber number or identity . . .; and (F) means and source of payment for such service, of a subscriber when the governmental entity uses an[] administrative subpoena authorized by Federal or State statute. . . .”

    Google notified the gmail user that it had been served with a subpoena. The user, in turn, hired counsel to quash the subpoena and block his identity from being disclosed to the SEC. The user identified himself as “John Doe” in the filings. A judge yesterday sided with the SEC, ruling that the subpoena “is explicitly permitted by the ECPA, and does not implicate First Amendment concerns.”

    In outlining the ruling, U.S. Magistrate Judge Nandor J. Vadas of the Northern District of California said that “Congress granted the SEC the authority to investigate potential violations of securities laws. In issuing the SEC Order and proceeding to investigate the Jammin Java stock fluctuations, the SEC is fulfilling its Congressional mandate.”

    In addition, Vadas ruled that the SEC “has followed the procedural requirements for serving an administrative subpoena.” Meanwhile, he ruled that an argument John Doe made that “the SEC has not sufficiently established the relevance of his email address to the investigation” failed because the agency made a showing under penalty of perjury that it “has obtained information indicating that the email address `[deleted]@gmail.com’ potentially belongs to a touter in the `pump and dump’ scheme.”

    “In addition,” the judge ruled, “during the hearing, counsel for the SEC testified that the SEC had investigated web-sites where the touts had appeared and tracked the email addresses of individuals who had participated in setting up those web-sites.”

    John Doe’s gmail address “was involved in setting up the web-sites and/or setting up email blasts that contained touts for Jammin Java,” according to court filings.

    John Doe “contends he has used the email address at issue to participate in anonymous political speech,” Vadas said in the ruling. “[John Doe] has a First Amendment right to participate in anonymous speech, political or otherwise, in online fora. However, at least in the context of valid government investigations, courts repeatedly have concluded that identifying information is not subject to First Amendment (or Fourth Amendment) protection.”

    For its part, Jammin Java has acknowledged that an SEC probe into its stock price is under way, but expressly denied the firm played any role in a manipulation scheme.

    “In May 2011, Jammin became aware that unauthorized internet stock promoters were promoting short term investments in the company’s stock in ‘stock reports’ and on their websites. As stated in Jammin’s May 6, 2011 Form 8-K, Jammin has no knowledge of, or affiliation with, these stock promoters,” the company said. “As a result, neither Jammin, nor anyone affiliated with the company, authorized, paid for or approved any stock report, advertisement or promotion of the company’s stock. Any information regarding Jammin that is authorized by the company and approved for public distribution will be issued by Jammin itself through periodic filings with the SEC and/or through an authorized press release.”

    Jammin Java said it was cooperating with the SEC.

    “We have fully cooperated with the SEC investigation and hope to see any wrongdoers identified and prosecuted to the fullest extent of the law,” Jammin Java Chairman Rohan Marley said last month.

  • KABOOM! SEC, Feds Target Alleged Money-Laundering Operation In Costa Rica; 6 People From Various Countries Charged Criminally; 7 Charged Civilly In Coordinated Probe Of ‘Pump And Dump’ Schemes

    BULLETIN: Two days after Southern Florida’s top federal prosecutor warned that offshore fraudsters who targeted Americans had no safe haven, six people from various parts of the world who allegedly ran or contributed to a pump-and-dump scheme that used the services of a  money-laundering operation in Costa Rica have been charged criminally, authorities said.

    The SEC, meanwhile, charged seven people civilly. An attorney has been charged both criminally and civilly, the SEC said. The cases were brought in the Southern District of Florida, which has been a hotbed of financial crime.

    Defendants in the cases hail from Costa Rica, Great Britain, Canada, Israel and the United States, according to the SEC. The criminal charges include conspiracy to commit securities, mail and wire fraud; wire fraud; mail fraud; violating the securities regulation laws and obstruction of justice.

    Jonathan R. Curshen, a convicted felon awaiting sentencing in an earlier securities and bribery scheme, has been charged both criminally and civilly in the new case. Curshen, 46, a dual U.S. and British citizen and the one-time “honorary counsel” of St. Kitts-Nevis to Costa Rica, presided over a Costa Rican company known as Red Sea Management Ltd.

    Red Sea “effected fraudulent pump-and-dump schemes on behalf of its clients and laundered millions of dollars in illegal trading proceeds out of the United States to its clients overseas,” the SEC charged.

    Also charged criminally and civilly were attorney Michael S. Krome, 49, of Lake Grove, N.Y; Ariav “Eric” Weinbaum, 37, of an unspecified city in Israel; Yitzchak Zigdon, 47, of Tel Aviv; Ronny Morales Salazar, 39, of San Jose, Costa Rica; and Robert L. Weidenbaum, 44, of Coral Gables, Fla.

    Krome and Weidenbaum (as distinct from Weinbaum) are Americans.

    Weinbaum, according to records, has dual U.S. and Israeli citizenship. He previously lived in Boca Raton, Fla., but now is living in Israel, the SEC said. The SEC alleged that Weinbaum has a “network of operatives he uses to perpetrate pump-and-dump stock manipulations.”

    Zigdon is an “Israeli accountant and the business partner of Weinbaum,” the SEC said.

    David C. Ricci of San Jose, Costa Rica, was charged civilly, and already has settled with the SEC. Ricci is a citizen of Canada who was living in Costa Rica, according to the SEC charging documents.

    “This group of illicit stock promoters sought to hide their scheme behind offshore entities, but their misconduct was exposed by the excellent cooperation of law enforcement agencies here and abroad,” said Cheryl Scarboro, associate director in the SEC’s Division of Enforcement.

    On Feb. 16, U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida warned offshore scammers and criminals that the United States would not tolerate crime aimed from abroad at its citizens.

    “International law enforcement cooperation eliminates safe havens for those who cheat American citizens from overseas,” Ferrer said.

    “Curshen directed Red Sea to open numerous nominee brokerage accounts with U.S. and Canadian broker-dealers to enable the firm to engage in coordinated manipulative trading and conceal its illegal activity,” the SEC charged, alleging that Ricci and Salazar had trading authority over the nominee accounts.

    The scheme for which the charges were brought centered on a “sham” company known as CO2 Tech Ltd., which purported to be in the business of reversing global warming, the SEC said.

    Purportedly based in London, the company claimed to have a relationship with Boeing, the aircraft-maker, and traded on the Pink Sheets.

    “There were no communications, correspondence or understandings between CO2 Tech and Boeing,” the SEC said flatly, alleging that CO2 Tech was a “sham” that had no “significant assets or operations.”

    Krome, the lawyer, “issued a fraudulent opinion letter” to enable Weinbaum and Zigdon to advance the scheme, and “Weinbaum hired Weidenbaum” to distribute false information through websites, spam e-mails and fax blasts, the SEC charged.

    “Weidenbaum enlisted a group of stock promoters who then executed illegal ‘matched orders’ with Red Sea’s nominee brokerage accounts in order to ‘jump-start’ the market and increase the price of the stock,” the SEC charged. “As a result of the false media campaign and the illegal matched orders, the market price of CO2 Tech stock increased 81 percent increase in one day and trading volume increased 1,573 percent.”

    Ricci and Salazar sold the stock through Red Sea, and the “coordinated misconduct enabled stock sales at artificially inflated prices for profits of more than $7 million at the expense of unsuspecting investors,” the SEC charged.

    Cooperating in the case were the U.S. Department of Justice, the FBI, and the U.S. Postal Inspection Service, FINRA, the Costa Rican Police, the British Columbia Securities Commission, the Israel Securities Authority, the United Kingdom Financial Services Authority and The City of London Police Department, the SEC said.

    In recent days, federal prosecutors also have filed charges against more than 100 people associated with Armenian Power, an international organized-crime group with ties to Russia and Armenia.

  • INCREDIBLE: Now, A ‘Nuclear Power’ Fraud Scheme; SEC Suspends Trading Of Alternate Energy Holdings Inc. (AEHI) Stock And Seeks Emergency Asset Freeze

    The SEC has suspended trading of Alternate Energy Holdings Inc. (AEHI) stock and gone to federal court in Idaho to seek an emergency asset freeze, the agency said.

    AEHI was manipulating its stock price with a blitz of press releases while CEO Donald L. Gillispie and Senior Vice President Jennifer Ransom were reaping secret profits, the SEC charged.

    The agency said the firm was a “self-described Idaho nuclear power company” that “has essentially no revenue and minimal operations.”

    Despite this, the agency said, Gillispie, 67, channeled money from secret stock sales to fund “lavish personal expenses such as his Maserati sports car.”

    Among the bogus claims to suck in millions of dollars from investors in the United States and Asia was a claim that no company officer had sold any stock.

    In reality, the SEC charged, Ransom, 36, had “sold at least one million shares. She hid her stock sales from AEHI investors and the public, failing to file forms notifying the Commission of her sales. In addition, Gillispie himself directed sales of more than one million shares of AEHI stock through nominees, thereby hiding from the public his conduct.”

    Some of the money funded the Maserati purchase, the SEC charged.

    “In light of AEHI’s ongoing efforts to raise funding while promoting itself through a daily deluge of press releases, we needed to take immediate action to get to the bottom of the company’s misleading statements,” said Marc Fagel, director of the SEC’s San Francisco Regional Office. “Documents we have obtained to date indicate a scheme to personally enrich the CEO at the expense of investors.”

    Court documents allege that AEHI positioned itself as an upstart in 2006 that sought to raise $10 billion for the construction of a nuclear-power plant in Payette County, Idaho.  The company also pitched ventures that included the purported harvesting of lightning from thunder storms, the development of fuel additives and the use of “nuclear-powered desalination reactors to provide the third world with clean water,” the SEC charged.

    Efforts to pump the stock began four years ago, but the firm “has no realistic possibility of building a multi-billion dollar nuclear reactor,” the SEC charged. “AEHI has never had any revenue or product.”

    Read the SEC complaint.

  • INCREDIBLE: Florida — Again: SEC Files Complaint Against Purported ‘Gold’ Mining Operation In Miami Known As Quri Resources And Its CEO, Jaime Santiago Gomez

    BULLETIN: The SEC has gone to federal court in Florida to accuse Quri Resources Inc. and its Chief Executive Officer Jaime Santiago Gomez of operating a pump-and-dump scheme to drive up the price of Quri’s unregistered stock.

    It was the second major action in Florida today against companies and individuals who allegedly were running stock-fraud schemes. Named defendants in a separate SEC case were Atlantis Technology Group and CEO Christopher Dubeau of Weston, Fla.

    “Investors were duped into believing that Quri Resources was a successful mining company and that Atlantis Technology Group was selling cutting-edge technology services,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office.

    “Both companies misled investors with exaggerated claims while their respective senior executives illegally dumped shares into the market,” Bustillo said. “We will continue to crack down on companies that promote misleading information.”

    The SEC said that Quri purported to be a “mining company headquartered in Miami, Florida, and operating in Ecuador.”

    As was the case with Atlantis and Dubeau, Quri and Gomez were accused of issuing “a series of false press releases and other misleading public statements” as part of the scheme, the SEC charged.

    From February to July 2009, Quri claimed in several press releases that, among other things:

    • It was ready to begin drilling on a mining project in Ecuador with a probable gold reserve worth over $1 billion.
    • It had signed letters of intent to acquire two valuable mining projects in Arizona.
    • It had acquired a second mining project in Ecuador and anticipated producing gold within three months.
    • It had signed a letter of intent to acquire a third valuable mining project in Ecuador.

    “[A]t the same time, Quri’s website and other public statements described Quri as having ongoing operations, employees worldwide, and an impressive management team,” the SEC charged. “The complaint alleges that these claims were grossly misleading because, among other things:

    • The exact value of the gold reserves in Ecuador could not be known without further detailed exploration.
    • Quri never acquired any mining projects in Arizona, and it acquired, at most, only one project in Ecuador.
    • Quri never developed any of its purported mining projects and was never in a financial position to do so.
    • Quri had no money, was never able to raise any funds, had no reasonable expectation of any funding, and was heavily indebted.

    The SEC said the scheme also involved the misuse of a website and a social-networking site.

    “Gomez also authored Quri’s internet website and approved its profile on the social network website LinkedIn,” the agency alleged. “These falsely described Quri as having ongoing operations, 28 employees worldwide, a geologist with a PhD on staff, and an impressive management team led by Gomez, a college graduate. None of these claims were true.”

    Gomez simply fleeced investors, the SEC charged.

    “[T]aking advantage of Quri’s artificially inflated stock price, Gomez, through an entity he controlled, dumped over half a million shares of Quri stock on the unsuspecting public, selling Quri stock in unregistered transactions, earning at least $17,500 from the sale of the stock,” the SEC charged.

    See earlier story about Atlantis.

    Read the SEC complaint against Quri.

  • ANOTHER FLORIDA FRAUD CONVICTION: Michael J. Muzio Ran ‘Pump-And-Dump’ Scheme In Case Tied To Ponzi And Affinity-Fraud Scheme Targeting Haitian-Americans

    A Florida man implicated in a pump-and-dump scheme tied to a Ponzi- and affinity-fraud scheme has been convicted and faces decades in federal prison.

    Michael J. Muzio, 46, of Tampa, was convicted on six counts of securities fraud, two counts of substantive wire fraud, two counts of lying to the SEC and the FBI and one count of conspiring to commit wire fraud.

    Muzio’s pump-and-dump scheme is linked to the alleged Home Pals Investment Club Ponzi and affinity-fraud scheme involving Ronnie Eugene Bass Jr., Abner Alabre and Brian J. Taglieri.

    Bass, Alabre and Taglieri were accused civilly and criminally of targeting Haitian-Americans in a $14.3 million scheme.

    Alabre, 33, of Miramar, Fla., and Taglieri, 39, of Jupiter, Fla., already have pleaded guilty to criminal charges, which were brought in October 2009. Bass and Alabre were accused by the SEC of fooling investors by saying Taglieri was Home Pals’ attorney, but Taglieri is not an attorney, according to records.

    Muzio defrauded Haitian-American and other investors in South Florida and elsewhere “by manipulating” the stock price of International Business Ventures Group (IBVG), a Florida shell company “with no assets and virtually no business activities,” prosecutors said.

    IBVG purportedly was operated from Palm Beach Gardens. Last month, U.S. Attorney General Eric Holder described the Palm Beach area as the “ground zero” of financial fraud. Holder ventured to Palm Beach to make a speech and introduce the Obama administration’s Financial Fraud Enforcement Task Force.

    The manipulation scheme was carried out through “coordinated stock purchases and sales designed to artificially impact share prices,” the FBI said.

    “To induce investors to purchase the stock, [Muzio] created a false impression that an active market for the stock existed by engaging in illegal ‘wash trades’ in which he simultaneously entered buy orders through one brokerage account under his control and offsetting sell orders at the same price through another brokerage account under his control.

    “These trades had no real economic effect, but the defendant’s brokers unwittingly reported the trading activity and potential investors who saw the online reports were misled into believing that the stock was actively traded at the quoted prices,” the FBI said.

    As often is the case in pump-and-dump schemes, Muzio “issued false and misleading press releases” claiming that the company had profitable business dealings.

    Muzio claimed IBVG “had deals to provide and offer prepaid debit cards in Haiti,” as well as prepaid calling cards and “exclusive rights to market prepaid electric meters in Haiti,” the FBI said.

    “Investors were offered the chance to purchase free-trading shares of stock, but then received certificates for restricted shares which could not be traded and ultimately proved to be worthless,” the FBI said.

    Home Pals advised website viewers that the company was “honest” and adhered to “uncompromising ethics,” the SEC said.

  • 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.