(Bloomberg) — Eight people were indicted on charges of defrauding thousands of investors in penny stocks through a $290 million pump-and-dump scheme, Manhattan District Attorney Cyrus Vance Jr. said.
Three stock promoters — Anthony Thompson, 38, of Bethesda, Maryland; Eric Van Nguyen, 30, of Quebec; and Jay Fung, 40, of Delray Beach, Florida — are accused of working with five others from April 2009 to May 2012 to drive up prices of penny stocks to induce investors to buy shares, Vance said today in a statement.
The eight used their positions as stock promoters and company insiders to inflate their own profits through fraud and deceit, he said in announcing an 85-count fraud and grand larceny indictment.
According to the indictment, the three promoters used websites they controlled, including OxofWallStreet.com and PennyPic.com, to send e-mails promoting penny stocks to thousands of investors.
They and the five others gained control of public shell companies with available shares and merged them with new, private entities, according to prosecutors. The corporate insiders then issued millions of shares to themselves, associates, friends and family to pump up prices, according to prosecutors.
The defendants issued press releases touting companies including HydroGenetics Inc., Xynergy Holdings Inc., Blast Applications Inc., Blue Gem Enterprise Inc., Mass Hysteria Entertainment Co., Lyric Jeans Inc., Smart Holdings Inc. and Sunpeaks Ventures Inc., according to prosecutors. They allegedly sold shares as prices rose.
When the U.S. Securities and Exchange Commission began probing several of the companies in 2010, the promoters sought to conceal their ownership by having shares issued in the name of foreign corporations.
The others charged are Hanna Schmieder, 39, of Los Angeles, president of Lyric Jeans; Kenneth Oxsalida, 59, of Sebring, Florida, president of Smart Holdings; Joseph Dervali, 54, of Pembroke Pines, Florida; Luz Rodriguez, 47, of Miramar, Florida; and Christopher Balseiro, 31, of North Bay Village, Florida, prosecutors said.
Thompson, Fung, Schmeider and Oxsalida pleaded not guilty today during arraignments before New York State Supreme Court Justice Roger Hayes in Manhattan.
Thompsons attorney, Miranda Fritz, said her client published newsletters promoting penny stocks that made it clear to subscribers that they had received compensation from the companies they promoted and urged investors to do their own research.
Its advertising, Fritz said. You might as well go and indict Mad Men if they actually existed.
Fritz said the charges against the eight people whose indictments were announced today stem from a Florida man, Kevin Sepe, who is cooperating with prosecutors. Emily Tuttle, a spokeswoman for Vances office, declined to comment on Fritzs comments about Sepe and his involvement in the case.
Sepe and 10 alleged cohorts — including Thompson, Fung and Rodriguez — were sued by the U.S. Securities and Exchange Commission in May 2012 in federal court in Miami and accused of operating two separate schemes to illegally sell stock in two small-cap companies, HydroGenetics and Recycle Tech.
Sepe agreed to settle the SECs claims without admitting or denying the allegations, and agreed to pay disgorgement of $1.42 million and a lifetime ban on participating in an offer or sale of penny stocks, according to anSECstatement. Sepe couldnt be immediately reached for comment today.
Thompson and Fung in February 2014 also agreed to settle with theSECwithout admitting or denying the allegations and repay more than than $800,000 in alleged profits, as well as accept a lifetime ban on participating in an offer or sale of penny stocks, according to court filings.
Rodriguez failed to respond to the SECs complaint and in September 2012 was also banned from offering or selling penny stocks and ordered to pay $380,580, according to court filings.
Many of the eight people whose indictment was announced today had never met each other and their only connection is that they had all worked with Sepe, Fritz said.
Its a ring without the ringleader, Fritz said.