SEC, FBI lodge bribery charges in penny stock sting

[greencat]

SEC, FBI lodge bribery charges in penny stock sting

By Steve Gelsi, MarketWatch
Last update: 3:05 p.m. EST Dec. 8, 2007Print E-mail RSS Disable Live Quotes
NEW YORK (MarketWatch) -- Federal regulators have charged several men caught in an FBI sting for allegedly for making stock sales in exchange for illegal payments from an agent posing as a hedge-fund manager.
The U.S. Securities and Exchange Commission, the Federal Bureau of Investigation and the United States Attorney's Office for the Southern District of Florida announced late Friday the criminal indictments of six individuals involved in five separate kickback schemes.
The defendants are insiders or promoters of publicly traded "penny stock" companies who made stock sales to an unregulated hedge fund called Fillmore Capital.
"During the course of the undercover investigation, the defendants agreed to pay an undisclosed kickback to the purported manager of the hedge fund if the manager caused Fillmore Capital to purchase certain specified securities," prosecutors said. "The defendants also agreed to hide the kickbacks to the purported manager through a sham consulting contract"
David Nelson, Director of the SEC's Miami Regional Office, said, "The Commission will continue to target corrupt practices in the securities industry in South Florida and provide resources where necessary to ensure that those who engage in illegal schemes will be found and prosecuted."
The SEC said it charged 10 individuals, who reside in South Florida, New York, California, and Nevada, with securities fraud.
The SEC alleges that, in each case, the undercover FBI agent purporting to be a hedge-fund manager told the seller or promoter that the kickback had to be kept secret, because buying stock in exchange for kickbacks would violate his fiduciary obligations to the hedge fund.
The FBI agent also told the seller or promoter that he had created a phony consulting company to which the kickback could be paid pursuant to a consulting agreement.
With one exception, the defendants actually paid the promised kickback after the hedge fund bought the stock defendants were promoting. Every buy transaction had a material effect on the trading volume of the companies in question.
Steve Gelsi is a reporter for MarketWatch in New York.
Community

[greencat]

John Stucke
Staff writer
September 7, 2007

Two Arizona stock promoters with business ties to a New York mafia family have pleaded guilty for roles in scamming two tiny Spokane companies out of millions of dollars.

The case is part of a larger federal crackdown on pump-and-dump penny stock frauds that proliferate through e-mail spam and "blast" faxes making claims of easy cash opportunities by investing in little-known companies.

The two men, 47-year-old Michael Saquella (also known as Michael Paloma), and Lawrence Kaplan, 63, face up to five years in prison.

Paloma is a repeat scammer, according to the U.S. Securities and Exchange Commission, who worked with Kaplan to manipulate trading of at least seven small companies, including Courtside Products Inc., and Xtreme Technologies Inc. of Spokane.

Courtside is still in business after the fiasco unfolded in 2005 and was reported in The Spokesman-Review, earning mention in national newspapers. Designing and manufacturing sports bags, the company has limped along by tapping what's left of family financial reserves during the past two years while federal authorities unwound the elaborate scheme.

"We're still here, but it's been tough" Lola Emter, chief executive officer of Courtside, said Thursday upon hearing the news of the guilty pleas and a related settlement with the SEC that required Paloma and Kaplan to disgorge more than $2.7 million earned by the scam. The money is expected to be returned to the companies.

Xtreme, which billed itself as a telecommunications company, is no longer in business. Owned at the time by Mike Burk, the company was absorbed by different owners and is now called Xtreme Oil and Gas Inc.

Burk was unavailable for comment Thursday.

The problem for the Spokane companies began when they hired local financial advisor Keith Robertson to find investors. Robertson had worked for several brokerages before starting his own C3 Consultants company.

When Robertson told Emter and Burk that attempts to find private equity had dead-ended, he encouraged them to consider selling shares of their companies.

He introduced them to Paloma after learning of the stock promoter through an acquaintance.

Paloma passed himself off as a financier. As part of the deals, he provided bogus legal opinions and insisted that that the companies give him large blocks of stock.

Using the well-worn fraud techniques, he hired spammers to hype the stock, initiated inside trades that gave the appearance of active trading volume, then dumped the shares when the price was high.

The prices soon collapsed, leaving investors burned and the companies without the cash infusion promised. Also, the companies were left to cope with a large federal investigation into the matter and without an ability to raise cash for operations.

Paloma has also been fined and disciplined by the Washington State Department of Financial Institutions.

He didn't contest the state's civil complaint filed last June.

Though he strongly denies any wrongdoing, Robertson's role in the business dealings resulted in a state civil complaint.

State securities investigators say Robertson acted as an investment advisor, a broker dealer and as a salesperson for Courtside and Xtreme when he didn't have a state license to perform any of those services.

Furthermore, the representations he made about how the stock offering would work, and that the companies would have stock that traded freely and openly, were inaccurate and misleading, according to DFI.

Suzanne Sarason, chief of compliance and exams for DFI, said the agency is engaged in settlement negotiations with Robertson.

Robertson is upset with the charges and strongly denied doing anything wrong.

"I just tried to find money for Lola and now DFI is chucking me under the bus," he said. "Paloma is the guy who did everything wrong and screwed these folks out of millions of dollars."

Robertson said he knew of Paloma's prior criminal background before dealing with him and shared that information with his company clients.

"We just thought there's no way he would be so stupid and do something criminal again," Robertson said. "After looking over our proposal for public offering, Michael said he could make millions off this gal (Emter), but make money for her, too."

Robertson said he had been asked to testify in front of a grand jury investigating Paloma, and that he was prepared to testify as a witness had Paloma gone to trial.

Paloma's alleged involvement with organized crime stems from his connections with another company, Commanche Properties Inc., which had been caught up in the pump-and-dump scheme.

The Tucson firm is linked with the Bonanno crime family of New York. According to its own press releases, Commanche entered into a film deal with Salvatore "Bill" Bonanno, the eldest son of the late Joseph Bonanno, who for decades headed one of New York's large mafia families.

This arrangement, according to a January 2005 press release issued by Commanche president Anthony Tarantola, included a film project about two men fleeing the mob.

In a press release three weeks later in February 2005, after the SEC launched an investigation into the penny stock swindles, Tarantola denied that Commanche was involved in the pump-and-dump schemes.

The press release stated that Paloma, who did consulting work for Commanche and was a company shareholder, was not responsible for the rapidly unraveling fraud. Nor was Bonanno, according to the same statement to investors and the media.

The FBI assisted in the case, along with the U.S. Attorney's office, the United States Postal Inspection Service, and the Financial Industry Regulatory Authority (previously known as the National Association of Securities Dealers, or NASD).

[BadThad]

Just think about all the guys they still haven't caught doing this BS. I get a feeling this is the proverbial "drop in the bucket".

[Evil-Eye]

Ohio Fund Manager Sentenced to 13 Years in Prison Over Stock Scam




(Tip Report) Cleveland - An Ohio fund manager described as charming and personable was sentenced to 13 years in federal prison for bilking investors out of millions of dollars.

David A. Dadante, 53, was sentenced to federal prison Friday by U.S. District Judge Kathleen O'Malley following a two-year investigation by the FBI and SEC after being found guilty on two counts of securities fraud in August.

Dadante had swindled investors out of $28 million, which he had accumulated through a Ponzi scheme relating to the IPOF investment fund, which he formed in 1999. Court records indicate that Dadante had used the money invested in his fund to bankroll his lavish lifestyle, Vegas gambling trips and cocaine habit.

In reflecting on Dadante's actions Friday at his sentencing, Judge O'Malley said the defendant's actions were just "outright total greed."

The whistle-blower testifying against Dadante was stock broker Stephen Glantz, who helped Dadante by manipulating stock values of a thinly traded Duluth, GA-based company that provides call center services. Glantz, 54, received a three-year prison sentence Thursday.

Dadante had accumulated nearly 35% control of Innotrac Corp. (Nasdaq: INOC) through Glantz. At his sentencing Friday, Dadante's attorney was quoted as saying that his client was "not a financial wizard" as the prosecution had portrayed and that he relied on the expertise of his stock broker, Glantz, in buying INOC shares.

Earlier, the U.S. District Court in Cleveland had appointed a receiver to oversee the liquidation of stocks held in Dadante's IPOF fund. In early November, the Court granted an extension to the receiver, barring the sale of Innotrac and other securities until Feb. 1, 2008.

The SEC is looking into Gantz' trading activities at Baltimore brokerage Ferris Baker Watts where he worked.

Dadante had bilked nearly 100 investors out of $28 million in which 20 of the sore losers were in Court Friday to see the Fund Manager sentenced. The Fund had collapsed in 2005 and had been under investigation following it's downfall.

According to a press release in June from the FBI, "The defendant defrauded 100 different investors in the States of Ohio, New Jersey, Pennsylvania, Connecticut and Florida by misappropriating investor funds and disseminating false information and documents in an effort to conceal the fraud."

Newspaper reports portrayed Innotrac as a worthless pennystock, yet on November 13, 2007, bizjournals.com reported that INOC earned 8 cents a share in the third quarter compared to a 4-cent share loss in the same period last year.

Much of the newspaper coverage surrounding Dadante's arrest and conviction focused on Innotrac, which was only one of the stocks owned in Dadante's IPOF Fund, though a large amount of the shares held in the fund were those of Innotrac Corp.

Note: Tipreport.com has more details on this story relating to a newspaper interview with Dadante's lawyer and a look into what Innotrac may be considering in trying to save face and recover from being smeared over a third-party's unrelated activities.