- Posted August 17, 2013 by
Nine Individuals Indicted in One of the Largest International Penny Stock Frauds and Advance Fee Schemes in History
BROOKLYN, NY—Earlier today, the Federal Bureau of Investigation(FBI) arrested six men in New York, Arizona, New Jersey, Florida, and California for engaging in an international fraud conspiracy that spanned the globe from North America to Europe and Asia. A seventh defendant was also arrested today on a provisional arrest warrant in Ontario, Canada. The arrests resulted from an indictment charging nine defendants with 24 counts of securities fraud, wire fraud, and false personation of Internal Revenue Service (IRS) employees in connection with the sale of securities and conspiracy (the investigation showed that the identities used were fictitious and that no IRS employees were involved in the scheme). As set forth in court filings, the defendants masterminded securities fraud and advance fee schemes that victimized investors in approximately 35 nations and generated more than $140 million through various brokerage and bank accounts under their control. To uncover the international aspects of the scheme and gather evidence, the FBI used wiretaps in the United States and undercover agents in foreign countries.
The indictment and arrests are the result of one of the largest international penny stock investigations ever conducted by the Department of Justice and the FBI and mark the unveiling of a multi-year, ongoing investigation, which included significant assistance from the Royal Canadian Mounted Police (RCMP), as well as from other U.S. law enforcement agencies and law enforcement authorities in England, as well as assistance from Thailand and China.
The defendants are charged in two separate but interrelated schemes. According to the indictment, the defendants first engaged in an international "pump and dump" scheme during which they fraudulently "pumped up" the share price of worthless penny stocks and then "dumped" billions of shares of those stocks by unloading them on unsuspecting victim investors across the globe. Second, the defendants operated boiler rooms in at least four countries that induced investors in penny stocks, including many of the same victims from the pump and dump scheme, to pay advance fees that the defendants promised would enable the victim-investors to sell their penny stocks and recover losses that they incurred. In reality, the defendants simply stole the fees without providing any services, fraudulently extracting millions of additional dollars from their victims.
The charges and arrests were announced by Loretta E. Lynch, United States Attorney for the Eastern District of New York; George Venizelos, Assistant Director in Charge, FBI, New York Field Office; Toni Weirauch, Special Agent in -Charge, IRS, Criminal Investigation, New York; James C. Spero, Special Agent in Charge, Homeland Security Investigations, Department of Homeland Security, Buffalo; and Robert O’Malley, Special Agent in Charge, Treasury Inspector General for Tax Administration (TIGTA).
The Pump and Dump Scheme
As alleged in the indictment, defendants Sandy Winick, Gary Kershner, Joseph Manfredonia, Cort Poyner, Songkram Roy Shachaisere, and William Seals orchestrated one of the largest international penny stock frauds in history. First, the defendants gained controlling interests of huge quantities of worthless stock in 11 public companies known in the industry as "file cabinet businesses"—thinly traded companies with minimal assets and non-existent business operations, which in many cases were mere shell companies. They then pumped up the share prices of the companies’ stock by engaging in fraudulent and illegal sales campaigns, which included distributing false press releases, announcing non-existent business ventures and fake mergers, posting false information on social media sites and bribing stock promoters and brokers.
These efforts fraudulently inflated share prices so that the pump and dump defendants could trade billions of shares of penny stocks that they owned and controlled at a profit, ultimately generating more than $120 million worth of fraudulent stock sales in accounts under their control. As a result of the defendants’ efforts, investors in 35 countries were defrauded in connection with their purchase of the companies’ stock.
To avoid detection, the defendants, many of whom operated from outside the United States, were often careful to use “throwaway phones.” In fact, defendant Poyner was intercepted on a wire communication reminding others in the scheme to use such mobile devices to avoid being caught. The defendants also knew that they should not draw attention to their illegal trading scheme. For example, defendant Winick boasted about the superiority of the charged scheme compared to another more obvious scam, stating, “That deal is obviously a pump and dump. We know enough to be subtle.”
The Advance Fee Scheme
As the indictment alleges, defendants Winick, Gregory Curry, Kolt Curry, and Gregory Ellis perpetrated a second scheme in which they fraudulently induced penny stock victims to pay advance fees, on the promise that the victims would then either be able to sell their securities to other waiting investors or join lawsuits to reclaim their losses. In reality, the advance fees were nothing more than a con, as neither the investors nor the lawsuits existed. To hoodwink the penny stock owners, the advance fee defendants invented fake trading companies and a fake law firm and then posed as employees of those entities while soliciting advance fees from the penny stock victims.
To facilitate the scheme, the defendants established boiler rooms or call centers from which members of the conspiracy would solicit advance fees from the unsuspecting penny stock victims. The call centers were located in various locales around the world, including Canada, Thailand, and the United Kingdom. Recently, the defendants began planning to open a new call center in Brooklyn, New York. Some of the victims were told that they either needed to pay the advance fee to remove restrictions that were placed upon their penny stock, which prevented the victims from selling their stock in the market, or to join investors in a pending or anticipated lawsuit to recover losses that they incurred while owning the penny stock. Victims were then told that the advance fees were needed to convert the warrants of their stocks to a saleable security. In several instances, the advance fee defendants even pretended to be IRS employees collecting a bogus advance tax from victim investors before they could unload their penny stocks (the investigation showed that the identities used were fictitious and that no IRS employees were involved in the scheme). The victims were directed to send payment of the advance fees to banks around the world, including bank accounts in New York City. The fraud proceeds were then transferred through a funds transfer network located in Getzville, New York, to an account maintained in Beirut, Lebanon. Ultimately, these defendants generated more than $20 million in fraudulently obtained advance fees.
Defendant Kolt Curry described the advance fee scheme in the following way over an intercepted wire communication: “I would say that 100 percent of these stocks are like uh pink uh...just dumps...so...ya know they’re totally, they’re like, so a lot of these guys are dying...to get rid of this crap....The money is good, it’s easy. It’s easy money. Definitely easy money, and it’s good money.” In fact, while bragging about his prowess as a fraudster, defendant Kolt Curry further stated, “I had a guy send me a million dollars over one phone call....He actually sent me almost two million dollars over the period of the hit....I guess in the industry they coin it as a smash and grab.” As for the group’s recent plans to open a call center in Brooklyn, New York, defendant Kolt Cu