Boston Undercover Operation Results in SEC and Criminal Securities Fraud Charges
|U.S. Attorney’s Office July 11, 2014|
BOSTON—The Securities and Exchange Commission (SEC) filed suit today charging five individuals who were previously criminally charged and arrested for attempting to manipulate the securities of Massachusetts-based company, Amogear Inc.
The criminal cases charged the following individuals with conspiracy to commit securities fraud: Andrew J. Affa, 30, of Huntington Station, N.Y.; Michael A. Affa, 34, of Toms River, N.J.; Mitchell H. Brown, 48, of Long Branch, N.J.; Christopher R. Putnam, 37, of Charleston, S.C.; and Christopher G. Nix, 34, of Charleston, S.C. Andrew Affa, Michael Affa and Brown were also charged with conspiracy to commit wire fraud. The SEC suit, likewise, charges all five individuals with securities fraud.
Andrew Affa, Michael Affa, and Brown are scheduled to appear in federal court in Boston on July 15 and Putnam and Nix are scheduled to appear on July 31.
It is alleged that in January and February 2014, the defendants attempted manipulation of Amogear’s stock was caught in real-time by a federal undercover operation. The SEC suspended trading in the securities of Amogear on Feb. 10, 2014, as the attempted manipulation of its stock was underway. According to the criminal and SEC charges, prior to the suspension of trading in the stock, the defendants planned and implemented a scheme to create a false appearance of an active market in the stock, followed by a false media campaign designed to increase the price of the stock, knowing that Amogear was a shell company without any real operations. The defendants allegedly planned to sell the stock into the market at artificially inflated prices from which they would profit. What the parties did not know was that Amogear was controlled by the FBI and used by the FBI as a vehicle to obtain evidence of their attempt to manipulate the market.
The charges follow a multi-year investigation focusing on preventing fraud in the microcap stock markets. Microcap companies are small publicly traded companies whose stock often trades at pennies per share. Fraud in the microcap stock markets is of increasing concern to regulators as such markets have proven to be fertile grounds for fraud and abuse. This is, in part, because accurate information about microcap stocks may be difficult for the average investor to find, since many microcap companies do not file financial reports with the SEC.
These latest charges follow a series of cases filed by the SEC and the U.S. Attorney since December 2011 in which 22 individuals have been criminally charged and 18 convicted, for using kickbacks and other schemes to trigger investments in various thinly-traded stocks, and the SEC suspended trading in seven companies.
“As is clear from the combined efforts of the U.S. Attorney’s Office, the FBI, and the SEC, market manipulation will not be tolerated,” said Carmen M. Ortiz, U.S. Attorney for the District of Massachusetts. “The prosecution of corporate and securities fraud is a top priority of the Department of Justice and a top priority for this Office. As is demonstrated by the recent charges, we will continue to develop new techniques to detect and prosecute those engaged in market abuse.”
“Fund representatives, CEOs, traders, fund managers, equities analysts, lawyers and publicists should take note that Boston FBI agents purposefully designed multiple undercover operations aimed directly at rooting out market manipulation and insider trading. As the scope and design of our undercover operations become well-known, no one should think that future undercover operations will be the same as prior ones because in this instance the FBI took control of a publicly traded company making it nearly impossible to discover,” said Vince Lisi, Special Agent in Charge of the FBI’s Boston Division.
Andrew Ceresney, Director of the SEC’s Enforcement Division, said, “The SEC will hold accountable parties who disrupt the fair and efficient functioning of the markets. We are committed to working with our law enforcement partners in Massachusetts and around the country to stop abuses in the microcap sector and hold the perpetrators responsible.”
“These defendants brazenly attempted to manipulate Amogear’s stock,” said Paul G. Levenson, Director of the SEC’s Boston Regional Office. “It didn’t occur to them that the FBI and SEC were a step ahead of them.”
The statute for the criminal charges provides a maximum sentence of five years in prison and a $250,000 fine. Actual sentences for federal crimes are typically less than the maximum penalties. Sentences are imposed by a federal district court judge based upon the U.S. Sentencing Guidelines and other statutory factors.
The SEC is seeking permanent injunctions against further violations of the securities laws, disgorgement of ill-gotten gains plus prejudgment interest, civil monetary penalties, and bars from being involved in offerings of penny stocks.
U.S. Attorney Ortiz, FBI SAC Lisi, and SEC Boston Regional Office Director Levenson made the announcement today. The criminal case is being prosecuted by Assistant U.S. Attorney Vassili Thomadakis of Ortiz’s Economic Crimes Unit, and SEC attorneys Eric Forni and Andrew Palid, who were appointed Special Assistant U.S. Attorneys. The SEC investigation was led by Michele T. Perillo and the SEC litigation will be handled by Martin F. Healey.