Fourteen Arrested for Market Manipulation Schemes That Caused Thousands of Investors to Lose More Than $30 Million
Two Federal Indictments Charge 15 Defendants in Plots That Fraudulently Inflated Stock Values and Laundered Profits Through Offshore Accounts
|U.S. Attorney’s Office February 14, 2013|
LOS ANGELES—Federal authorities have arrested 14 people named in two federal indictments that allege long-term schemes to manipulate stock prices that led to more than 20,000 investors losing over $30 million when artificially inflated stock prices collapsed. As one defendant described his scheme during a wiretapped phone call: “What I do is turn stock into money.”
The arrests were made yesterday after two grand jury indictments were unsealed Wednesday. The indictments detail two separate, large-scale fraud schemes in which conspirators gained control of the majority of the stock of publicly traded companies, often co-opting company management to assist in these efforts; concealed their control of the stock by purchasing and transferring shares to offshore accounts and to nominee entities with names such as “Dojo,” “Picasso,” and “Big Dog”; fraudulently inflated the prices and trading volumes of the companies’ stocks through slick marketing campaigns, misleading press releases, payments to stock promoters, and “cross-trading” among co-conspirators that made it appear the stocks were being actively traded; coordinated the sale of the companies’ shares at the peak of the fraudulently manipulated market; and hid profits in nominee and offshore accounts.
According to court documents, the defendants are serial market manipulators who carried out several fraudulent deals each year, each of which generated several million dollars. The defendants generally targeted marginal companies operating in areas they believed could easily be touted as generating breakthroughs or deals that would explain sudden increases in trading volume and price, including companies purportedly involved in pharmaceuticals, hair restoration, green technologies, entertainment, oil and gas development, and e-commerce websites. The indictments allege that increased trading volume and higher stock prices were actually the result of the defendants’ fraudulent actions. A company CEO brought into one of the schemes summed up a typical deal during a wiretapped call: “There’s nothing in there, there’s nothing to the company. It’s monkey business.”
The indictments allege that the schemes collectively engaged in five specific deals that defrauded more than 20,000 investors around the world and generated more than $30 million in illegal profits.
“This case has dismantled a far-reaching stock market manipulation scheme run with ruthless efficiency and operated with one goal in mind—to steal money from the investing public,” said U.S. Attorney André Birotte Jr. “This type of predatory behavior cheats the average investor, erodes overall confidence in the markets, and has a devastating impact on companies and their employees.”
One indictment alleges a scheme led by Sherman Mazur and his nephew, Ari Kaplan, charging that they “perpetrated a multi-million-dollar scheme to fraudulently inflate the prices and trading volumes of public company stocks and then sell millions of shares of those companies at the fraudulently inflated prices to the investing public for substantial profits.” The indictment alleges that the scheme involved a number of companies, but focuses on deals involving two businesses—GenMed, which purported to develop, manufacture, and distribute generic pharmaceuticals; and Biostem, which purported to develop and license regenerative stem cell treatments, including hair regrowth technology.
The 32-count Mazur indictment charges nine defendants, all of whom were taken into custody yesterday morning. They are Sherman Mazur, 63, of the Westwood district of Los Angeles, who controlled a company called the London Finance Group, Ltd.; Ari Kaplan, 40 of Venice, who is Mazur’s nephew and was his partner in the London Finance Group, as well as in a series of other business endeavors; Grover Henry Colin Nix IV (who generally used the name “Colin Nix”), 39, of the Los Feliz district of Los Angeles, who controlled the Santa Monica-based Calbridge Capital LLC, which purported to be a “boutique investment banking firm”; Regis Possino, 65, of the Pacific Palisades district of Los Angeles, a now-disbarred attorney who was Nix’s partner at Calbridge Capital; Edon Moyal, 32, of Carlsbad, California, who controlled a company called 8 Sounds, Inc. and while allegedly involved in this scheme was free on bond pending trial in a criminal case filed in federal court in San Diego; Mark Harris, 56, of Scottsdale, Arizona, a stock promoter who controlled Apache Capital LLC, an investor relations firm in Scottsdale; Joey Davis, 46, of the Los Feliz district of Los Angeles, who controlled Scripted Consulting Group, a public relations firm in Los Angeles and who was allegedly involved in this scheme while free on bond pending trial in a criminal case filed in federal court in Los Angeles; Curtis Platt, who turned 51 today, of Sarasota, Florida, who controlled Big Dog International LLC; and Dwight Brunoehler, 62, of Maitland, Florida, who is the CEO of Biostem, a company based in Clearwater, Fla.
The Mazur indictment alleges that the nine defendants conspired to commit securities fraud and wire fraud. The indictment alleges that members of the scheme generated at least $13 million in illegal proceeds when they sold their shares of manipulated companies, a figure that includes at least $2.1 million in illegal proceeds from the manipulation campaign for Genmed, as well as $500,000 in illegal proceeds from the ongoing manipulation campaign for Biostem. The indictment further alleges that Mazur, Kaplan, Nix, Possino, and Harris engaged in money laundering, using funds transferred from offshore accounts to promote their fraudulent scheme.
“The defendants’ alleged combination of celebrities, press releases, gimmicks, and lies was similar to a how a magician deceives unsuspecting believers into an illusion,” said Bill Lewis, Assistant Director in Charge of the FBI’s Los Angeles Field Office. “While operating the schemes alleged in the indictments, the defendants kept their audience captive until stock prices peaked, while investor money vanished into defendants bank accounts.”
The second indictment concerns a stock manipulation ring allegedly headed by Possino—a former Los Angeles County deputy district attorney—and Nix, both of whom are also key players in the Mazur indictment. This second indictment also outlines a broad scheme to manipulate stock prices and it focuses on deals involving three companies—Sport Endurance Inc., which purported to develop, manufacture, and distribute energy drinks and nutritional supplements; Imobolis, Inc., which came to be known as FrogAds and which purported to operate an online bulletin board for classified advertisements; and Empire Post Media, which purported to provide media services, including post-production services, for feature films and television programs. This 37-count indictment charges 11 defendants, some of whom are also charged in the Mazur indictment. Those named in the second indictment are: Regis Possino, who along with Nix, controlled a series of companies used in relation to the stock manipulation scheme; Grover Henry Colin Nix IV, who was generally known as Colin Nix; Tarun Mendiratta, 42, of Weston, Conn., who claimed to have earned between $75 million and $80 from market manipulation schemes over the past decade and who allegedly participated in the current scheme, in part, by using a cell phone smuggled into the prison where he was housed; Ivano Angelastri, 49, a resident of Switzerland and Dubai, who controlled funds and securities in foreign accounts for himself and Mendiratta (Angelastri is the one defendants who was not arrested yesterday; he is currently being sought by authorities); Mark Harris, the Arizona-based stock promoter; Edon Moyal; the San Diego County man; Joseph Scarpello, 52, of Tustin, California, a disbarred attorney who controlled Taylor Financial, Ltd.; Julian Spitari, 47, of Encino, California, who was the CEO of the company that came to be called FrogAds; Peter Dunn, 72, of the Brentwood district of Los Angeles, who was the CEO of Empire Post Media; William Mackey, 61, a stock promoter who resides in Plantation, Florida, who allegedly was free on bond in a federal case filed in New York City when he committed the crimes alleged in this indictment; and Joseph Davis, the PR executive.
The Possino indictment alleges that members of the conspiracy made at least $18 million in illegal proceeds from selling their shares of manipulated companies. This figure includes at least $1 million in profits from the Sport Endurance campaign, at least $6.8 million from the FrogAds deal and at least $1 million in profits from the Empire Post Media deal. The defendants named in this indictment are charged with conspiracy to commit securities fraud and wire fraud. Possino, Nix, Mendiratta, Angelastri, Harris, Moyal, Scarpello, and Spitari are also charged with money laundering related to funds transferred from offshore accounts.
“This investigation took law enforcement above and beyond its traditional role in financial crimes,” said N. Dawn Mertz, Special Agent in Charge of Internal Revenue Service (IRS)-Criminal Investigation’s Los Angeles Field Office. “Using foreign bank accounts to promote their scheme, the case put us square in the middle of the world of international banking and the sophisticated electronic movement of money. IRS Criminal Investigation is proud to bring our accounting skills to this joint venture and to put a stop to this and other types of white-collar fraud.”
While the two indictments outline conspiracies to engage in wide-ranging market manipulation, each focuses on a small number of deals that illustrate the overall schemes. One deal concerns the alleged manipulation of FrogAds stock. After buying up all of the company’s stock just over a year ago, members of the conspiracy arranged for FrogAds to issue a series of press releases touting the company’s successes and growth potential, which included making bogus claims that the FrogAds website was among the most visited on the Internet. At the same time, several online stock pickers and at least one analyst recommended FrogAds after being paid by some of the defendants. After the company held a press conference with a well known actress (who was not part of the conspiracy) announcing that she would serve as FrogAds’ celebrity spokeswoman and while members of the conspiracy cross-traded stock to give the false appearance of increased market demand, the price for FrogAds stock went up. But the purported success of FrogAds and the apparent interest in the company’s stock were an elaborate fabrication. The indictment quotes one member of the conspiracy saying in a recorded phone call: “You’re dressing this thing up as a multi-million dollar deal, you gotta make sure that we have all our ducks in order.” The manipulation of FrogAds’ stock allegedly orchestrated by the conspiracy resulted in profits of nearly $7 million for the defendants.
The defendants arrested yesterday morning—all of the charged defendants except Angelastri—made their initial appearances in federal courts in the districts where they were arrested. Mazur and Possino, both of whom entered not guilty pleas to the charges in their indictments, are currently being held without bond, but they are scheduled to have detention hearings next week in U.S. District Court. Trial dates for both cases were scheduled for April 9 in federal court in Los Angeles.
An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed innocent until and unless proven guilty.
If convicted, each of the defendants would face statutory maximum penalties of at least 100 years in federal prison. Some of the defendants, including Mazur, Possino, Nix, and Mendiratta face potential life sentences.
Yesterday’s arrests were made under two indictments unsealed today that are the result of ongoing investigations being conducted by the FBI and IRS-Criminal Investigation. The investigation involved a series of wiretaps that resulted in the interception of more than 60,000 phone calls and 24,000 text messages.