Canadian Man Admits Role in Microcap Stock Manipulation Scheme
NEWARK, NJ—A Canadian stock promoter today admitted his role in a scheme to artificially inflate the stock price of a publicly traded company through manipulative trading and other fraudulent means, U.S. Attorney Paul J. Fishman announced.
Mitchell G. Adam, 47, of Vancouver, Canada, pleaded guilty before U.S. District Judge Jose Linares to an information charging him with conspiracy to commit securities and mail fraud. Adam was initially charged by criminal complaint and arrested on May 20, 2015 at the George Bush Intercontinental Airport in Houston.
According to documents filed in this case and statements made in court:
Between July 2013 and November 2013, Adam conspired with Adam S. Gottbetter, 26, of New York, Kenneth David Stevenson, 55, of Vancouver, and others to manipulate the stock of HBP Energy Corp. (HBPE), a developmental stage company based in Houston. Adam and his conspirators obtained and concealed control of a significant portion of free-trading shares of HBPE stock and agreed to fraudulently inflate the price and trading volume of the stocks through a variety of means, including disseminating false or misleading promotional materials to the investing public and engaging in manipulative trading of the stocks to create the appearance of market interest. Afterwards, they planned to sell the stocks at the fraudulently inflated prices or use the fraudulently inflated value of the companies to solicit private investments, thereby profiting at the expense of the investing public.
Adam and the other conspirators recruited a stock promoter and trader who owned a broker-dealer in New York and who claimed to have experience in various manipulative and fraudulent trading strategies. Unbeknownst to Adam and his co-conspirators, however, this individual was cooperating with law enforcement (the “CW”).
During the scheme, the CW informed Adam, Gottbetter and Stevenson that he had developed an algorithmic trading system, or black box, for the purpose of manipulating the price of stocks. The CW explained that he controlled approximately 32 online brokerage accounts that were opened in the names of foreign nominees and that a computer program that he created could trade between those accounts to create the appearance of massive volume in any stock. Adam, Gottbetter and Stevenson directed the CW to use the black box in connection with the HBPE scheme. In addition to using the CW to manipulate HBPE’s stock, Adam, Gottbetter and Stevenson planned an elaborate promotional campaign that would take place after HBPE’s stock was manipulated to a certain level, including international “call rooms,” listing HBPE’s stock on foreign exchanges, a “road show” and other activities. Law enforcement intervened before the HBPE promotion could take place.
The conspiracy count to which Adam pleaded guilty carries a maximum potential penalty of five years in prison and a $250,000 fine, or twice the gain or loss from the offense. Sentencing is scheduled for Oct. 27, 2015.
Gottbetter and Stevenson both pleaded guilty for their roles in the scheme. Gottbetter was sentenced to 18 months in prison on May 26, 2015. Stevenson was sentenced to one year of probation on May 28, 2015.
U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Richard M. Frankel in Newark, for the investigation leading to today’s plea. He also thanked the U.S. Securities and Exchange Commission’s New York Regional Office under the direction of Andrew Calamari.
The government is represented by Gurbir S. Grewal, Chief of the U.S. Attorney’s Office Economic Crimes Unit and Assistant U.S. Attorney Nicholas P. Grippo of the Economic Crimes Unit.