Las Vegas Investment Adviser Indicted in $30 Million Microcap Stock Manipulation Scheme
NEWARK, NJ—A federal grand jury today indicted a Las Vegas investment adviser for allegedly accepting hundreds of thousands of dollars in cash kickbacks in return for his assistance in getting his clients to purchase microcap stocks that were the subject of a stock market manipulation scheme, U.S. Attorney Paul J. Fishman announced.
Donald S. Toomer, 44, of Henderson, Nevada, is charged by indictment with one count of conspiracy to commit securities fraud and investment adviser fraud, two counts of securities fraud, and two counts of investment adviser fraud.
According to the indictment:
Between 2008 and 2010, Toomer participated in an extensive “pump-and-dump” scheme in which he and others fraudulently inflated the prices of certain shares in order to sell them later at artificially inflated prices. The scheme involved four public companies: BioNeutral Group Inc. (BONU), NXT Nutritionals Holdings Inc. (NXTH), Mesa Energy Holdings Inc. (MSEH), and Clear-Lite Holdings Inc. (CLRH) (collectively, the “Target Companies”).
First, other conspirators obtained control over large blocks of the free trading shares of the Target Companies. Next, Toomer and others “pumped” the price of those shares by, among other things, engaging in manipulative trading of the stocks of the Target Companies and disseminating promotional materials encouraging others to purchase them. Finally, they “dumped” them by selling large volumes of the Target Companies’ stock to victim investors. The target companies’ stock price would then drop, resulting in losses to the victims.
As part of the scheme, Toomer caused his clients to purchase the stock of the Target Companies in order to create the false impression of market interest and demand in the stock of the Target Companies; build trading volume that would be attractive to potential investors who would later receive promotional materials about the stock; and generate income to fund the promotional campaigns that occurred in the later phases of the scheme.
Toomer made various material misrepresentations and omissions to his clients to obtain their authorization to buy the Target Companies’ stock in their brokerage accounts, including falsely representing that he had done independent research regarding the Target Companies. He also failed to disclose the cash payments or other compensation that he received in exchange for convincing his clients that the Target Companies were promising investments.
Over the course of the conspiracy, Toomer received hundreds of thousands of dollars in cash kickbacks from his conspirators’ illicit trading profits, none of which were disclosed to his investment advisory clients. Rather than providing investment recommendations and advice based upon the best interests of his clients, as he was legally required to do, Toomer allegedly made investment recommendations based on his own personal interests and those of his conspirators.
The scheme collectively generated over $30 million in illicit trading proceeds.
The conspiracy count with which Toomer is charged carries a maximum potential penalty of five years in prison and a $250,000 fine, or twice the gain or loss from the offense. The securities and investment adviser fraud counts each carry a maximum potential penalty of 20 years in prison and a $5 million fine.
The charges and allegations in the indictment are merely accusations, and the defendant is considered innocent unless and until proven guilty.
The U.S. Securities and Exchange Commission (SEC) filed a civil complaint against Toomer today.
On Dec. 15, 2015, Samuel DelPresto, 48, a stock promoter from Holmdel, New Jersey, pleaded guilty before U.S. District Judge Jose L. Linares to a one-count information charging him with conspiracy to commit securities fraud for his involvement in the scheme.
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 indictment. He also thanked the U.S. Securities and Exchange Commission’s New York Regional Office, under the direction of Andrew Calamari, for its assistance in this matter.
The government is represented by Assistant U.S. Attorney Nicholas P. Grippo of the U.S. Attorney’s Office Economic Crimes Unit in Newark.
Defense Counsel: Michael Critchley Esq., Roseland, New Jersey