SEC Identifies Three More to Charge in Penny Stock Case
On November 4, 2015, the Securities and Exchange Commission (SEC) announced it has identified three more individuals to charge in a penny stock manipulation case that the agency filed last year against alleged corrupt brokers and others.
The SEC filed a request to lift the stay in its civil action so that it could file an amended penny stock complaint alleging that two additional brokers, Michael Morris and Ronald Heineman, assisted in the scheme through their brokerage firm while a third man, attorney Darren Ofsink, made illicit gains by selling unregistered shares that had no registration exemption applied.
In a parallel action, the U.S. Attorney’s Office for the Eastern District of New York announced criminal charges against Morris and Ofsink.
According to the SEC’s amended complaint:
- Abraxas “A.J.” Discala and Marc Wexler engaged in a scheme to inflate the price of CodeSmart Holdings stock in mid-2013 in collusion with brokers Matthew Bell and Craig Josephberg. The plan was to profit at the expense of Bell’s clients and Josephberg’s customers as the price of the stock fell.
- Morris and Heineman, the owners of Halcyon Cabot Partners where Josephberg worked, participated in the fraudulent scheme by facilitating the improper conduct by Discala and Josephberg.
- In late August 2013, Morris and Heineman secretly agreed to purchase CodeSmart shares at pre-set prices in a way that permitted Discala to liquidate his CodeSmart positions at artificially inflated prices.
- Ofsink, who helped execute CodeSmart’s reverse merger into a public shell company, profited by illegally selling unregistered CodeSmart securities without a registration exemption.
The SEC’s amended penny stock complaint charges Morris with violations of Sections 5(a), 5(c), 17(a)(1), and 17(a)(3) of the Securities Act of 1933 (“Securities Act”) and Sections 9(a)(1), 9(a)(2), and 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5(a) and (c) thereunder. Heineman is charged with violations of Sections 17(a)(1) and 17(a)(3) of the Securities Act and Sections 9(a)(1), 9(a)(2), and 10(b) of the Exchange Act, and Rules 10b-5(a) and (c) thereunder. Ofsink is charged with violations of Sections 5(a) and 5(c) of the Securities Act. The amended complaint seeks a final judgment ordering them to disgorge illicit earnings plus prejudgment interest, imposing financial penalties, and permanently enjoining them from future violations of the federal securities laws.
The SEC also suspended trading in CodeSmart stock on November 4, 2015 because the company has not filed any periodic reports since last year and suspicious market activity has taken place. The SEC has instituted public administrative proceedings against CodeSmart to determine whether it should suspend or revoke the registration of its securities. The penny stock investigation is ongoing.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
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