Court Enters Judgments Against Promoters in Pump-And-Dump Scheme
On May 7, 2021, the Securities and Exchange Commission (“SEC”) announced that the U.S. District Court for the Central District of California entered final judgments against the remaining three defendants in a 2019 SEC action charging them for their alleged roles in a pump-and-dump scheme in the stock of southern California beverage and cannabis company Green Cures & Botanical Distribution, Inc (GRCU).
On May 20, 2019, the SEC charged Ishmail Calvin Ross, Zachary Logan, Jessica Snyder, and David N. Osegueda with deceiving a brokerage firm into allowing Ross, Logan, and Osegueda to deposit their GRCU stock into their accounts in advance of their pumping up the company’s stock price through a promotional campaign. Ross, Logan, and Osegueda then allegedly dumped their shares on unsuspecting investors, generating approximately $1.9 million in illicit proceeds.
The judgments order Ross and Logan to pay disgorgement and prejudgment interest of $781,868 and $184,293, respectively. The court further ordered that Ross, Logan, and Snyder pay civil penalties of $400,000, $164,000, and $100,000, respectively. The judgments also prohibit all three defendants from participating in the offering of a penny stock and impose ten-year and permanent officer and director bars against Ross and Snyder, respectively.
Osegueda previously consented to a final judgment that permanently enjoined him from violating Sections 5 and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, ordered him to pay disgorgement and prejudgment interest of $933,181 and a civil penalty of $835,941, and imposed a penny stock bar and a ten-year officer and director bar.
How the scheme worked
According to details in the 2019 SEC Complaint, in February 2014, Osegueda and a partner acquired control of Triton Distribution Systems Inc (TTDZ), a publicly-traded company, renaming it Green Cures & Botanical Distribution Inc (GRCU) to capitalize on the hemp and cannabinoid market.
Osegueda didn’t have much success during the first year running the company and had been loaning money to GRCU to keep the business afloat. So in June 2015, he recruited Ross, who had prior experience in the beverage distribution business, including one product in grocery stores.
Synder performed the due diligence on GRCU for Ross, with Ross ultimately agreeing to help Osegueda, but only if paid in equity. In August 2015, Osegueda and Ross entered into a stock purchase agreement with Ross receiving the 1 Series A preferred share representing control of the company and 8.25 million restricted common shares for $45,000. Around this time, Ross always purchased a portion of Osegueda’s debt Notes.
It was at that point that the pump & dump scheme began to take shape.
After Ross gained control of GRCU, he hired a new CEO and kept his control hidden by transferred the control stock to a company he and Snyder created named In Step Holdings LLC. Ross then installed an employee from his beverage company as the nominee officer of In Step Holdings LLC in order to not be deemed an affiliate while selling his GRCU common shares.
In December 2015, Osegueda introduced Ross to Zachary Logan, described as a “stock expert” who could help “market” GRCU. Logan agreed to provide one year of stock promotion services in exchange for 5 million restricted and 5 million free-trading GRCU shares.
From January 15 to October 30, 2016, Osegueda, Ross, and Logan deposited their GRCU stock with Scottsdale Capital Advisors to be sold into the market, submitting DSRs signed under oath for each deposit.
Osegueda received 127.6 million newly created shares from the conversion of portions of the debt Notes he still held in his name. He deposited 42 million shares in his own name and transferred 61.3 million shares to Ross and 5 million shares to Logan. In the DSR for the deposit, Osegueda lied about how long he held the stock and that he had no knowledge of any current or future stock promotions.
Ross deposited a total of 37.5 million shares and falsely stated in his DSR that he was not an affiliate of GRCU, lied about how long he had held the stock, and falsely stated that had no knowledge of any current or future stock promotions.
Logan deposited a total of 8 million shares (the 5 million he received from Osegueda plus 3 million acquired from Ross for $27,000). In his DSRs, Logan lied about how long he held the stock and falsely stated that he was not acting in concert with any other person on the stock promotion.
Synder prepared all of the corporate documents required for the deposits, including resolutions and letters stating that GRCU was not a shell company; conversions of the notes; a letter that GRCU was current in its submissions to OTC Markets; and a letter from GRCU’s CEO that falsely stated that neither Osegueda, Ross, nor Logan was an affiliate of the company. Synder also included a letter from an attorney (which information suggests was Andrew Coldicutt), which opined that Ross’s sale of the GRCU shares would be exempt from registration under Rule 144.
Together, in January 2016 and February 2016, Osegueda, Logan, Ross, and Synder organized a promotional campaign that included misleading press releases issued without the CEO’s knowledge, even though some of the information was contributed to him; emails blasts and text messages that repeated or contained links to the false and misleading press releases; and post on Twitter and the InvestorsHub.com message boards.
The campaign began in March 2016 and continued through the end of November 2016, during which time, Osegueda, Ross, and Logan sold stock and received about $857,000, $887,000, and $164,000 in proceeds, respectively.
After a sluggish start to the campaign, in August 2016, the group hired two additional stock promoters to help drum up more interest. One of those stock promoters hired seven individuals to post messages under various usernames on the InvestorsHub.com message board.
Osegueda and Ross selected Stock Goodies, Wall Street Surfers, and Penny Stock Mobsters to lead the campaign for the blast emails and text messages.
The revamped campaign was very successful. The average daily trading volume increased from about 204,000 shares per day to an average of about 2.17 million, and the price climbed from $.008 to $.049/share.
How the litigation started
According to information in the SEC court documents, the actions against Osegueda, Ross, Synder, and Logan came as a result of a separate SEC investigation against attorney Andrew T. E. Coldicutt. During that investigation, the SEC obtained records of the individuals and entities that traded GRCU, which showed the trading activity of Osegueda, Ross, and Logan through their accounts at Scottsdale Capital Advisors.
On May 4, 2017, the SEC filed a Subpeona Enforcement against Coldicutt for failure to provide documents the SEC was seeking as part of an investigation. A second Subpeona Enforcement action was filed against Coldicutt on July 20, 2017, that specifically requested documents associated with GRCU. Coldicutt finally complied on August 17, 2017, and the SEC’s work investigating GRCU moved forward. To date, Coldicutt has not been disciplined in the matter and remains an active attorney licensed by the California Bar and practicing in front of the SEC.
Some background on Ishmail Calvin Ross
Ross and Synder (formerly known as Jessica Gutierrez) have a lot of history together with previous penny stocks. Synder did a lot of work for Ross while Ross ran Hall of Fame Beverage Inc (HFBG) from around 2009 – 2013.
HFBG touted itself as a sports beverage company under Ross’s control but became a disaster with a flood of debt toxic pushed the float into the billions and the stock price to no-bid despite a parade of glowing press releases. On April 30, 2012, HFBG was named in an SEC Complaint against a group of individuals, Christel Scucci, Karen Beach, Cameron Linton Esq, who were involved in an unregistered stock selling scheme involving HFBG and five other public issuers, Viper Networks Inc (VPER), Chromocure Inc (KKUR), Hybrid Energy Holdings Inc (HYBE), Ingen Technologies Inc (IGNT), and Undersea Recovery Corporation (UNDR). According to the SEC, the group was working for Stephen Carnes and Lawrence Powalisz who had previously been named in SEC litigation on September 24, 2009.
On August 22, 2012, HFBG was also named in a separate SEC Complaint against Edward Bronson and two lending companies under Bronson’s control (E-Lionheart Associates and Fairhills Capital). According to that Complaint, Bronson sold more than 2.2 billion without registration in HFBG from 2009 – 2011. HFBG was abandoned around the time of the SEC Complaints and was eventually suspended by the SEC on April 24, 2017.
Our research also shows that Ross was also a control person for New Generation Consumer Group, Inc (NGCG) from 2014 – 2016, where attorney Andrew Coldicutt assisted Ross and others like convicted felons Jason Ruppert and Mark Fisher with converting debt into free trading stock using questionable debt notes. Fisher was Indicted in October 2018 for a separate stock manipulation scheme on Valentines Beauty Inc (VLBI) and sentenced to 28 months in prison on May 14, 2019. Ruppert was a repeat offender. He was sentenced to 1 year in prison for securities fraud in 1995, five years probation for Grand Theft (bank fraud) in 2008, and additional probation in 2012 after being arrested for violating his previous parole sentence. His probation ended on December 18, 2014, and soon after, his wife, Pamela Ruppert, became a note holder in NGCG along with Mark Fisher. According to an interesting message board post, Ruppert was involved in another questionable share selling scheme in Xalles Holdings Inc (XALL) beginning in 2017.
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]ieslawyer101.com 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 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.