FBI Informant Guy Gentile Pushes Back

FBI informant-Guy-Gentile FBI Indictment

In September, we wrote about Guy Gentile, the owner of two successful stock brokerages, and his troubles with the U.S. Department of Justice (“DOJ”).  According to the DOJ, back in 2007-2008, Guy Gentile had become involved in the promotion of two penny stocks, Raven Gold Corporation (RVNG) and Kentucky USA Energy, Inc. (KYUS).  The Securities and Exchange Commission (“SEC”) opened an investigation into both, and the DOJ took an interest as well.  The individuals who paid for the promotions were different, but the promoters were the same:  Canadians Mike Taxon and Itamar Cohen.  Taxon and Cohen recruited Gentile because they needed a trader who could create the appearance of a market for their first play, RVNG.

The operation followed a pattern familiar to anyone who follows penny stock pump and dump operations.  The Canadians who controlled the RVNG shell gave a large block of unrestricted stock to the promoters, who would use it to get trading going, and eventually to pay for a hard mailer, other advertising, and manipulative trading.  Some friendly traders and stock touts were willing to accept free RVNG shares as kickbacks for open market purchases of the stock.  The company’s CEO began to issue press releases that would be used in the preparation of the mailer.  The mailer was distributed in mid-July 2007, and not surprisingly, it drove price and volume.  Before the promotion began, the stock price had hovered around $0.80 a share; at the promo’s height, it hit $1.73.   Read More

William Allen and Susan Daub Plead Guilty to Wire Fraud

William Allen and Susan Daub - Securities FraudOn November 14, 2016 and November 21, 2016, William Allen and Susan Daub pled guilty in federal court to criminal wire fraud and other charges in connection with an investment scheme involving fraudulent loans to professional athletes. The criminal charges arise from the same conduct alleged in a related SEC civil enforcement action.

Allen and Daub both pled guilty to two counts of wire fraud, one count of conspiracy to commit wire fraud, and one count of charging a money transaction in proceeds of a specified unlawful activity. Allen and Daub were arrested on these charges in June 2015. As part of the fraud, Allen and Daub collected funds from investors for certain fictitious or oversubscribed loans and created the false impression that athletes were repaying certain fictitious or oversubscribed loans on schedule by making scheduled monthly payments to investors from new investor funds. Read More

Stanley Fortenberry Pleads Guilty to $900,000 Fraud

Stanley Fortenberry - FraudOn November 18, 2016, Stanley Jonathan Fortenberry (a/k/a S.J., John, or Johnny Fortenberry) of San Angelo, Texas, pleaded guilty to an indictment charging him with obstruction of justice and other charges in connection with two investment companies he ran that defrauded investors out of approximately $900,000 over a four-year period.

On April 28, 2014, the SEC instituted public administrative and cease-and-desist proceedings against Fortenberry. The Division of Enforcement alleged that Fortenberry ran an investment company called Premier Investment Fund (Premier), which raised funds from investors for social media projects run by another company with ties to the country music industry. Read More

Former KIT Digital Inc. President Gavin Campion Charged with Securities Fraud

Gavin Campion - Securities FraudThe Securities and Exchange Commission (“SEC”) charged Gavin Campion, the former president of KIT Digital Inc., with securities fraud.

The SEC’s complaint, filed in federal court in New York on November 15, alleges that over a one-year period ending in late 2011 Campion – along with Kaleil Isaza Tuzman, then KIT Digital’s CEO, and Robin Smyth, then its chief financial officer – caused KIT Digital to recognize more than $25 million in false revenue from at least a dozen sham license agreements that inflated KIT Digital’s publicly reported financial results. Read More

Francisco Martin Charged with Defrauding Investors in Native American Tribal Bonds

Francisco Martin, Devon Archer, Jason GalanisOn November 14, 2016, the Securities and Exchange Commission (“SEC”) added Francisco Martin of Woodland Hills, California to a civil injunctive action currently pending in the U.S. District Court for the Southern District of New York, charging him with defrauding investors in sham Native American tribal bonds.

The SEC’s amended complaint alleges that Martin, along with seven other co-defendants, participated in a scheme to convince a Native American tribal corporation affiliated with the Wakpamni District of the Oglala Sioux Nation to issue limited recourse bonds that Jason Galanis and his father, John Galanis, had already structured. As Jason Galanis allegedly told two of his associates, the “primary objective” of the scheme was to provide Jason Galanis and his associates “a source of discretionary liquidity.” Read More

Beware of Lawyers Bearing Gifts – Custodianship Shells and Reverse Mergers

Reverse Merger Scams

The Securities and Exchange Commission (“SEC”) says it doesn’t like over-the-counter shell companies especially when reverse mergers are involved, and would like to see them gone from the marketplace.  To that end, its Enforcement Division cooked up an initiative it called  “Operation Shell-Expel”.  It began with a bang on May 14, 2012, when the agency coupled an announcement of Operation Shell-Expel with the suspension of trading in the stock of 379 dormant penny companies.  It was, the SEC said, the largest such action in agency history.  If Operations Shell Expel was such a priority to the SEC why is that we were able to locate more than 700 dormant public companies in the state of Nevada with minimal effort? What danger do these sorry companies present and if they are so dangerous why are there so many dormant shell companies still out there being fraudulently taken over?

The existence of empty shell companies can be a financial boon to stock manipulators who will pay as much as $750,000 to assume control of the company in order to pump and dump the stock for illegal proceeds to the detriment of investors. But with this trading suspension’s obligation to provide updated financial information, these shell companies have been rendered essentially worthless and useless to scam artists.

The shells were “rendered essentially worthless” because the suspension meant they’d be delisted to the Grey Market, the graveyard of bad pennies, in which market makers are forbidden to publish quotes.

Critics of rampant abuse in the OTC market cheered the SEC on, hoping Operation Shell-Expel signaled a new, and far less tolerant, attitude toward dormant shells that were often serially pumped and dumped.  The following June, the agency suspended trading in another 61 issuers, and in February 2014, it followed up by shutting down another 255 shells.  The hammer came down on 128 more in March 2015.  There’s been no similar action in 2016.  At the time of the 2015 suspensions, Enforcement director Andrew J. Ceresney remarked, “We are getting increasingly aggressive and adept at ridding the microcap marketplace of dormant shells within a year of the companies becoming inactive.”  Many market participants see the SEC’s failure to pursue corporate hijackers of dormant shells as one of the greatest enforcement failures of the penny stock markets in the last decade. We have identified hundreds of hijacked tickers and/or companies involving fraudulent state court actions such as with minimal effort yet these types of shell companies continue to be hijacked by two or three penny stock law firms who assist the hijackers or sell the vehicles to unsuspecting companies seeking public company status. Our research reveals these shells have been used as the vehicles for many of the largest and most publicized securities fraud cases pursued by the Department of Justice and SEC. Yet there are at least 740 of these companies domiciled in the state of Nevada alone.
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Government Official Gordon Johnson Reaches Settlement for Insider Trading

Gordon Johnston - Insider Trading SettlementOn November 14, 2016 the Securities and Exchange Commission (“SEC”) announced that it entered into a settlement agreement with Gordon Johnston, a former official at the U.S. Food and Drug Administration’s Office of Generic Drugs (OGD) who allegedly participated in an insider trading scheme while working as a trade association representative.

On June 15, 2016, the SEC filed a complaint in federal district court in Manhattan alleging that Johnston concealed his role as a hedge fund consultant to obtain confidential information from his former OGD colleagues and friends about anticipated FDA approvals for a drug called enoxaparin, which is a generic version of the brand name drug Lovenox. Johnston allegedly passed the material, nonpublic information to a portfolio manager at Visium Asset Management, L.P. (Visium), where Johnston earned approximately $108,000 as a paid consultant. The portfolio manager allegedly made millions of dollars illicitly trading on the nonpublic information that Johnston provided. Read More

Attorney Adam Tracy & the Nefarious World of Custodianship Shells

Adam Tracy

The Securities and Exchange Commission (“SEC”) says it doesn’t like over-the-counter shell companies, and would like to see them gone from the marketplace.  To that end, its Enforcement Division cooked up an initiative it called  “Operation Shell-Expel”.  It began with a bang on May 14, 2012, when the agency coupled an announcement of Shell-Expel with the suspension of trading in the stock of 379 dormant penny companies.  It was, the SEC said, the largest such action in agency history.  What danger did these sorry companies present and if they are so dangerous why are there so many dormant shell companies still out there being fraudulently taken over?

The existence of empty shell companies can be a financial boon to stock manipulators who will pay as much as $750,000 to assume control of the company in order to pump and dump the stock for illegal proceeds to the detriment of investors. But with this trading suspension’s obligation to provide updated financial information, these shell companies have been rendered essentially worthless and useless to scam artists.

The shells were “rendered essentially worthless” because the suspension meant they’d be delisted to the Grey Market, the graveyard of bad pennies, in which market makers are forbidden to publish quotes.

Critics of rampant abuse in the OTC market cheered the SEC on, hoping Operation Shell-Expel signaled a new, and far less tolerant, attitude toward dormant shells that were often serially pumped and dumped.  The following June, the agency suspended trading in another 61 issuers, and in February 2014, it followed up by shutting down another 255 shells.  The hammer came down on 128 more in March 2015.  There’s been no similar action in 2016.  At the time of the 2015 suspensions, Enforcement director Andrew J. Ceresney remarked, “We are getting increasingly aggressive and adept at ridding the microcap marketplace of dormant shells within a year of the companies becoming inactive.”  Many market participants see the SEC’s failure to pursue corporate hijackers of dormant shells as one of the greatest enforcement failures of the penny stock markets in the last decade. We have identified hundreds of hijacked tickers and/or companies involving penny stocks with minimal effort yet these companies are illegally acquired and have been used in schemes robbing investors of millions of dollars and eliminating existing stockholders of their holdings.
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What Is An Unregistered Broker? – Going Public Lawyers

What is an Unregistered Broker? Going Public Lawyers

The Securities and Exchange Commission (the “SEC”) is pursuing unregistered broker or broker dealer activity which runs rampant in the penny stock markets particulary in transactions involving reverse merger companies. Often these unregistered broker-dealers claim to be exempt from the broker dealer registration requirements.  SEC enforcement actions demonstrate there are serious consequences for those who engage in unregistered broker dealer activity.

This Securities Lawyer 101 Q &A addresses the most common questions we receive about unregistered broker-dealer activity. Read More

President of TelexFree James Merrill Pleads Guilty to Running Pyramid Scheme

TelexFree Inc - Pyramid SchemeOn October 24, 2016, James M. Merrill, of Ashland, Massachusetts, the former president of TelexFree, Inc. and TelexFree, LLC, pled guilty to criminal charges related to his operating a pyramid scheme through TelexFree. On May 9, 2014, Merrill and another defendant, Carlos N. Wanzeler, who is a fugitive located in Brazil, were charged in a federal criminal complaint, charging them with conspiracy to commit wire fraud. The criminal charges against Merrill arose out of the same fraudulent conduct alleged by the SEC in a civil securities fraud action filed in April 2014. Read More