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Federal prosecutors and the U.S. Securities and Exchange Commission brought charges Wednesday against more than a dozen individuals they alleged orchestrated a $147 million boiler room scheme using aggressive telemarketing to older investors and other manipulative techniques.

Feds Crack Down On $147M Boiler Room Scheme

Feds Crack Down On $147M Boiler Room Scheme

By Carmen Germaine of Law360.com

Federal prosecutors and the U.S. Securities and Exchange Commission brought charges Wednesday against more than a dozen individuals they alleged orchestrated a $147 million boiler room scheme using aggressive telemarketing to older investors and other manipulative techniques.

Fourteen people were arraigned Wednesday in federal court on criminal charges over their involvement in the alleged Long Island-based scheme, as Brooklyn prosecutors alleged insiders and marketers of several penny stock companies worked with two boiler rooms and multiple cold callers to profit by driving up the companies’ stock prices.

Acting U.S. Attorney Bridget M. Rohde of the Eastern District of New York said the defendants obtained shares at below-market prices and then engaged in manipulative trading patterns to drive up share prices, while aggressively calling unsuspecting and often elderly investors to buy shares.

“Today’s 14 arrests, in three states, reflect the scope of this fraud and our commitment to aggressively locating and bringing to justice those who abuse our financial markets in order to fraudulently enrich themselves,” Rohde said.

The indictment names Jeffrey Chartier, Stephanie Lee, Lawrence Isen and Robert Gleckman, insiders and marketers of five publicly traded companies who allegedly engaged the boiler rooms to manipulate the companies’ stocks.

Prosecutors also charged boiler room operators Anthony Vassallo of Elite Stock Research and former ESR employees Erik Matz and Ronald Hardy, who formed their own boiler room My Street Research. Also charged were former ESR employee Robert Gilbert, and cold callers Brian Heepke, Dennis Verderosa, Emin L. Cohen, Paul Ewer, McArthur Jean and Sergio Ramirez, as well as two people whose names were redacted in the unsealed indictment.

The SEC filed a parallel civil complaint on Wednesday in Brooklyn federal court that also named Chartier, Lee, Isen, Gleckman, Matz, Hardy, Heepke, Verderosa, Cohen, Ramirez and Vassallo. The SEC additionally sued Ashley Antos, alleging she also acted as a cold caller employee of both boiler rooms, and Michael Watts, an insider of one of the companies, and named a further 27 individuals and entities as relief defendants.

According to prosecutors, the scheme inflated stock in five publicly traded companies – National Waste Management Holdings Inc., CES Synergies Inc., Grilled Cheese Truck, Hydrocarb Energy Corporation and Intelligent Content Enterprises Inc.

The insiders in each company would amass shares in the issuer, then engage the boiler rooms, providing stock to the boiler room employees through stock purchase and consulting agreements, according to the U.S. Department of Justice announcement.

The boiler rooms then made hundreds of thousands of cold calls to prospective investors to pressure them into purchasing the stocks, prosecutors said.

The callers often misled investors about the value of the penny stocks, according to prosecutors, and failed to reveal that they were selling their own stocks in the same companies at the same time as recommending investors buy the shares.

For example, the SEC said Cohen told one investor victim that he had “put Twitter out as an [over-the-counter stock] 8 years ago” and falsely claimed that the Walt Disney Company was buying into Intelligent Content Enterprises Inc. Cohen, at the time 33 years old, also claimed to have 21 years of experience, the SEC said.

In another instance, Verderosa told an investor that stocks recommended by My Street Research were “guaranteed winners” and that by following his advice the investor would make “a million dollars by Christmas,” the SEC said.

The cold callers also used aggressive pressuring tactics, according to prosecutors — the SEC’s complaint alleged that in one instance Heepke responded to a victim who called to complain about Intelligent Content Enterprises Inc. by saying he was “tired of hearing” from them.

“Do you have any rope at home? If so tie a knot and hang yourself or get a gun and blow your head off,” Heepke told the investor, according to the SEC’s complaint.

Meanwhile, as the cold callers were pressuring investors to purchase the penny stocks, the boiler rooms also engaged in manipulative matched trades in the penny stocks, using other entities to buy and sell shares to drive up the price or selling stock when an investor victim purchased it, prosecutors said.

William F. Sweeney Jr., the assistant director-in-charge of the Federal Bureau of Investigation’s New York field office, said Wednesday that the scheme “involved an incredible amount of money, more than $147 million.”

“That’s no small change for even the savviest investor,” Sweeney said.

According to the SEC, the defendants realized more than $14 million in illegal proceeds in total from the scheme, while investors lost millions of dollars, including retirement savings.

SEC Chairman Jay Clayton forecast the charges earlier in the afternoon Wednesday when giving remarks at the Economic Club of New York in his first public speech, telling attendants to “watch the news tonight.” Clayton said his agency is taking further steps to catch “pump-and-dump scammers, those who prey on retirees, and increasingly those who use new technologies to lie, cheat and steal.”

The criminal defendants were charged with conspiracy to commit securities fraud, conspiracy to commit wire fraud and substantive securities fraud. Chartier, Lee, Isen, Matz and Hardy were also charged with conspiracy to commit money laundering over allegations they sought to launder $14.7 million in proceeds from the manipulation scheme.

A representative for Cohen declined to comment. Representatives for Heepke, Verderosa, Vassallo, Ewer, Gilbert and Ramirez did not immediately respond to requests for comment. Contact information for Matz, Hardy, Jean, Watts and Antos was not immediately available.

In the criminal case, Matz and Hardy are represented by Michael Finkelstein, Heepke by Michael Gold, Verderosa by Susan Kellman, Cohen by Avraham Moskowitz of Moskowitz & Book LLP, Vassallo by assistant federal defender Amanda David, Ewer by John Wallenstein, Jean by Steven Brounstein, Gilbert by Amit Sondhi of Mintz & Gold LLP, and Ramirez by Gerald DiChiara of the Law Offices of Gerald DiChiara. Counsel information in the criminal case for Chartier, Lee, Isen and Gleckman, and for all defendants in the civil case, was not immediately available.

The government is represented in the criminal case by Alicyn L. Cooley and Patrick T. Hein. The SEC is represented in the civil case by Derek Bentsen, Matthew F. Scarlato, James E. Smith, Scott W. Friestad, Amy Friedman, Cecilia Connor and Andrew Elliott.

The criminal case is U.S. v. Chartier, et al., case number 1:17-cr-00372, and the civil case is Securities and Exchange Commission v. PowerTradersPress.com Inc., et al., case number 1:17-cv-04133, both in the U.S. District Court for the Eastern District of New York.

Source: Law360.com

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