Seven people accused of taking part in a $140 million international penny stock fraud that U.S. prosecutors say is one of the largest in history were arrested.
Federal agents arrested six individuals in the U.S. accused of participating in a scheme to inflate the values of at least a dozen worthless stocks and market them to investors, Brooklyn U.S. Attorney Loretta E. Lynch said today. A seventh defendant was arrested in Canada, she said.
The stocks were sold to victims in as many as 35 countries, prosecutors said. Some victims were swindled a second time through a separate scheme in which investors were told they would pay an “advance fee” to recoup their losses, according to prosecutors.
“The defendants used our securities markets as a platform from which to run elaborate fraudulent schemes to victimize unsuspecting investors across the globe,” Lynch said in a statement. “Where others saw citizens of the world, the defendants saw a pool of potential marks.”
As many as nine individuals were involved in the conspiracy, according to a 24-count indictment filed Aug. 7. Two of the defendants, Canadian citizens Gregory Curry and Sandy Winick, who prosecutors said orchestrated the scheme, are still at large, said Zugiel Soto, a spokeswoman for Lynch.
The government said the scheme took place from 2008 to July 2013. Stocks included Winick’s holding company Blackout Media Corp. (BKMP), along with Resource Group International (RSGR), Imusic Worldwide Inc., WGI Holdings Inc. (WGIH), Talisman Holdings Inc. (TMHO), Nikron Technologies Inc. (NKRN), Tal-Cap Inc. (TAL), RainEarth Inc. (RNER), Sync2 Networks Corp., (SYNW) MASS Petroleum (MASP), Liquid Gold International and Foy Johnston Inc. (FOYJ), according to the indictment.
Known as “file cabinet businesses,” the companies had minimal assets, were thinly traded, and were owned or controlled by the defendants, according to prosecutors.
The scheme involved the creation of phony consulting businesses and law firms, the release of fake press releases in connection with the penny stocks, and operation of call centers in Vietnam, Thailand and Canada, according to the indictment.
Winick, believed to be in Thailand, was sued along with Blackout Media Corp. by the U.S. Securities and Exchange Commission in June 2009 over similar allegations.
The SEC, which won a $4 million judgment in the case in September 2012, alleged that Winick ran a scheme from April 2002 to May 2004 in which his company illegally sold securities in 59 spinoff subsidiaries without meeting registration requirements.
Some of the defendants involved in the scheme went by a variety of nicknames including “Robin Cheer,” “Michael East,” “Maurizio,” and “Panama Joe,” according to the indictment. They tried to cover up the crime by using disposable phones to communicate and using multiple accounts at different brokerage firms held by offshore entities, prosecutors said.
“By tricking victims into paying advance fees with the promise of realizing larger gains or recovering losses, some of the defendants dipped into the pockets of those they had betrayed -- not once, but twice,” George Venizelos, head of the FBI’s New York office, said in a statement.
Defendants are charged with crimes including securities fraud, conspiracy and wire fraud, among others. They face sentences of as many as 20 years in prison for counts of conspiracy to commit wire fraud, substantive wire fraud and substantive securities fraud.
The defendants arrested are scheduled to appear later today in courts in Brooklyn, New York, Los Angeles, Miami and Tucson, Arizona, according to prosecutors.
The criminal case is U.S. v. Winick, 13-cr-00452, U.S. District Court, Eastern District of New York (Brooklyn).
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