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Dual Indictments Lead to Arrest of 14 In

Quintessential Pump & Dumps Perfectly Illustrate How
All Penny Stock Schemes Operate
ESPECIALLY Awesome Penny Stocks (Watch Out SWVI)

February 15, 2013:  Federal authorities have arrested 14 people, including a former deputy district attorney, that were named in two federal indictments alleging long-term schemes to manipulate stock prices of intrinsically worthless companies. The schemes led to more than 20,000 investors losing over $30 million, as artificially inflated stock prices collapsed. Investigators with the FBI and Internal Revenue Service used wiretaps to secretly record thousands of telephone calls and text messages during a three-year investigation. As one defendant described his scheme during a wiretapped phone call: “What I do is turn stock into money.”

The indictments revolved around the manipulations of five penny stock issues: Frogads, Inc. (FROG), Biostem Us Corp. (HAIR), Genmed Holding Corp. (GENM), Sports Endurance, Inc. (SENZ) and Empire Post Media, Inc. (EMPM).  We begged our subscribers to watch out for FROG in several advisories we issued, included those that can be retrieved by clicking here, here and here.  We warned readers about EMPM in this advisory.

The arrests were made on February 13, 2013, following the unsealing of two grand jury indictments. The indictments detail two separate, large-scale fraud schemes in which conspirators gained control of the majority of the stock of publicly traded companies, often convincing company management to assist in these efforts. The fraud artists concealed their control of the stock by purchasing and transferring shares to offshore accounts and to nominee entities.

The elaborate schemes involved setting up marked companies to look as if they were being actively traded with wash trades across international accounts held in several names.  As the schemers controlled almost all of the stock, it was an easy process to inflate the prices of the shares with these trades, thereby lending an air of legitimacy to the company, and creating a frenzy of interest among the gullible public at large.  Assisted by  slick marketing campaigns, misleading press releases, payments to stock promoters, and wash trades, the conspirators were able to cash out by selling their shares at over-inflated prices.

The court documents labelled the defendants as serial market manipulators who carried out several fraudulent deals each year, each of which generated several million dollars. The defendants generally targeted barely functional companies purported to be operating in areas they believed could easily be touted as generating breakthroughs or deals that would explain sudden increases in trading volume and price. The indictments allege that increased trading volume and higher stock prices were actually the result of the defendants’ fraudulent actions. A company CEO brought into one of the schemes summed up a typical deal during a wiretapped call: “There’s nothing in there, there’s nothing to the company. It’s monkey business.” The indictments allege that the schemes collectively engaged in five specific deals that defrauded more than 20,000 investors around the world and generated more than $30 million in illegal profits.

According to an FBI press release, one indictment identifies Los Angeles residents, Sherman Mazur, 63 and his nephew, Ari Kaplan, 40, together whom controlled London Finance Group, Ltd., as masterminds of a grand plan, charging that they “perpetrated a multi-million-dollar scheme to fraudulently inflate the prices and trading volumes of public company stocks and then sell millions of shares of those companies at the fraudulently inflated prices to the investing public for substantial profits.” The indictment  focuses on deals involving two businesses: Genmed, which purported to develop, manufacture, and distribute generic pharmaceuticals; and Biostem, which purported to develop and license regenerative stem cell treatments, including hair regrowth technology. The manipulation of both companies involved long time Mazur associate and co-defendant, Dwight Brunoehler. That 32-count indictment charges nine defendants, all of whom were taken into custody on February 13. In addition to Mazur,  Kaplan, and Brunoehler, Los Anegeles area residents Grover Henry Colin Nix IV, 39,  former deputy district attorney, Regis Possino, 65,  and Joey Davis, 46, were arrested; as was Edon Moyal, 32, of Carlsbad, California ; Mark Harris, 56, of Scottsdale, Arizona;  and, Curtis Platt, 51, of Sarasota, Florida, . According to the indictment, the nine defendants conspired to commit securities fraud and wire fraud. The indictment alleges that members of the scheme generated at least $13 million in illegal proceeds when they sold their shares of manipulated companies, including at least $2.1 million in illegal proceeds for GENM, and $500,000 in illegal proceeds from the ongoing manipulation campaign for HAIR. “The defendants’ alleged combination of celebrities, press releases, gimmicks, and lies was similar to a how a magician deceives unsuspecting believers into an illusion,” said Bill Lewis, Assistant Director in Charge of the FBI’s Los Angeles Field Office. “While operating the schemes alleged in the indictments, the defendants kept their audience captive until stock prices peaked, while investor money vanished into defendants bank accounts.”  The indictment further alleges that Mazur, Kaplan, Nix, Possino, and Harris engaged in money laundering, using funds transferred from offshore accounts to promote their fraudulent scheme.

The FBI press release states that the second indictment discusses a stock manipulation ring masterminded by Possino and Nix, both of whom are named in the first indictment. This indictment also describes a scheme to manipulate the stock prices of SENZ, FROG and EMPM. In addition to Possino, Nix, Moyal, Harris and Davis, all of whom were also named in the first indictment, others named in the second indictment are Tarun Mendiratta, 42, of Weston, Conn.; Ivano Angelastri, 49, of Switzerland; disbarred attorney Joseph Scarpello, 52, of Tustin, California; FROG CEO Julian Spitari, 47, of Encino, California; EMPM CEO Peter Dunn, 72, of Los Angeles; and, William Mackey, 61, of Plantation, Florida. The second indictment alleges that members of the conspiracy made at least $18 million in illegal proceeds from selling their shares of manipulated companies. This figure includes at least $1 million in profits from SENZ, at least $6.8 million from FROG, and at least $1 million in profits from EMPM. The defendants named in this indictment are charged with conspiracy to commit securities fraud and wire fraud. Possino, Nix, Mendiratta, Angelastri, Harris, Moyal, Scarpello, and Spitari are also charged with money laundering related to funds transferred from offshore accounts.

The two indictments (1 and 2) provide insight into the way these elaborate penny stock schemes work and are must reading for those who are novices to the penny stock market.  It is these novices that the manipulators and promoters rely on to achieve their goal.  They are usually assisted by more experienced penny stock players who are familiar with the end game, but participate on the often successful notion that they will be able to cash in at a profit before the inevitable crash of the share price.  In fact, together with shills of the manipulators, these voluntary collaborators often encourage the participation of the novice by telling exaggerated tales of trading success in public forums, such as the popular

Perhaps the only ones who are more adept at following the recipe for a successful fraud, as detailed by the indictments, and who have astounding success with the manipulation of worthless shell companies, are those behind the Awesome Penny Stock promotions.  The current manipulation being carried out on Swingplane Ventures, Inc. (SWVI) has seen a three fold increase in the share price over the first three weeks of the promotion, on ridiculous volumes, often outdoing the dollar value of Fortune 500 companies.  SWVI's current over-inflated market valuation of $323 million dollars is a mockery, considering that the company just reported having only $49,099 cash on hand, zero revenues and total assets of $291,564, which are more than cancelled out by $474,585 in liabilities.  The current share price and volume has only been achieved through wash trades and the controlled actual sales of stock to the public.  At the time this pyramid scheme comes crashing down, and we think that will happen any day time now, the manipulators will hit every bid all the way down so quickly, that retail buyers will not be able to react fast enough to dispose of their stock and will be forced to accept small fractions of their initial investment.  We expect the SWVI manipulation to eventually cost investors well in excess of $100 million.

The Los Angeles base of the majority of the fraudsters arrested this week, made the investigation of their manipulations considerably less intensive than the long-term one that is obviously ongoing with the internationally run Awesome Penny Stocks schemes.  However, in our opinion, there is little doubt that an investigation similar to the one which led to this week's crackdown, was sensed by Luis Carillo prior to his fleeing the country and the abrupt shutting down of the law firm of Carillo Huettel, LLP.  That firm has been complicit in dozens of Pump & Dump schemes, including several of those executed by the fraudsters behind Awesome Penny Stocks.

Still, while we understand the authorities' desire to trap the perpetrators red-handed, we do not understand why these schemes are allowed to proceed at the expense of the poor, the gullible and the just plain stupid.  It would be easy to instantly halt the trading of any issue promoted by Awesome Penny Stocks.