DA VANCE: STOCK PROMOTERS AND CO-CONSPIRATORS INDICTED FOR $290 MILLION “PUMP-AND-DUMP” STOCK FRAUD SCHEME
Manhattan District Attorney Cyrus R. Vance, Jr., recently announced the indictment of three stock promoters and five co-conspirators for participating in stock market manipulation schemes, commonly referred to as “pump-and-dump” schemes, in which thousands of investors in penny stocks were defrauded of approximately $290 million. The defendants are charged in an 85-count indictment in New York State Supreme Court with Criminal Possession of Stolen Property in the First and Second Degrees, Grand Larceny in the Second, Third, and Fourth Degrees, Scheme to Defraud in the First Degree, and Securities Fraud. 1
“These individuals, as alleged in the indictment, are charged with using their positions as stock promoters and company insiders to inflate their own profits through fraud and deceit, and at the expense of the investing public,” said District Attorney Vance. “We will not allow this kind of manipulation to occur in our markets.”
According to the indictment and documents filed in court, between April 2009 and May 2012, ANTHONY THOMPSON, 38, ERIC VAN NGUYEN, 30, and JAY FUNG, 40, acted as a penny stock promotion team that conspired with individuals in control of public companies to “pump-and-dump” the companies’ stock. The promoters controlled numerous penny stock websites, including OxofWallStreet.com, PennyPic.com, and MonsterStox.com, from which they sent email blasts promoting the stocks to thousands of potential investors. With an agreement in place that the promoters would blast emails “pumping” the stock, participants in the scheme allegedly acquired public shell companies with available shares into which they merged newly-created private companies. Once they obtained control of the public shell companies, corporate insiders are then accused of transferring and issuing millions of free-trading shares to themselves, their associates, friends, and family members, in order to control the supply of those shares and drive up the price of the stock during the upcoming promotional campaign.
With millions of shares in the hands of the defendants and other participants, THOMPSON, VAN NGUYEN and FUNG coordinated with corporate insiders to issue press releases as part of their promotional campaigns. Potential investors received false and misleading emails encouraging them to purchase shares in the companies. As demand for the stock rose and drove up the market price, the defendants and other participants are charged with liquidating, or “dumping,” their own shares, while ceasing to email promotional materials. As a result, the price of the stock abruptly plummeted, leaving public investors with nearly worthless stock.
Through their scheme, the defendants are charged with inducing thousands of investors to purchase approximately $290 million worth of securities in numerous public companies, including Hydrogenetics, Inc. (HYGN); Xynergy Holdings, Inc. (XYNH); Blast Applications, Inc. (BLAP); Blue Gem Enterprise, Inc. (BGEM); Mass Hysteria Entertainment Company, Inc. (MHYS); Recycle Tech, Inc. (RCYT); Lyric Jeans, Inc. (LYJN); Smart Holdings, Inc. (SMHS); and Sunpeaks Ventures (SNPK).
In and around 2010, as the Securities and Exchange Commission began investigating several of these public companies, THOMPSON, VAN NGUYEN, and FUNG went to great lengths to conceal their ownership of shares of Smart Holdings, Inc. Having initially coordinated with other conspirators to structure the transfer and issuance of shares into their own names and into the names of other conspirators, THOMPSON later contacted other participants in the alleged scheme and instructed them to cancel those issuances. He allegedly directed them to have the shares issued in the names of five entities, four of which were foreign corporations, including White Frog, Ltd., to conceal the promoters’ ownership of these shares. The shares were further transferred into the name of a foreign broker-dealer, Gibraltar Global Securities, and when the shares were “dumped” for huge profits, the proceeds were wired to a California law firm, before finally being transferred to bank accounts controlled by THOMPSON, FUNG and VAN NGUYEN. However, the promoters’ email blasts touting the company’s stock falsely stated that each had been compensated by an unaffiliated third party named Best Fortune Marketing.
HANNA SCHMIEDER, 39, KENNETH OXSALIDA, 59, JOSEPH DERVALI, 54, LUZ RODRIGUEZ, 47, and CHRISTOPHER BALSEIRO, 31, are charged with engaging in various crimes to further the scheme. SCHMIEDER, the president of Lyric Jeans, Inc., and OXSALIDA, the president of Smart Holdings, Inc., are each accused of approving the issuance of new free-trading shares to co-conspirators in anticipation of the pump-and-dumps of their companies. They are also accused of issuing press releases solely for use in the promoters’ email campaigns. Additionally, after co-conspirators dumped their shares in the pump-and-dump of Lyric Jeans, Inc., SCHMIEDER directed them to transfer a portion of their proceeds to her corporate account.
DERVALI, RODRIGUEZ and BALSEIRO, who did work for several companies involved
in the scheme, are accused of being members of the group that controlled
the supply of those companies’ free-trading shares. Each defendant
held significant blocks of free-trading shares, and all later liquidated
the shares during the promotional campaign. At times, these defendants
are charged with holding and selling another conspirator’s shares
in order to conceal the true holder’s identity and skirt securities
regulations. The defendants retained proceeds and transferred significant
sums of money to bank accounts controlled by other conspirators.
Assistant District Attorneys Brian A. Kudon and Gloria Garcia of the Major
Economic Crimes Bureau are handling the prosecution of the case, under
the supervision of Assistant District Attorneys Judith Weinstock, Deputy
Chief of the Major Economic Crimes Bureau; Polly Greenberg, Chief of the
Major Economic Crimes Bureau; and Executive Assistant District Attorney
David Szuchman, Chief of the Investigation Division. Assistant District
Attorney Michael Ohm, Deputy Chief of the Rackets Bureau provided valuable
assistance with the investigation. Deputy Chief Investigator Santiago
Batista, under the supervision of Chief Investigator Walter Alexander
of the Investigations Bureau; Former Financial Investigator John Thorpe
and Financial Investigator Frank Nonnenmacher, under the supervision of
Robert Demarest, Chief of Forensic Accounting and Financial Investigations;
and Paralegals Samantha Hall and Adam Wenick assisted in the investigation.
District Attorney Vance thanked the United States Securities and Exchange
Commission’s Headquarters, New York Regional Office and Miami Regional
Office. District Attorney Vance also thanked the Financial Industry Regulatory
Authority’s Criminal Prosecutions Assistance Group, and Detective
Brad Stephenson of the Broward County Sheriff’s Office for their
assistance with the investigation.
1 The charges contained in the indictment are merely allegations, and the defendants are presumed innocent unless and until proven guilty. All factual recitations are derived from documents filed in court and statements made on the record in court.
Defendant Information:
ANTHONY J. THOMPSON, JR., a/k/a “A.J. Thompson,” D.O.B. 9/28/1975
Bethesda, MD
Charges:
- Criminal Possession of Stolen Property in the First Degree, a class B felony, 6 counts
- Criminal Possession of Stolen Property in the Second Degree, a class C felony, 3 counts
- Grand Larceny in the Second Degree, a class C felony, 1 count
- Grand Larceny in the Third Degree, a class D felony, 23 counts
- Grand Larceny in the Fourth Degree, a class E felony, 1 count
- Scheme to Defraud in the First Degree, a class E felony, 14 counts
- Violation of the Martin Act, a class E felony, 32 counts
ERIC VAN NGUYEN, D.O.B. 1/20/1984
Quebec, Canada
Charges:
- Criminal Possession of Stolen Property in the First Degree, a class B felony, 5 counts
- Criminal Possession of Stolen Property in the Second Degree, a class C felony, 2 counts
- Grand Larceny in the Second Degree, a class C felony, 1 count
- Grand Larceny in the Third Degree, a class D felony, 23 counts
- Grand Larceny in the Fourth Degree, a class E felony, 1 count
- Scheme to Defraud in the First Degree, a class E felony, 14 counts
- Violation of the Martin Act, a class E felony, 32 counts
JAY FUNG, D.O.B. 11/25/1973
Delray Beach, FL
Charges:
- Criminal Possession of Stolen Property in the First Degree, a class B felony, 5 counts
- Criminal Possession of Stolen Property in the Second Degree, a class C felony, 3 counts
- Grand Larceny in the Second Degree, a class C felony, 1 count
- Grand Larceny in the Third Degree, a class D felony, 23 counts
- Grand Larceny in the Fourth Degree, a class E felony, 1 count
- Scheme to Defraud in the First Degree, a class E felony, 14 counts
- Violation of the Martin Act, a class E felony, 32 counts
JOSEPH DERVALI, D.O.B. 3/21/1960
Pembroke Pines, FL
Charges:
- Scheme to Defraud in the First Degree, a class E felony, 8 counts
- Violation of the Martin Act, a class E felony, 4 counts
CHRISTOPHER BALSEIRO, D.O.B. 11/20/1982
North Bay Village, FL
Charges:
- Scheme to Defraud in the First Degree, a class E felony, 8 counts
- Violation of the Martin Act, a class E felony, 4 counts
HANNA SCHMIEDER, a/k/a “Hanna Solomon,” D.O.B. 8/31/1975
Los Angeles, CA
Charges:
- Scheme to Defraud in the First Degree, a class E felony, 6 counts
- Violation of the Martin Act, a class E felony, 3 counts
LUZ RODRIGUEZ, a/k/a “Luz Capeles,” D.O.B. 9/13/1966
Miramar, FL
Charges:
- Scheme to Defraud in the First Degree, a class E felony, 4 counts
- Violation of the Martin Act, a class E felony, 2 counts
KENNETH OXSALIDA, D.O.B. 6/28/1955
Sebring, FL
Charges:
- Scheme to Defraud in the First Degree, a class E felony, 6 counts
- Violation of the Martin Act, a class E felony, 3 counts