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The U.S. Attorney’s Office announced that Sean M. Daly pleaded guilty to securities fraud today (July 6) in connection with a case brought against him in Ohio last year. Prosecutors accused Daly of “free-riding” — buying stocks without the funds to cover the purchase in anticipation of an upward swing in the price. He was sentenced to 41 months in prison and ordered to pay $5.7 million in restitution to cover loses at the firms he traded through. Authorities said Daly operated his scheme from 2000 to 2007.
Dieter Frerichs, director of K1 Invest and K1 Global, two hedge funds the FBI and several international law enforcement agencies are investigating, was sunbathing on the rocks near his house when German police arrived to serve a search warrant, according to the New York Times. Frerichs pulled a gun from his bag and jumped into the water. He fired one shot into the air then shot himself in the head. The funds are under the control of Helmut Kiener, who’s been in custody in Germany for months, in connection with a suspected pyramid scheme that cost private investors and banks more than $350 million.
Without comment, the U.S. Supreme Court declined to hear an appeal Monday from a financial newsletter publisher that was sued by the SEC for promising its readers a hot stock tip that failed to materialize. About 1200 people paid $1,000 each to the publishing firn, now known as Stansberry and Associates Investment Research. for access to the tip. Unlike most newsletter publishers that have been targeted by the SEC, Stansberry and Associates had no financial stake in the stock. A U.S. District Court sided with the SEC and so did the 4th Circuit Court of Appeals. The Reporters Committee for Freedom of the Press called the case ”a significant threat to the free dissemination of news about the financial markets and specific investment opportunities” and The New York times is said in an editorial that Congress should intervene to protect the First Amendment.
“As the S.E.C. gains greater regulatory authority over derivatives, it remains to be seen whether the tried-and-true theories of securities fraud can be transferred to markets where the exchange of information is much more common and the traders are a great deal more sophisticated,” says Peter J. Hennings in the New York Times after federal judges delivered setbacks to the prosecutors in two fraud cases arising from the financial meltdown.
Russell Erxleben, a former NFL player convicted of securities fraud in 1999 in a foreign currency trading scheme, is out of prison and under investigation again, according to the Austin American-Statesman. This time, it’s for selling pre-World War II bonds from Germany and not delivering them. Erxleben told the American-Statesmen the latest investigation is “a witch hunt.”
According to U.S. prosecutors, there wasn’t much truth to any claims made by Gryphon Holdings, a firm that claimed international offices, billions in a hedge fund and a string of super-star employees. “Instead … it is alleged the operation was run by shysters, led by 43-year-old Kenneth Marsh,” says the Australian Herald Sun. Marsh and 13 co-defendants have been charged with wire fraud and conspiracy to commit securities fraud. They face up to 20 years in prison if convicted.
Using its stock as currency, Lenco Mobile Inc. (Pink Sheets: LNCM.PK) has spent the past few years snapping up cell phone and Internet marketing companies.
Lenco’s share price has risen with the acquisitions, hitting a new high of $6.05 on Friday. The company now has a market capitalization of $389 million, and is seeking a listing on the NASDAQ exchange.
But a Sharesleuth investigation has found that at least two of the businesses that Lenco acquired – for 8.5 million shares and other consideration – were connected to Michael Wayne Crow, the subject of two previous Securities and Exchange Commission cases.
In November 2008, a federal judge found that Crow secretly controlled a securities firm called Duncan Capital LLC, unlawfully collecting millions of dollars in commissions while violating broker-dealer registration and reporting provisions. Crow was ordered to disgorge those earnings, with interest, and pay a $250,000 fine.
He had previously settled another SEC case alleging that he engaged in insider trading as chief executive of a public company, and also filed false financial reports.
Although one of Lenco’s SEC filings mentions a “Michael Crow,” the company has not disclosed that he is the same Michael Crow who has been barred from serving as an officer or director of any public company, or from associating with any broker, dealer or investment advisor.
Crow filed for personal bankruptcy in California last month, listing $30,000 in assets and $11.5 million in debts, including $7.25 million owed to the SEC. In that filing, he said that one of the companies that Lenco purchased, for millions of dollars in stock, never had any business operations.
Sharesleuth found that a third business that Lenco acquired is connected to Thomas C. Ronk, a former stockbroker with a history of disciplinary actions by the National Association of Securities Dealers (now FINRA).
Ronk operates several investment web sites, including BuyIns.net, which purport to identify companies whose stocks have been targeted by illegal “naked shorting” and are poised for price jumps.
He also is partners with former SEC Chairman Harvey L. Pitt in RegSho.com, a site created to help short sellers locate shares to borrow so that they can remain in compliance with market rules.
Another Who’s Your Daddy Inc. executive has been caught up in a criminal drug trafficking case in San Diego.
Court documents filed since our original story show that, in March, agents seized a 32-foot powerboat valued at more than $100,000 from Dan Fleyshman, one of Who’s Your Daddy’s founders and the current director of sponsorship.
The seizures preceded a slew of federal drug indictments that included Edon Moyal, Fleyshman’s co-founder at Who’s Your Daddy (OTCBB: WYDI.OB).
Fleyshman is not a defendant in the case and has not been charged with any crimes. He told Sharesleuth that although the government seized the boat, it wasn’t actually his.
“I didn’t own the boat so it wasn’t seized from me, nor was anything else since I’m not a part of the case,” he said in an email.
Fleyshman said the boat had at one point belonged to a luxury store that he owned in downtown San Diego. He said it was purchased by one of the defendants in the drug trafficking case, which is why the government took it. However, the most current registration records for the boat still list Fleyschman’s store as the owner.
The U.S. Attorney’s office said it couldn’t comment on a pending case.
The government disclosed the seizure after prosecutors filed a bill of particulars for all of the items and cash that were taken as part of the investigation. In all, agents seized more than $500,000 worth of cash, cars and jewelry from people connected to the case. That includes some $40,000 in cash seized from Moyal, and a little more than $4,000 seized from Fleyshman, whose name was misspelled in the court documents.
Moyal was executive vice president of marketing and brand development at the time of his arrest. He, along with a handful of others, was charged with conspiracy to distribute marijuana and possession of marijuana with intent to distribute. According to court documents, agents conducting surveillance spotted Moyal handling boxes of marijuana that were later shipped from San Diego to Maryland.
Although Who’s Your Daddy said in a Securities and Exchange Commission filing in April that Moyal had resigned as an officer and director, it did not disclose his arrest or his federal indictment.
The case drew national attention when an undercover operation that was supposed to be a final bust went awry last spring and several defendants led police on high speed chase across San Diego freeways, throwing fistfuls of cash out their windows as they went.
Moyal and Fleyshman, both under 30, had been hailed in Entrepreneur and other publications for developing the Who’s Your Daddy line of clothing, energy drinks and other products, and for taking their company public at such a young age.
Last summer, a group of closely connected companies managed to turn a $291,000 loan to Pure Play Music Ltd. (Pink Sheets: PPML.PK) into stock that soon had a market value of more than $70 million.
But exactly who got the shares was a bit of a mystery — until now. Sharesleuth has obtained copies of letters that eight entities sent to Pure Play’s transfer agent, asking to have restrictions on the stock lifted so that they could be freely sold.
The largest number of shares, 4.5 million, went to Cohiba Partners Inc., a Santa Monica, Calif., company with ties to Regis M. Possino, a two-time felon and disbarred attorney who has provided financing to numerous penny stock companies.
Cohiba was the company that provided the original loan to Pure Play’s predecessor – Latin Television Inc. – when it faced a severe cash shortage in 2007.
Sharesleuth previously wrote about Pure Play in June, detailing its ties to Possino and noting that the company retired its $291,000 debt by issuing 29.1 million shares to Cohiba and its assignees at a price of 1 cent a share.
The letters to the transfer agent show that many of the other entities that got blocks of that stock have ties to Possino, too.
Colin Nix, president of Cohiba, also signed as an agent of October Funds, which got 3.7 million Pure Play shares. Both Cohiba and October Funds listed their address as an office suite in Santa Monica that is shared with Possino’s companies.
Corporation records list Nix as the president of a third entity, European American Investments Ltd., which got 3.4 million of the Pure Play shares. It also uses the Santa Monica address.
But the letter that European American wrote to the transfer agent on July 18, 2008, was signed by Charles McGuirk – a convicted felon and longtime associate of Possino. McGuirk, who was listed as European American’s president, was sentenced to 18 months in prison in the 1990s after pleading guilty to mail fraud and tax fraud in connection with an embezzlement scheme at an insurance company.
Shearson Foundation, a Panamanian company, got 3.95 million Pure Play shares. Henry Ward signed its letter as managing director.
Nevada corporation filings also list Ward as a director of Quantum Companies Inc. McGuirk is that company’s secretary and treasurer, and its most recent SEC filing listed its headquarters as the office suite in Santa Monica.
Other SEC filings show that Shearson Foundation has invested alongside Cohiba, European American and October Funds in two other public companies, Ensurapet Inc. (Pink Sheets: EPTI.PK) and Who’s Your Daddy Inc. (OTCBB: WYDI.OB).
After a law firm signed off on the removal of the stock restrictions, trading in Pure Play’s shares surged, as did the company’s share price. On Aug. 4, 2008, for instance, the daily volume totaled 402,900 shares, and the stock closed at $2, up from $1.11.
More than 1 million shares traded hands over the next six months, at prices ranging from $1.90 to $2.50. Pure Play’s stock price plunged in late February, and has been declining since.
The company’s shares were trading at 50 cents when our first story appeared in late June, and now trade for around 10 cents.
The letters to Pure Play’s transfer agent showed that 3.7 million shares from the debt conversion deal went to Donna Properties LLC, which listed an address in Panama. In 2001, investigators for the Nasdaq exchange identified Donna Properties as a “client” of one of Possino’s companies, Corporate Financial Enterprise Inc.
Their report said Donna Properties might have participated in his effort to secretly invest in — and influence — a publicly traded brokerage firm called Global Capital Securities Corp. Nasdaq delisted that company because of concerns about its ties to numerous people with criminal or regulatory pasts.
Two other companies that received Pure Play stock, Sandias Azucaradas CR SA and Vanilla Sky SA, listed the same Spokane, Wash., address. They got 3.6 million and 2.22 million shares, respectively.
The letter sent by Sandias Azucaradas was signed by Robin Rushing, who was identified as its managing director. She once worked for La Jolla Capital Corp., a Southern California brokerage that frequently ran afoul of regulators, and was a key aide to its chief executive, Harold “B.J.” Gallison. He was sentenced to prison for his role in a securities fraud facilitated by La Jolla Capital’s successor, Pacific Cortez Securities. He was released in 2006.
The last block of Pure Play stock, 3.95 million shares, went to Stock Certificate Transfer Service Foundation. It listed the same address in Panama as Donna Properties.