24 June, 2004 – LAWFUEL – Marcos Daniel Jiménez, United States Attor…

24 June, 2004 – LAWFUEL – Marcos Daniel Jiménez, United States Attorney for the Southern District of Florida; Michael D. Clemens, Acting Special Agent in Charge, Federal Bureau of Investigation; Stephen M. Cutler, Director, Division of Enforcement, United States Securities and Exchange Commission (“SEC”), Washington, D.C.; Dave Nelson, Regional Director, Securities and Exchange Commission, Miami, Florida; Robert J. Roseneau, Chief, Financial Investigations, Office of Financial Regulation, State of Florida; and Michael S. Reiter, Chief, Palm Beach Police Department, announced that defendants, Charles J. Kerns, Sr., a/k/a “Joe Kerns,” Kautilya Sharma, a/k/a “Tony Sharma,” Lewis Hodge, Neal Wadhwa, Geek Securities, Inc., and Geek Advisors, Inc., are charged in a 36-count Second Superseding Indictment. The Second Superseding Indictment charges, among other things, two separate securities fraud conspiracies. The first charged conspiracy centers around a “stock loan deals” and other types of “financing agreements” scheme. The other charged conspiracy, which was not charged in the two preceding indictments, is based on a mutual fund “market timing” and “late trading”scheme. This “market timing” and “late trading”conspiracy represents one of the first criminally charged conspiracies of its kind in the nation.

As stated in the Second Superseding Indictment, Sharma, of Boca Raton, Florida, owned and controlled Geek Securities and Geek Advisors. Geek was a registered broker/dealer, and Geek Advisors was a registered investment advisor. Hodge, also of Boca Raton, held himself out to be Sharma’s partner at Geek Securities. Wadhwa was a Geek Advisors vice president. Sharma, Hodge, and Wadhwa were licensed brokers.

Kerns, Sharma, and Hodge are alleged in count 1 of the Second Superseding Indictment to have conspired in a “stock loan” securities fraud scheme, in violation of Title 15, United States Code, Sections 78j(b) and 78ff(a), Title 17, Code of Federal Regulations, Section 240, and Title 18, United States Code, Section 371. These defendants are alleged to have engaged in this conspiracy in order to entice persons and entities to enter into “stock loan deals” and other similar “financing agreements” that required the borrowers to pledge as collateral stock in publicly traded companies which Kerns falsely represented he would hold – all in order for the defendants to gain control of the stock and convert the sales proceeds for their personal gain.

In count 28 of the Second Superseding Indictment, Sharma, Wadhwa, Geek Securities, and Geek Advisors are alleged to have conspired in a mutual fund trading scheme to make money by engaging in mutual fund “market timing” and “late trading” from 2001 until late 2003, in violation of Title 15, United States Code, Sections 78j(b) and 78ff(a), Title 17, Code of Federal Regulations, Section 240.10b-5, and Title 18, United States Code, Section 371. These defendants are alleged to have conspired to make money trading shares of various mutual funds by deceiving those funds, their shareholders, and the investing public at large by, among other things, circumventing mutual fund rules in order to engage in prohibited mutual fund “market timing” and “late trading.” “Market timing” refers to the practice of short term buying and selling of mutual fund shares in order to exploit inefficiencies in mutual fund pricing. “Late trading” refers to the practice of placing orders to buy or sell mutual fund shares after the close of the market at 4:00 p.m. EST, but paying the price as of the 4:00 p.m. EST close.

“Late trading” typically enables the trader to gain an advantage by capitalizing on news and information that occurs after 4:00 p.m. Otherwise put, the late trader profits from market events that occur after the 4:00 p.m. EST market close, but that are not reflected in that day’s closing price. Sharma and Wadhwa also are alleged to have conspired to cover-up late trading activity and to mislead the SEC with respect to the time that Geek Securities received certain trade orders, by creating false documentation as to the time those orders were received. In addition, Sharma and Wadhwa face eight counts of securities fraud, as alleged in counts 29 through 36 of the Second Superseding Indictment, relating to their actions in furtherance of this scheme.

The Second Superseding Indictment, in addition to the foregoing, charges Kerns, Sharma, and Hodge with nine separate counts of securities fraud, as set forth in counts 2 through 10 of the Second Superseding Indictment, in violation of Title 15, United States Code, Sections, 78j(b) and 78ff(a), Title 17, Code of Federal Regulations, Section 240.10b-5, and Title 18, United States Code, Section 2. These defendants are charged with using manipulative devices in connection with the purchase and sale of securities and also employed schemes to defraud members of the investing public and made untrue statements of material facts. Kerns, Sharma, and Hodge also face eight separate counts of wire fraud, as alleged in counts 11 to 18 of the Second Superseding Indictment, in violation of Title 18, United States Code, Sections 1343 and 2. As alleged, the defendants transmitted written and oral communications for the purpose of executing their “stock loan deals” and other similar “financing agreements” scheme. Kerns, as alleged in count 19 of the Second Superseding Indictment, faces a money laundering charge relating to a $200,000 wire transfer, in violation of Title 18, United States Code, Sections 1957 and 2.

Sharma and Hodge, in addition to the conspiracy charges mentioned above, are alleged to have conspired to sell unregistered securities, in violation of Title 15, United States Code, Sections 77e(a) and (c) and 77x, and also face seven counts relating to unregistered securities sales, in violation of Title 77e(a) and (c), 77x, and Title 18, United States Code, Section 2.

If convicted, the defendants face a statutory maximum term of twenty (20) years’ imprisonment as to each count of securities fraud and wire fraud in which they are charged, and a statutory maximum term of five (5) years’ imprisonment as to each conspiracy count in which they are charged. Sharma and Hodge face a maximum term of five (5) years’ imprisonment on each sale of unregistered securities count. The defendants face fines if convicted on any of the charged counts.

Mr. Jiménez commended the investigative efforts of the Federal Bureau of Investigation, the United States Securities and Exchange Commission, the Palm Beach Police Department, and the State of Florida, Division of Financial Regulation. This case is being prosecuted by Assistant United States Attorney Emalyn H. Webber and Special Assistant United States Attorney James M. Fay.