27 July 2004 Read today’s legal news + law announcements on LAWFUEL
Marcos Daniel Jiménez, United States Attorney for the Southern District of Florida; and Michael S. Clemens, Acting Special Agent in Charge, of the Federal Bureau of Investigation, announced today that defendant, Lawrence W. Gallo, a former President and CEO of Uncommon Media Group, Inc. (“UMDA”), pleaded guilty to conspiracy charges alleged against him in two separate Indictments. Gallo pleaded guilty to one (1) count of a conspiracy to commit mail and wire fraud, in violation of Title 18, United States Code, Sections 1341, 1343, and 1349, and to commit securities fraud, 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, as alleged in a 2002 Indictment. Gallo also pleaded guilty to one (1) count of conspiracy to commit wire and mail fraud, in violation of Title 18, United States Code, Sections 1341, 1343, and 1349, as alleged in a 2004 Indictment. Gallo faces a maximum statutory sentence of five (5) years’ imprisonment on the 2002 conspiracy count, and a maximum statutory sentence of twenty (20) years’ imprisonment on the 2004 conspiracy count. Gallo also faces a maximum statutory fine of up to $250,000 on each count. Gallo’s sentencing hearing is scheduled for October 15, 2004, before United States District Judge Kenneth A. Marra.
UMDA, a Florida corporation with its principal place of business in New York City, purportedly developed, and began to market, CD-Rom’s containing advertising and entertainment content for insertion into magazines. Later, the company purported that it was in the business of monitoring music downloads on the internet. During the pendency of the original conspiracy, the common stock of UMDA was publicly traded in the United States on the over-the-counter market, but later moved to the pink sheets.
The 2002 Indictment is one of numerous indictments that resulted from a two-year, undercover investigation code-named Bermuda Short, designed to expose and prosecute those who attempt to engage in the fraudulent purchase and sale of stock of companies whose shares trade on the United States public markets. In this undercover operation, an undercover FBI agent (“FBI UCA”) posed as a corrupt securities trader employed by the United States-based representative of a fictitious foreign mutual fund (“the Fund”).
Two cooperating witnesses (collectively the “CWs”) also assisted in the undercover operation, posing as corrupt stock promoters who presented prospective stock purchase deals to the Fund. The FBI UCA, along with the CWs, presented themselves as having the ability to arrange for the fictitious Fund to pay millions of dollars for large blocks of stock owned by some of the Bermuda Short defendants and/or their companies at prices significantly above the actual market prices of the stocks. Gallo, according to the 2002 Indictment, is alleged along with his co-defendants, to have agreed to pay between $3.2 million and $4.5 million in an undisclosed kickback to the FBI UCA and others to induce the Fund to buy approximately 2,000,000 shares of overpriced UMDA stock for a total of between $8 million and $10 million. Gallo, according to the 2002 Indictment, also agreed to compensate brokers for artificially increasing the market price of UMDA stock.
The 2004 Indictment alleges that Gallo and a co-conspirator conspired to commit wire, mail, and securities fraud by soliciting individuals to invest monies in UMDA through the use of material misrepresentations and omissions of material facts concerning, among other things, the use of investors’ funds, investors’ expected returns, UMDA’s financial condition and its profitability, and the background of Gallo and his co-conspirator. Among other things, the conspirators solicited investors to purchase what were promised to be free-trading shares of UMDA stock, but later delivered to investors stock that was restricted and not freely tradeable; told investors that UMDA would be a $1 billion company within a year of December 2003, and would be a $5 billion company within three years of that date, despite the fact that UMDA lost money in every quarter since its inception; and that UMDA would book between $15 million and $20 million in revenue from Verizon Wireless in 2004, despite the fact that no such contract existed. Gallo also failed to disclose to investors the fact that he was named in the 2002 Indictment at the time that he was soliciting funds from them. The 2004 Indictment also alleges that the conspirators also instructed investors to wire funds to bank accounts in the names of UMDA, Gallo, and other entities and individuals associated with the conspirators.
Mr. Jiménez commended the investigative efforts of the Federal Bureau of Investigation, as well as the cooperative efforts of the Southeast Regional Office of the United States Securities and Exchange Commission and the Criminal Prosecution Assistance Group of the NASD. The case is being prosecuted by Assistant United States Attorneys David Buckner and Christopher Clark.