August 7 2012 – LawFuel.com – American Law News –
SANTA ANA, California – A man who resided in Long Beach before he fled the country during an investigation faces up to five years in prison after admitting this morning that he orchestrated a “pump-and-dump” stock scheme to generate demand for a penny stock issued by a sports drink company founded by Notre Dame football legend Daniel “Rudy” Ruettiger.
Chad Peter Smanjak, 38, pleaded guilty this morning in United States District Court to one count of conspiring to commit securities fraud. As part of the plea deal, Smanjak will be required to pay full restitution to the more than 250 victims of the scheme, although the amount of restitution has yet to be determined.
United States District Judge James V. Selna is scheduled to sentence Smanjak on December 12, at which time he will issue an order on restitution.
Smanjak was arrested in January in Johannesburg, South Africa by special agents with U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI) Attaché office in Pretoria and members of South Africa’s Police Services. Smanjak waived extradition and voluntarily returned to the United States last Friday to face the charges.
“The Rudy drink line featured flavors with names like ‘Blue Fuel,’ but what fueled the company’s public offerings was fraud,” said United States Attorney André Birotte Jr. “Investor fraud schemes like this pump-and-dump scam did more than leave a bad taste in investors’ mouths – the scheme caused real pain and suffering to the victims.”
This pump-and-dump scheme defrauded investors who were purchasing stock for Rudy Nutrition, a sports drink company touted by Ruettiger and others. The investigation found that Smanjak and his co-conspirators obtained millions of shares of Rudy Nutrition stock (RUNU and RUDN), then “pumped” the stock by issuing false and misleading press releases and by trading shares among themselves. As a result, Smanjak and the others artificially increased the trading volume of RUNU stock and generated the appearance of market demand.
As part of the scheme, Smanjak and the others then “dumped” approximately 600 million shares of RUNU stock on the market, realizing a profit of more than $5 million. Smanjak paid his trader with a $400,000 Lamborghini Murcielago, which was subsequently seized by HSI.
“It’s a long-awaited and welcome day for the hundreds of unwitting stockholders who were duped. Schemes like this not only exact a heavy toll on individual investors, they also undermine public confidence in our nation’s financial system, which is why HSI will continue to vigorously pursue and seek justice for those involved,” said Claude Arnold, special agent in charge for HSI Los Angeles.
As part of the scheme, Smanjak worked with others to have more than 600 million shares of RUNU stock issued to several Panamanian companies he controlled. These nominee companies then sold most of the RUNU shares over a five-month period in 2008 until the U.S. Securities and Exchange Commission halted trading of RUNU shares. With money sitting in the brokerage accounts of the Panamanian companies, Smanjak directed others to wire proceeds of the stock sales from U.S. brokerage accounts to Panamanian banks, then back to United States accounts he and his co-conspirators controlled.
“Mr. Smanjak’s illegal scheme generated a profit of more than $5 million. He then engaged in money laundering transactions involving over a million dollars, all of which were designed to conceal the proceeds of his scheme. Mr. Smanjak’s fraudulent scheme hurt the small time investor. Today’s guilty plea reinforces IRS – Criminal Investigation’s commitment to unite with our law enforcement partners to disrupt investment schemes, forfeit assets obtained with illegal gotten gains and prosecute promoters who commit crimes for their own personal financial gain,” said Leslie P. DeMarco, Special Agent in Charge of IRS – Criminal Investigation’s Los Angeles Field Office.
Ruettiger, who was the subject of the 1993 movie “Rudy,” served as the CEO of Rudy Nutrition. The company purported to sell health-conscious beverages as an alternative to high-sugar soda and sports drinks. On November 14, 2008, the Securities and Exchange Commission revoked the registration of each class of registered securities of Rudy Nutrition for failure to make required periodic filings with the Commission. In December 2011, the Securities and Exchange Commission filed a complaint against Rudy and 12 others based upon the Rudy Nutrition scheme (see: http://www.sec.gov/news/press/2011/2011-268.htm). In settling the SEC’s charges, Ruettiger agreed to pay $382,866, and he was barred from serving as an officer or director of a publicly traded company.
Smanjak’s guilty plea caps a five-year probe by HSI and IRS – Criminal Investigation, which received substantial assistance from the Securities and Exchange Commission.
CONTACT: Assistant United States Attorney Christine S. Bautista
Assistant United States Attorney Andrew Stolper