Washington, D.C., Feb. 12, 2009 (LAWFUEL) – The Securities and Exchange Commission today charged George Georgiou of Toronto, Ontario, with manipulating the market in four separate microcap stocks – Avicena Group, Inc., Neutron Enterprises, Inc., Hydrogen Hybrid Technologies, Inc., and Northern Ethanol, Inc.
The SEC alleges that Georgiou, who controlled the publicly traded stock of each company, manipulated the market from 2004 through September 2008 to artificially inflate each company’s stock price or create the false appearance of an active and liquid market. Georgiou used many nominee accounts that he either directly or indirectly controlled at offshore broker-dealers and banks, and he used a variety of manipulative techniques including matched orders and wash sales. Georgiou made at least $20.9 million in ill-gotten gains from his manipulation schemes.
Avicena Group is headquartered in Palo Alto, Calif., and the other three companies are headquartered in Canada. Neutron Enterprises has since changed its name to Stock-Trak Group, Inc. The SEC also entered an order today suspending trading in the securities of the four companies. The U.S. Attorney for the Eastern District of Pennsylvania today separately announced criminal charges against Georgiou involving the same conduct.
“As alleged in our complaint, Georgiou orchestrated four separate fraudulent schemes using a variety of techniques that artificially inflated the value of the companies’ stocks. By engaging in these manipulations, he was able to reap millions in illegal profits,” said Daniel M. Hawke, Director of the SEC’s Philadelphia Regional Office. “Cross-border market manipulation will not be tolerated in the U.S. trading markets. Today’s enforcement action demonstrates that the Commission will act aggressively to police the conduct of those who seek to manipulate our markets, even when they act from outside the United States using offshore brokers and banks.”
The SEC’s complaint, filed in federal district court in Philadelphia, alleges that each of the manipulation schemes followed a similar pattern. Georgiou controlled all or a large percentage of the unrestricted, publicly-traded stock of each company. He had influence with management, access to confidential shareholder lists, and was able to coordinate the release of company news with his illegal trading. In conversations and through his own e-mails, Georgiou admitted his intent to manipulate each of the stocks, and gave directions to his nominees.
According to the SEC’s complaint, Georgiou used many nominee accounts at offshore broker-dealers in Canada, the Bahamas, Turks and Caicos, and other locations. Georgiou asserted direct control over some accounts by issuing trading and wiring instructions directly to broker-dealers, and indirect control over others by communicating trading instructions to nominees who, in turn, executed Georgiou’s trading instructions. Through these accounts, Georgiou used a variety of manipulative techniques in each scheme, including controlling the trading volume through promises of profits to nominees; executing or directing matched orders, wash sales, or other prearranged trades; marking-the-close; and paying illegal kickbacks in exchange for purchases.
The SEC’s complaint alleges that Georgiou’s manipulation of Hydrogen Hybrid Technologies was in the nature of a pump-and-dump scheme in which Georgiou arranged and paid for the publication of a promotional mailer sent to seven million U.S. addresses. Georgiou coordinated manipulative trading with the publication of the mailer, and ultimately received more than $3.8 million when he dumped his shares into the artificially inflated market. The SEC’s complaint also alleges that part of Georgiou’s manipulation of Northern Ethanol stock involved the payment of an illegal kickback to a person Georgiou believed was a corrupt registered representative, but who was in reality an undercover FBI agent.
The SEC alleges that Georgiou also defrauded two offshore broker-dealers by obtaining margin loans using the manipulated stocks as collateral, further funding his manipulations and allowing him to withdraw cash that he wired to offshore bank accounts. Georgiou’s total ill-gotten gain from his stock purchases in, and cash withdrawals from, the fraudulently obtained margin accounts was at least $17.1 million.
The SEC’s complaint alleges violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks a permanent injunction, disgorgement of ill-gotten gains, together with prejudgment interest, financial penalties, and a penny stock bar against Georgiou.
The Commission acknowledges and appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of Pennsylvania and the Federal Bureau of Investigation in connection with this matter.