Two Arizona-based Scammers Charged for Misleading Spam and Fax Campaigns, Dumping Microcap Shares in Illegal Stock Distributions
Washington, D.C., Sept. 6, 2007 – LAWFUEL – The Legal Newswire – The Securities and Exchange Commission today announced a settled civil action against two Arizona-based scammers alleging their participation in an elaborate market manipulation scheme that involved unlawfully taking public seven microcap companies, inflating their share prices, and dumping millions of shares into the public market. The defendants, Mesa, Ariz.-based recidivist Michael Saquella (a.k.a., Michael Paloma), 47, and Scottsdale, Ariz.-based trader Lawrence Kaplan, 63, agreed to be permanently enjoined, barred from future penny stock deals, and to disgorge nearly $3 million in ill-gotten gains.
“Today’s filing demonstrates that the determination of our staff to bring recidivists to justice is at least the equal of any career criminal’s evasiveness,” said Linda Thomsen, director of the Commission’s Enforcement Division. “The staff understands the special danger posed by serial fraudsters.”
“What makes this case stand out is the intricacy of the scheme,” said Cheryl Scarboro, associate director in the Commission’s Enforcement Division. “These defendants were not only able to sneak these companies onto the public markets through the back door, they were able to manipulate those markets with old-fashioned pump-and-dump techniques. This case should make transfer agents, market makers, securities lawyers and others extra vigilant to guard against such scams.”
In a related criminal action, the U.S. Department of Justice announced today that Paloma and Kaplan have pleaded guilty in federal court in Alexandria, Virginia for their participation in stock manipulation schemes. On August 20, 2007, Paloma pleaded guilty to a criminal information charging him with one count of conspiracy to commit securities fraud and one count of electronic mail fraud. On July 25, 2007, Kaplan pleaded guilty to a criminal information charging him with one count of conspiracy to commit securities fraud. Each of these charges carries a maximum sentence of five years in prison. The written plea agreements and supporting documentation for both defendants were unsealed yesterday.
The Commission’s complaint, filed in U.S. District Court for the Eastern District of Virginia, alleges that, over the past four years, Paloma repeatedly passed himself off to principals of private, cash-strapped companies as a legitimate financier, persuading company principals to issue to Paloma-affiliated entities large controlling blocks of stock. These issuances, purportedly made under federal registration exemptions, were part of a plan to circumvent the public offering registration requirements of the federal securities laws. In furtherance of this plan, Paloma obtained bogus opinions of counsel that permitted transfer agents to issue share certificates to his entities free of legends restricting resale. In fact, the entities Paloma controlled were not bona fide investors, but merely conduits through which he and Kaplan effected unregistered public distributions of stock.
The Commission further alleges that, once his entities acquired the “free-trading” shares, Paloma then coordinated manipulative public trading – carried out, in part, by Kaplan – which artificially inflated the value of each issuer’s stock. With the appearance of an active trading market established, Paloma coordinated the dissemination of millions of false and/or misleading blast fax and spam e-mails touting the companies’ shares. Ultimately, Paloma and Kaplan dumped stock of the microcap issuers into the public market at the artificially inflated prices, realizing profits of $2,155,000 and $677,000, respectively.
After Paloma and Kaplan liquidated their holdings of each company’s stock, they ceased trading and the market for the shares collapsed. The Commission alleges that Paloma and Kaplan carried out versions of this scheme using the shares of Courtside Products, Inc., Latin Heat Entertainment, Inc., Xtreme Technologies, Inc., PokerBook Gaming Corp., Commanche Properties, Inc., TKO Holdings Ltd. and Motion DNA Corp.
In the Commission’s action, Paloma has consented to the entry of a final judgment (1) permanently enjoining him from violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; (2) imposing a penny stock bar against him; and (3) directing that he disgorge $2,155,034 in unlawful profits, plus prejudgment interest of $364,265. Kaplan has consented to the entry of a final judgment (1) permanently enjoining him from violating Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; (2) imposing a penny stock bar against him; and (3) directing that he disgorge $677,632 in unlawful profits, plus prejudgment interest of $121,127.
In 2002, Paloma was civilly enjoined and ordered to pay disgorgement and a fine by the U.S. District Court for the District of Columbia after the Commission charged him with manipulating the share price of a microcap entertainment company by issuing false press releases claiming a lucrative Warner Brothers television deal.
The Commission acknowledges the assistance of the Federal Bureau of Investigation, the U.S. Attorney’s Office for the Eastern District of Virginia, the United States Postal Inspection Service, and the NASD (now known as the Financial Industry Regulatory Authority).