Three US men and one man living in France have pleaded guilty to charges related to a stock manipulation scheme that included sending out tens of millions of spam messages to pump up the stock value of 15 companies, the US Department of Justice said Thursday.
The four men cost investors more than US$20 million in their so-called pump-and-dump scheme, the DOJ said.
Michael Saquella, also known as Michael Paloma, 47, of Mesa, Arizona., pleaded guilty in US District Court for the Eastern District of Virginia in Alexandria on August 20. Lawrence J. Kaplan, 63, of Scottsdale, Arizona, pleaded guilty on July 25, in Alexandria to similar charges. Henry "Hank" J. Zemla, 38, of Harris Township, Michigan, also pleaded guilty in federal court in Alexandria on July 20.
The three defendants are scheduled to be sentenced between late November and early February.
Saquella pleaded guilty to a criminal information charging him with one count of conspiracy to commit securities fraud and one count of electronic mail fraud involving 15 publicly traded companies. Kaplan pleaded guilty to a criminal information charging him with one count of conspiracy to commit securities fraud involving 14 of these companies, and Zemla pleaded guilty to a criminal information charging him with one count of conspiracy to commit securities fraud involving one of the companies. The plea agreements for all three defendants were unsealed Thursday.
The scheme involved stocks from companies including eDollars, Xtreme Technologies, and PokerBook Gaming.
Justin Medlin, 26, of Paris, also pleaded guilty in federal court in Alexandria on August 20 to a criminal information charging him with one count of electronic mail fraud and one count of conspiracy to commit securities fraud and electronic mail fraud involving seven of the companies. Medlin's plea agreement was unsealed Thursday. He will be sentenced on November 30.
The maximum penalties for each of the fraud charges is five years in prison and a US$250,000 fine.
The stock manipulation schemes generally followed a similar pattern, the DOJ said. The defendants generally solicited small, privately held companies that needed to raise money. One of the defendants would offer to help the company raise significant money through the sale of the company's stock, and then the defendants would list the company's shares on the Pink Sheets, a price quotation system primarily used for trading small companies' stocks.
The group of defendants would then gain control of a majority of the stock of the company, the DOJ said.
The co-conspirators then engaged in deceptive and manipulative trading practices to boost the price and volume of the company's stock, the DOJ said. In some cases, members of the conspiracy encouraged investors to purchase companies' stock by giving the investors free-trading shares in return for buying blocks of shares at agreed-upon prices, thereby creating the illusion of trading volume and active investor interest.
In other instances, members of the conspiracy bought and sold shares of the companies' stock between and among themselves to give the appearance of investor interest, the DOJ said.
The co-conspirators also falsely manipulated the price and volume of each company's stock by making materially false and misleading statements in news releases and in spam emails distributed by Medlin and other spammers to tens of millions of US email addresses, in an effort to create artificial demand for the companies' stock, the DOJ said.
In related actions, the US Securities and Exchange Commission has filed civil charges against Saquella and Kaplan for their part in the schemes to manipulate the price and volume of the companies' securities.
Three other defendants, Steven P. Luscko, Gregory A. Neu and Brian G. Brunette, have pleaded guilty and have been sentenced in federal court in Alexandria for their roles in related stock manipulation schemes. Luscko and Neu were each sentenced to five years in prison and Brunette was sentenced to one year in prison.