Author: Michael Goode

Yesterday the SEC sued four promoters for manipulative trading in marijuana stocks and the Department of Justice joined the fun with a criminal case against three of the four. First I address the more serious criminal charges (see DoJ press release). The criminal charges relate to only one stock: ISM International (ISML).

 Three men who allegedly manipulated penny stocks, and then laundered the proceeds by purchasing precious metals, were charged today in U.S. District Court in Tacoma with conspiracy to commit securities fraud and conspiracy to launder monetary instruments, announced U.S. Attorney Jenny A. Durkan.  MIKHAIL GALAS, 24, of Vancouver, Washington was arrested in Long Beach, California after he arrived on a flight from Portland, Oregon.  He will make his initial appearance in U.S. District Court in Los Angeles.  CHRISTOPHER MROWCA, 24, was arrested in Bradenton, Florida and will make his initial appearance in Tampa.  ALEXANDER HAWATMEH, 23, of Salem, Oregon is incarcerated in Oregon on an unrelated charge and will appear in federal court at a later date.  In addition to the arrests, searches were conducted in Vancouver, Washington, Bradenton, Florida, Salem, Oregon and Boulder, Colorado.

 

Below is the criminal complaint against those three individuals:

USA v. Mrowca Et Al Doc 1 Filed 01 Aug 14 by Shannon Coleman

Of note: Christopher Mrowca controls Money Runners Group LLC, a scummy and generally ineffective stock promoter. Money Runners has their own InvestorsHub messageboard and website. Alexander Hawatmeh is a former member of Worthmore Investments LLC, the company that runs the StockHaven stock promotion and stock chat website (at least according to statements on the Stockhaven website). [Edited 2017-7-25: removed dead links to Stockhaven website (which has been defunct for years) and removed the names of others who were involved with Stockhaven who were not named in the above complaint. Also, I should note that Stockhaven/Worthmore were not mentioned in the SEC or criminal complaints.]

The SEC complaint includes five stocks, including PHOT and HEMP from early this year. It also includes a fourth individual, Tovy Pustovit:

Defendant Pustovit, age 20, is a resident of Vancouver, Washington. Pustovit was
5 the registered owner of a stock promotion website called “Explosive Alerts” from August 2012,
6 when the site was created, until August 2013.

 

Excerpt from SEC press release:

The SEC’s complaint filed in federal court in Tacoma, Wash., charges the following individuals:

• Mikhail Galas, a stock promoter who lives in Vancouver, Wash.
• Alexander Hawatmeh, a member of Worthmore Investments LLC, which owns a stock promotion website called stockhaven.com.  He formerly lived in Vancouver and currently resides in Lincoln City, Oregon.
• Christopher Mrowca, a stock promoter who operates Money Runners Group LLC, which has an affiliated stock promotion website called MoneyRunnersGroup.com.  He lives in Bradenton, Fla.
• Tovy Pustovit, who owns a stock promotion website called Explosive Alerts.  He also lives in Vancouver.

 

See the SEC complaint (PDF).  The most profitable of all the stocks mentioned in the suits is RVDO:

142. On March 5, 2014, there was a promotion of RVDO over the Internet claiming
6 that RVDO would trade at $2 per share. The closing price of RVDO on March 4, 2014 was $.06
7 per share. This claim was misleading because there was no business development at RVDO that
8 would justify such a rise in price.
9 143. A. Hawatmeh had prior knowledge of the RVDO promotion and its timing.
10 144. Between 9:30 AM and 09:52 AM Eastern Time on March 5, 2014, A. Hawatmeh
11 sold approximately 3.23 million shares of RVDO common stock at prices ranging from $.28 per
12 share to $.90 per share.
13 145. A. Hawatmeh’s average selling price per share on March 5, 2014 was
14 approximately $.4375 per share, almost an eightfold increase over his average purchase price per
15 share.
16 146. A. Hawatmeh’s gross profits from trading RVDO between February 7, 2014 and
17 March 5, 2014 were over $1.23 million.

Perhaps the most interesting of all the promotions though are HEMP and PHOT, because they were very liquid during the period the accused were actively trading the stock. First, the details of PHOT:

Trading in PHOT
90. From January 9 to January 14, 2014, there was an Internet promotion of PHOT as part of a broader promotion of several marijuana-related stocks.
91. During that promotion, Mrowca and Galas traded approximately 6.4 million shares of PHOT common stock, and during and leading up to the promotion engaged in manipulative trading designed to increase the price and volume of PHOT common stock.
92. From January 2, 2014 through January 14, 2014, Mrowca engaged in wash trades of PHOT common stock and also engaged in matched orders of PHOT common stock with Galas

It is important to note that the defendants bought HEMP after it had already had its first run up to a high of just over $0.08 from under $0.02 at the beginning of 2014 — they started buying on January 23rd when the price was about $0.05. Even if they had not allegedly engaged in manipulative trading they likely would have made a lot of money.

Trading in HEMP
117. A. Hawatmeh, Galas and Mrowca began accumulating HEMP common stock
through market purchases on January 23, 2014. Between January 23, 2014 and February 12,
2014, A. Hawatmeh, Galas, and Mrowca bought and sold approximately 41.7 million shares of
HEMP common stock.
118. During the period from January 24 through February 12, 2014, HEMP was actively promoted on the Internet.
119. For example, on February 6, 2014, one Internet tout claimed that HEMP could reach “a REAL Possible Gain of OVER 2900%.”
120. During the promotion, A. Hawatmeh, Mrowca and Galas engaged in manipulative wash trades and matched orders of HEMP common stock.
121. The total trading volume for HEMP common stock in the A. Hawatmeh, Mrowca,and Galas accounts during this period was approximately 83 million shares.

 

 

Disclaimer: I have no position in any stock mentioned above. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Again this is a late post. This happened on July 14th. This story received a lot of attention because one of the men charged criminally, AJ Discala, is famous. See the Dealbook article about the case.

SEC press release
SEC complaint
Department of Justice press release

A ten-count indictment was unsealed this morning in federal court in Brooklyn, New York, against seven defendants, Abraxas J. Discala, also known as “AJ Discala,” the Chief Executive Officer of OmniView Capital Advisors LLC (“OmniView”); Marc Wexler, the Managing Director of OmniView; Ira Shapiro, the Chief Executive Officer of CodeSmart Holdings, Inc. (“CodeSmart”), a publicly traded company; Matthew Bell, a registered broker and investment adviser representative; Craig Josephberg, a registered broker; Kyleen Cane, an attorney; and Victor Azrak, the Vice President and Director of Excel Corp., a publicly traded company. The charges include securities fraud, wire fraud and conspiracy to commit securities fraud, mail fraud and wire fraud in connection with the fraudulent market manipulation of four publicly traded companies—CodeSmart, trading under the ticker symbol ITEN; Cubed, Inc. (“Cubed”), trading under the ticker symbol CRPT; StarStream Entertainment Inc. (“StarStream”), trading under the ticker symbol SSET; and The Staffing Group, Ltd. (“Staffing Group”), trading under the ticker symbol TSGL. In addition, the government restrained Discala’s residence in Norwalk, Connecticut, worth over $1 million, and seized a dozen bank and brokerage accounts containing criminal proceeds.

…

As alleged in the indictment and other court filings, between October 2012 and July 2014, the defendants, together with others, agreed to defraud investors and potential investors in four public companies: CodeSmart, Cubed, StarStream and Staffing Group (collectively, the “Manipulated Public Companies”) by artificially controlling the price and volume of traded shares in the Manipulated Public Companies through, among other things: (a) false and misleading press releases; (b) false and misleading SEC filings; (c) fraudulent concealment of the defendants’ and their co-conspirators’ ownership interests; (d) engineering price movements and trading volume in the stocks; and (e) unauthorized purchases of stock in accounts of unwitting investors.

Here is the chart of one of the allegedly manipulated stocks, Codesmart:

See the criminal complaint:

USA v. Discala Et Al Doc 1 Filed 15 Jul 14 by Shannon Coleman

Disclaimer: I have no position in any stock mentioned above. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

2014 continues to be a banner year not just for the SEC but for criminal prosecutions of stock promoters for market manipulation. This case was filed almost a month ago so I apologize for the delay but wanted to make sure I posted it on this blog. See the SEC’s press release about its lawsuit and as well as the Department of Justice’s press release about the arrests.

Excerpt from DOJ PR:

The criminal cases charged the following individuals with conspiracy to commit securities fraud: Andrew J. Affa, 30, of Huntington Station, N.Y.; Michael A. Affa, 34, of Toms River, N.J.; Mitchell H. Brown, 48, of Long Branch, N.J.; Christopher R. Putnam, 37, of Charleston, S.C.; and Christopher G. Nix, 34, of Charleston, S.C. Andrew Affa, Michael Affa and Brown were also charged with conspiracy to commit wire fraud. The SEC suit, likewise, charges all five individuals with securities fraud.

Andrew Affa, Michael Affa, and Brown are scheduled to appear in federal court in Boston on July 15 and Putnam and Nix are scheduled to appear on July 31.

It is alleged that in January and February 2014, the defendants attempted manipulation of Amogear’s stock was caught in real-time by a federal undercover operation. The SEC suspended trading in the securities of Amogear on Feb. 10, 2014, as the attempted manipulation of its stock was underway. According to the criminal and SEC charges, prior to the suspension of trading in the stock, the defendants planned and implemented a scheme to create a false appearance of an active market in the stock, followed by a false media campaign designed to increase the price of the stock, knowing that Amogear was a shell company without any real operations. The defendants allegedly planned to sell the stock into the market at artificially inflated prices from which they would profit. What the parties did not know was that Amogear was controlled by the FBI and used by the FBI as a vehicle to obtain evidence of their attempt to manipulate the market.

One of the most interesting things about this case is that the FBI’s confidential informant (CI) controlled the stock that was the subject of the alleged conspiracy. From the SEC complaint:

2. Amogear is a Nevada corporation based in Boston, Massachusetts. Amogear’s
stock is quoted under the ticker symbol “AMOG.” Amogear was listed and could trade
nationally on the over-the-counter (“OTC”) securities markets. Amogear was acquired and
controlled by the CI, who then worked in conjunction with the FBI in the undercover
investigation. Amogear only existed as a shell company, which is a company that can serve as a
vehicle for business transactions by other related companies or entities without itself having any
real assets or operations.

Christopher “Gabe” Nix’s Global Marketing Media LLC ran a number of websites and they generally one-day promotions so their pumps were always good to short. See the Promotion Stock Secrets article on Global Marketing Media. Some of the websites of Global Marketing Media LLC:

Pennystockpros.net
Pennystockplayers.net
TheStockScout.com
PennyStockClub.net
PennyStockCircle.com
123StockAlerts.com

Andrew Affa owned Pennypickalerts.com (it has since been sold to another promoter).

Disclaimer: I have no position in any stock mentioned above. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

 

Trading in Green and Hill Industries (GHIL) was suspended by the SEC this morning prior to the market open. This is the twelfth suspension of a marijuana-related stock this year. Here is a list of marijuana stocks that have been suspended by the SEC this year: GHIL,SKTO, AEGY, WBXU,FRTD, FSPM, PHOT,  CDFT, PTOG, AVNE, CBGI, and CANN. This suspension comes just four days after a cease trade order by the British Columbia Securities Commission

I blogged about the promotion of Green and Hill Industries back on June 4th. Trading will resume on GHIL at the market open on Tuesday, August 19th.

 

SEC trading suspension press release (PDF)

SEC trading suspension order (PDF)

The reasoning for the suspension was the standard boilerplate:

The Commission temporarily suspended trading in the securities of GHIL because of questions that have been raised about the accuracy and adequacy of publicly disseminated information concerning, among other things, the company’s operations.

The Commission acknowledges FINRA’s assistance in this matter.

 

Disclaimer: I have no position in any stock mentioned. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Randy Hamdan, a stock promoter currently being sued by the SEC, has sued SeekingAlpha author Matt Finston for libel. See the article on SeekingAlpha that led to this. The case was filed in the Eastern District of Michigan; the case number is 2:14-cv-12949-GAD-MKM. I saved a copy of the complaint and all exhibits (PDF). Finston is asking for support in defending against this suit. Below is an excerpt from the complaint:

8. Just a few examples of Defendant’s false and defamatory statements regarding Plaintiff are as follows: a. That Plaintiff has a “fraudulent past”. (See Exhibit A).
b. That Plaintiff and HH Group, LLC were issued 420 Million shares of stock in Creative Edge Nutrition Inc. (ticker symbol FITX) for $0.001 per share. (See Exhibit B).
c. That “Vgpr didn’t survive Hamden”, implying that Plaintiff caused Vega Biofuels Inc. to fail or go out of business. (See Exhibit C).
d. That “DNAX is another”, implying that Plaintiff caused DNA Brands, Inc. to fail or go out of business. (See Exhibit D).
e. That Plaintiff “dumped” FITX stock “into the promotion three years ago”. (See Exhibit E).
f. That Plaintiff is “a serial pump and dump and he’s been charged by the SEC for it.” (See Exhibit F).
g. That Plaintiff is “a known pump and dump”. (See Exhibit G).
h. That Plaintiff is “an investor relations ponzi”. (See Exhibit H).
…
j. That Plaintiff is “using more profiles to harass and intimidate and pump”. (See Exhibit J).

Below I examine each of these claims. Do note that I am not a lawyer so my opinion may not be the most informed on whether Hamdan has a good case or not.

a. “That Plaintiff has a “fraudulent past”.

While my lawyers would not like me to use these words if there has not been a criminal fraud conviction, the actions that Randy Hamdan is alleged to have engaged in by the SEC clearly fit the common definition of fraud even if he was not criminally charged with fraud (highlighting mine; excerpted from SEC legal complaint against Hamdan):

Randy A. Hamdan (“Hamdan”) began the scheme by creating a market with manipulative purchases and sales of the securities of CompuSonics in September 2009 through his wholly owned entity, Oracle Consultants, LLC (“Oracle Consultants”), and continued it with a marketing campaign that began in early October 2009 and culminated on October 19, 2009 with the issuance, by an international news distribution service, of a false press release regarding the company’s purported positive business developments

If Finston had used the modifier “allegedly” (because Hamdan has not settled or lost the case yet), his statement would be substantially true. If Hamdan does settle the SEC suit or loses it then he would have no cause for action on the basis of that statement.

b. That Plaintiff and HH Group, LLC were issued 420 Million shares of stock in Creative Edge Nutrition Inc. (ticker symbol FITX) for $0.001 per share. (See Exhibit B).

This is a true fact. Below are excerpts from the 2013 FITX annual report list of share issuances:

Shareholder | Number of shares issued | price
HH Group LLC. 3/4/2013 32,000,000 0.001 conversion Restricted
HH Group LLC. 3/4/2013 28,000,000 0.001 conversion Restricted
HH Group 5/5/2013 36,500,000 0.001 Paid debt Restricted
HH Group 5/8/2013 10,000,000 0.001 services Restricted
HH Group 5/15/2013 72,000,000 0.001 Paid line of credit off Restricted
HH Group LLC. 7/9/2013 52000000 0.001 Paid debt Restricted
HH Group LLC. 7/9/2013 10000000 0.001 Paid debt Restricted
HH Group LLC. 7/9/2013 5000000 0.001 Paid debt Restricted
HH Group LLC. 7/9/2013 20000000 0.001 Paid debt Restricted
Rhamdan 8/21/2013 10204081 0.001 Paid debt Restricted
Rhamdan 8/21/2013 10204081 0.001 Paid debt Restricted
Rhamdan 8/21/2013 20408163 0.001 Paid debt Restricted
Rhamdan 9/6/2013 50000000 0.001 Paid debt Restricted
HH Group, LLC 9/6/2013 10204081 0.001 Paid debt Restricted
HH Group, LLC 9/6/2013 10204081 0.001 Paid debt Restricted
HH Group, LLC 9/6/2013 40816326 0.001 Paid debt Restricted

c. That “Vgpr didn’t survive Hamden”, implying that Plaintiff caused Vega Biofuels Inc. to fail or go out of business. (See Exhibit C).

Vega Biofuels (VGPR) is still in business. However, if Finston meant that the stock price declined as a result of Hamdan, then his statement is correct. Selling by shareholders into paid promotions causes stocks to fall. Hamdan’s company paid for some promotion of VGPR. Example below:

StockRockandRollLLC® has been compensated three thousand cash for one-day coverage on VGPR by HH Group LLC. [excerpt from email received from stockloackandload.com.com on 4/20/2011]

d. That “DNAX is another”, implying that Plaintiff caused DNA Brands, Inc. to fail or go out of business. (See Exhibit D).

As with Vegas Biofuels, it is clear that while the company didn’t go out of business, the stock price dropped substantially, at least partially as a result of shareholders selling into the stock promotion that was at least partly paid for by Hamdan’s company HH Group LLC. See excerpt from a promotional email below:

Market Wrap Media, Inc. accepts compensation from companies for advertising services.
  Market Wrap Media, Inc. has been contracted to receive $2,500 by a third party (HH Group LLC) for 1 day of advertising service for DNAX. [excerpt from email received from pennystocknewspaper.com on 11/30/2011]

e. That Plaintiff “dumped” FITX stock “into the promotion three years ago”. (See Exhibit E).

This is the point of a stock promotion: to enable large shareholders to sell shares. It is a true fact that Hamdan owned (and continues to own) millions of shares and that his company HH Group LLC paid for numerous promotional emails promoting FITX back in 2012. Unless Hamdan and his companies did not sell any shares during the promotions this is a substantially true statement. While 2012 is only two years ago and not three, it is close enough for the statement to be substantially true and thus not libelous. Below is an excerpt from just one of many promotional emails on FITX I received in 2012, paid for by Hamdan’s HH Group LLC:

We expect to be compensated fifteen thousand dollars by a non-affiliate third party, HH Group, LLC, for a one week advertisement of Creative Edge Nutrition, Inc. [excerpt from email received from ExplosiveOTC.com on 110/1/2012]

f. That Plaintiff is “a serial pump and dump and he’s been charged by the SEC for it.” (See Exhibit F).

This is a true fact: Hamdan and his companies have paid for stock promotion on many companies (more than just the three that Finston mentioned). Paying for stock promotion and then selling shares is the very definition of a pump and dump. The SEC sued Hamdan for his role in the pump and dump of Compusonics in 2009:

FACTS Fraudulent Stock Marketing Campaign 8. From September 27, 2009 through October 19, 2009, Hamdan carried out a fraudulent marketing campaign designed to increase the trading price of CompuSonics’ stock. In substance, the fraudulent marketing campaign was to the effect that CompuSonics would soon release information concerning a settlement of a patent infringement matter that would “reward” shareholders. Hamdan caused the dissemination of materially false information concerning CompuSonics by means of stock newsletters, a website, a message board, and a press release. To facilitate the dissemination of the false information and conceal his role in the scheme, Hamdan employed an anonymous email service, a proxy server, and fictitious contact information.

g. That Plaintiff is “a known pump and dump”. (See Exhibit G).

This is a true fact (if you ignore Finston’s abuse of the English language): Hamdan’s companies have paid for multiple stock promotions.

h. That Plaintiff is “an investor relations ponzi”. (See Exhibit H).

This statement is meaningless hyperbole but even if it was libelous it was not made by Finston — he simply linked to a publicly accessible accusation by another individual.

[i. I have removed this complaint from this blog post and have removed my analysis of it. I believe that Finston made this comment to Hamdan and no one else saw it and it is thus not actionable. There is no need for me to further publicize it.]

j. That Plaintiff is “using more profiles to harass and intimidate and pump”. (See Exhibit J).

At least according to one message board poster I trust, Randy Hamdan has sent some nasty private messages to people and it would be reasonable to believe that the purpose of those messages was to intimidate. Oh, and meet “Michael Cheeseman” who appears to be Randy Hamdan.

So after looking at all the claims made by Randy Hamdan I conclude that his case is very weak. I may be wrong about that as I am not an expert.

Disclaimer: I have no position in any stock mentioned although I have traded FITX in the past. I have donated $400 to support Finston’s defense and I am in talks with him to further support his defense. This disclaimer will not be updated unless I update the blog post. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

On Friday, July 11th early in premarket (prior to 8AM Eastern) shares of CYNK were halted by FINRA and given a U3 “exraordinary event” halt code. That would be only the second ever FINRA halt of an OTC stock (following the halt of BOPT in 2013). However, the halt code was changed after 9:00AM to indicate that trading in the stock was suspended by the SEC. It appears that the FINRA halt was put out to prevent premarket trading in the stock in case the SEC suspension did not go into effect in time. The impetus for the halt and then trading suspension was of course the meteoric rise of the stock following wash trading, manipulated run-up, and then massive short-squeeze. I remind the reader that it is the SEC’s position that manipulating a stock to create a short squeeze is illegal market manipulation and they made that clear in their 2012 lawsuit against Harbinger Capital Partners.

SEC trading suspension release (PDF)
SEC trading suspension order (PDF)

CYNK will reopen for trading at the market open on Friday, July 25th. The reason for the trading suspension is as follows:

The Commission temporarily suspended trading in the securities of CYNK because of
concerns regarding the accuracy and adequacy of information in the marketplace and
potentially manipulative transactions in CYNK’s common stock.

There have been a few good articles about the CYNK manipulation, which has been unique in that it was not accompanied by any sort of paid promotion.

Best articles:

CYNK The Aftermath — Putting together more pieces to the puzzle (Promotion Stock Secrets)
Cynk Technology Is The New Scheme In Town (SeekingAlpha)

Decent articles:

Here’s What Happened When We Tried Calling The CEO Of CYNK (Business Insider)
JAVIER ROMERO: I’m Not Actually The CEO Of CYNK And I Never Received One Dollar In Compensation (Business Insider)
Here’s The Real Story Behind The Founding Of CYNK, The Mysterious Penny Stock With The Surge That Shocked The Internet (Business Insider)

Cynk Makes the Case for Buying Friends, Naked Short Selling (Bloomberg View)

Cynk Short Squeeze Blamed by Trader for Costing Him Job (Bloomberg)

Searching for Cynk: The $6 Billion Penny-Stock Debacle, From Belize to Las Vegas (Bloomberg)

While I currently have no position in CYNK, I had actively traded it early on and managed to lose money overall in June because of my poor trading in CYNK. Below is one of my larger losses (net I think I lost about $13k on it)

Disclaimer: I have no position in any stock mentioned. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.