In a major sting operation by a joint task force involving the Securities and Exchange Commission’s South Florida Regional Office, the U.S. Attorney’s Office in Miami and the FBI, an alleged scheme involving several penny stock promoters and several CEOs of microchip companies has been exposed, with fraud charges filed against the principals.
Eric I. Bustillo, regional director of the SEC, in an interview, said that FBI agents busted the alleged racket by posing variously as a corrupt broker, a corrupt pension fund manager and a corrupt business associate of the pension fund trustee.
Bustillo says that by taking this approach, "we were able to conduct the investigation and bring the charges without any investors being hurt.”
The agent posing as a pension fund manager pretended to be ready to buy stock in the microcap companies in exchange for a bribe. The agent posing as the broker offered to buy microcap shares on behalf of investors using discretionary accounts in return for a bribe.
Charged in the case are Douglas Newton, CEO of Real American Brands, Donald Klein, president and CEO of KCM Holdings Corp., Thomas Schroepfer, president and CEO of SmokeFree Innotec, Inc., and Charles Fuentes, allegedly a promoter of that company’s stock. The men are charged with allegedly paying kickbacks to sell or promote their stock.
Also charged is Brian Gibson, a promoter who is alleged to have engaged in a “fraudulent” scheme to use a website and blast emails to manipulate share prices of microchip companies in what the SEC calls a “pump and dump” operation.
Bustillo says the men charged face both SEC charges and federal fraud charges brought by the U.S. Justice Department.
This case, Bustillo said, is the result of the work of a new Microchip Fraud Task Force set up in the Florida region last December. “We have a lot of this kind of thing down here in Florida,” he said, which led to creation of the multi-agency task force.
The latest charges follow a series of cases filed in the period of October through December last year, during which time the SEC sued more than a dozen companies and penny stock promoters who were charged with similar stock manipulation schemes.
“The defendants charged today were intent on making profits for themselves while defrauding others,” charges Bustillo. “The SEC will continue to aggressively pursue those who engage in microcap stock fraud schemes.”
The FBI sting operation was fairly elaborate.
For example, in the phony pension fund case, one agent posed as the corrupt trustee of a phony pension fund while a second agent posed as a business associate and owner of a fake consulting company who offered to conceal the kickbacks.