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wallymac
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SEC, FBI lodge bribery charges in penny stock sting

By Steve Gelsi, MarketWatch
Last update: 3:05 p.m. EST Dec. 8, 2007Print E-mail RSS Disable Live Quotes
NEW YORK (MarketWatch) -- Federal regulators have charged several men caught in an FBI sting for allegedly for making stock sales in exchange for illegal payments from an agent posing as a hedge-fund manager.
The U.S. Securities and Exchange Commission, the Federal Bureau of Investigation and the United States Attorney's Office for the Southern District of Florida announced late Friday the criminal indictments of six individuals involved in five separate kickback schemes.
The defendants are insiders or promoters of publicly traded "penny stock" companies who made stock sales to an unregulated hedge fund called Fillmore Capital.
"During the course of the undercover investigation, the defendants agreed to pay an undisclosed kickback to the purported manager of the hedge fund if the manager caused Fillmore Capital to purchase certain specified securities," prosecutors said. "The defendants also agreed to hide the kickbacks to the purported manager through a sham consulting contract"
David Nelson, Director of the SEC's Miami Regional Office, said, "The Commission will continue to target corrupt practices in the securities industry in South Florida and provide resources where necessary to ensure that those who engage in illegal schemes will be found and prosecuted."
The SEC said it charged 10 individuals, who reside in South Florida, New York, California, and Nevada, with securities fraud.
The SEC alleges that, in each case, the undercover FBI agent purporting to be a hedge-fund manager told the seller or promoter that the kickback had to be kept secret, because buying stock in exchange for kickbacks would violate his fiduciary obligations to the hedge fund.
The FBI agent also told the seller or promoter that he had created a phony consulting company to which the kickback could be paid pursuant to a consulting agreement.
With one exception, the defendants actually paid the promised kickback after the hedge fund bought the stock defendants were promoting. Every buy transaction had a material effect on the trading volume of the companies in question.
Steve Gelsi is a reporter for MarketWatch in New York.
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Crooked basturds, and there are plenty more where these came from.

I hope they all get 20 years in prison, thats why i have my money in my mattress, too many crooked MF's out there waiting to pounce on their next victim. When your own...

- rdbush

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T e x
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keep 'em comin'...

more will appear

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Nashoba Holba Chepulechi
Adventures in microcapitalism...

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glassman
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now that is interesting...

http://www.fillmorecap.com/

Overview

Fillmore Capital Partners, LLC ("FCP") is a private real estate equity firm specializing in structured investments in operating intensive sectors. Our current investment portfolio exceeds $3.7 billion and outstanding capital commitments exceed $1.0 billion. FCP serves a growing list of large institutional pension funds and a select group of private investment companies. FCP invests on behalf of its clients in large healthcare, lodging and operating company platforms.


it sounds like *maybe* the fund manager turned them in? or is Fillmore helping the FBI out of the goodness of their heart? or is there som esort of plea agreement in place? (i am suspicious huh? [Big Grin] )

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wallymac
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December 7, 2007, 4:54 pm
Your Tax Dollars at Work
Would you pay kickbacks to a supposed hedge fund manager whose fund bought shares through an E*Trade account?
Some stock promoters did, the government says. The FBI set up the phony hedge fund to make bad investments, and now the charges are being filed. Indictments are due later today, but the SEC has announced five civil cases.
As an investor, the phony hedge fund manager did not do too well. He paid about $91,580 for the five penny stocks mentioned by the S.E.C. They are now worth — based on the last reported trades — about $12,800. That is an 86 percent decline. To be sure, the manager was supposed to get about 30 percent of the investment kicked back to him, but that was not enough to offset the losses.
In one case, the promoter welched on the promised kick back, according to the S.E.C. allegations. And that turns out to be the worst investment of the bunch. The fund spent $15,000 to buy stock in Compliance Resources, which is now called Enerbrite Technologies Group, with the ticker symbol EGTU.
Thanks in part to a 1 for 1,000 reverse split, the $15,000 investment made by the FBI is now worth 12 cents. That is a 99.999 percent decline.
Did the government get any promoters to name real money managers who took kickbacks? Maybe we will find out later. But the discovery that there are crooked penny stock promoters is not exactly stunning news.
Tags: penny stocks, s.e.c. fbi

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wallymac
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Thanks to the **** of the brilliant Floyd Norris over at the New York Times for this fascinating tidbit.

The FBI set up a fake hedge fund to invest in crappy penny stocks with the intent of losing a ton of money. It also cut a deal with a shady stock promoter to receive a kickback for buying the shares — a pretty clear case of market manipulation.

The investment declined in value from $91,580 to $12,800 — and the promised kickback never came. Great work guys! As Norris writes, “taxpayer dollars at work.”

I’m all for cracking down on stock fraud, but you really have to wonder about this — did the FBI really need to blow nearly $80 thousand of our money to prove that microcap fraud is alive and well? And if the promoters involved are like a lot of other promoters I’ve read about, the money probably went right up his nose or offshore somewhere — and no matter what any order to “disgorge ill-gotten gains” says, that money is probably gone.

But still: Another good reason to avoid heavily promoted penny stocks. If the FBI invests in them for the sole purpose of losing money, that’s probably a bad sign.

Maybe that was the reason all those state pension funds bought subprime debt. If not, it should have been.

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cactus33
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its really interesting, nice too see they do watch these guys, but my questions are..

who are the defendants and I would love to know which certain stocks they were "inside on" or promoted.. betting that info will be sealed.

The defendants are insiders or promoters of publicly traded "penny stock" companies who made stock sales to an unregulated hedge fund called Fillmore Capital.

"The defendants also agreed to hide the kickbacks to the purported manager through a sham consulting contract"

surprise surprise, a little exposure to what happens on a daily basis.. nice info.

Intereting they are focusing on South Florida, MICA, nast MM has one office there i think, might have moved. but just caught my attention.. interesting stuff.. thanx

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wallymac
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THis is not related to this case but interesting none the less.

Penny stock promoters sue E*Trade for racketeering
Posted Dec 6th 2007 6:23PM by Zac Bissonnette
Filed under: Law

Sebastian River Holdings, a penny stock company, says it is suing E*Trade Financial Corporation (NASDAQ: ETFC) for "collusion amongst E-trade and its employees to unlawfully, manipulate the company's stock." The penny stock company also said that it would be "...suing under the civil section of the Racketeer Influenced and Corrupt Organizations Act (RICO)."

Sebastian River Holdings also accuses E*Trade of freezing customer accounts and not allowing "investors" to buy shares of Sebastian River Holdings.

Why wouldn't E*Trade want its clients buying Sebastian River stock?

Well, PinkSheets, the service that keeps track of the thousands of small public companies that aren't listed on exchanges, issued a "STOP: NO INFORMATION" warning on the company. According to the Pink Sheets website, this:

Indicates companies that are not able or willing to provide disclosure to the public markets - either to a regulator, an exchange or Pink Sheets. Companies in this category do not make Current Information available via Pink Sheets News Service, or if they do, the available information is older than six months. This category includes defunct companies that have ceased operations as well as 'dark' companies with questionable management and market disclosure practices. Publicly traded companies that are not willing to provide information to investors should be treated with suspicion and their securities should be considered highly risky.
Do you think that perhaps, just maybe, it's possible that shares of Sebastian River have collapsed to 2 cents per share (from a 52-week high of $3) because the company has no proof of profitability and hasn't provided any meaningful disclosures to investors? And hasn't E*TRADE been a little busy blowing money on terrible subprime mortgages to bother manipulating penny stocks?

Sebastian River shareholders are still waiting on their (I'm not making this up!) Iraqi Dinar dividend, which was supposed to be paid out on September 28th. The company blames market manipulation and says it can't figure out who its shareholders are ...

There's also some interesting gossip on the company on The Rip Off Report: Never a good sign.

If you're a Sebatian River shareholder planning to use the Dinar dividend for your next trip to the region, I wouldn't book the plane ticket just yet.
Tags: e*trade, ETFC, ETRADE, RICO, Sebastian River Holdings, SebastianRiverHoldings

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wallymac
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Saturday, December 08, 2007
The shadowy world of penny stocks

What began with an undercover F.B.I. agent’s posing as a corrupt hedge fund manager led to the indictments of six people yesterday on charges of fraud in the shadowy world of penny stocks, federal prosecutors said.

A year-long investigation code-named Missed Information uncovered five separate stock schemes, according to the United States attorney’s office for the Southern District of Florida.

In each case, the undercover agent posed as a hedge fund manager at Fillmore Capital, a fake firm created by the F.B.I. in Palm Beach.

The unidentified agent got word out to the penny stock community that he was willing to buy stocks in struggling companies in return for bribes. Prosecutors said he accepted kickbacks from company insiders and stock promoters for buying stocks, some through an online brokerage account, to pump up prices.

The case was brought in conjunction with the Securities and Exchange Commission, which brought civil charges against seven defendants; six defendants were indicted by the United States attorney on criminal charges in the case, the S.E.C. said.

The charges exposed a murky underworld of penny stocks, a longtime staple of boiler rooms running illegal pump-and-dump schemes. Such shares trade over the counter, rather than on an exchange.

In each of the cases, company insiders or stock promoters tried to build support for their share prices by making a deal with the undercover hedge fund manager to buy large stakes of shares. In return, the insiders would pay the hedge fund manager a kickback, usually 25 to 35 percent of the total purchase price, the prosecutors said.

In each instance, the agent insisted he had to hide the transaction from his hedge fund clients — because of a “fiduciary obligation” to them, leading the parties to execute a fake consulting agreement with a fake company, Global Connect Services. “This case illustrates the commission’s ability to work together with criminal authorities in creative ways to uncover fraudulent schemes and to protect our markets,” said Linda Chatman Thomsen, director of the S.E.C.’s division of enforcement.

The five suspected penny-stock schemes were remarkably similar. In mid-April, prosecutors say, Virgil G. Williams, the 59-year-old chief executive of Asgard Holdings, a Nevada-based investment firm, contacted the agent posing as a hedge fund manager and asked him to buy Asgard Holdings shares.

Mr. Williams agreed to pay the agent 25 percent of the price of the transaction as a kickback, the prosecutors said. The next day, Mr. Williams contacted his broker to make sure that the broker accepted the appropriate bid in the marketplace, the complaint says.

The agent told Mr. Williams he had a fiduciary duty to his hedge fund requiring that he hide the kickback. As a result, the complaint charges, the agent and Mr. Williams agreed to set up a fake consulting agreement to hide the bribe.

But then the operation almost went awry. On April 24, the agent and the stock owner talked about the transaction and agreed to the terms, but the next day, the seller said he was uncomfortable with the deal and did not want to do anything illegal. Two days later, Mr. Williams rescinded the offer because he thought he was part of a sting operation, the complaint says.

In late July, Mr. Williams contacted the agent again to do the deal. In August, the agent used an E-Trade account to buy two million shares of Asgard Holdings at $0.015 a share. In the preceding month, only 172,00 shares had been traded.

A few days later, a Florida corporation believed to be controlled by Mr. Williams wired $7,500 to the agent’s fake consulting firm.

In a separate scheme, according to the complaint, the agent entered into a deal with William L. Haynes, a 42-year-old Palm City, Fla., resident and stock promoter, to have the hedge fund buy shares in Environmental Service, a home environmental inspection company.

The agent bought one million shares of the company. Prosecutors said he had agreed to receive a kickback of 35 percent, which included a 2.5 percent kickback to Efrim Gjonbalaj, a colleague of Mr. Haynes who introduced the two.

After receiving a $532.68 payment, Mr. Gjonbalaj returned the money to the agent with a letter saying he did not recall participating in any dealing with the agent, prosecutors said.

Many of the schemes involved individuals with past regulatory infractions. Mr. Haynes was enjoined by the S.E.C. in 2001 in a fraud case associated with a $7 million stock offering and barred from associating with a broker- dealer. A defendant named in the civil suit, Vincent Cammarata, is on supervised release after serving time in federal prison on drug-related charges.

Other criminal defendants include Ron Williams, 57, of Miami; Mark Foglia, 52, of Hypoluxo, Fla., and Rex Morden, 57, of Henderson, Nev.

If convicted, Mr. Haynes faces a fine of $5 million and 25 years in jail while the others face 20 years in jail and potential fines of $250,000 to $500,000.

The other civil defendant is Sean Sheehan.

Lawyers for the defendants could not be reached for comment.

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posted by Dmitry Davydov * 3:03 AM

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wallymac
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U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20390 / December 7, 2007
SEC v. Vincent Cammarata, et al., Civil Action No. 07-81163-CIV-MARRA/JOHNSON (S.D.F.L.)
SEC v. William L. Haynes, et al., Civil Action No. 07-81165-CIV-MIDDLEBROOKS/JOHNSON (S.D.F.L.)
SEC v. Mark Foglia, et al., Civil Action No. 07-81162-CIV-MIDDLEBROOKS/JOHNSON (S.D.F.L.)
SEC v. Virgil G. Williams, Civil Action No. 07-81161-CIV-ZLOCH/SNOW (S.D.F.L.)
SEC v. Sean P. Sheehan, Civil Action No. 07-81164-CIV-MARRAH/JOHNSON (S.D.F.L.)
SEC Files Actions Against Ten Defendants in Fraudulent Kickback Schemes
United States Attorney's Office for the Southern District of Florida Announces Parallel Indictments Against Some of the Same Defendants and Others

The U.S. Securities and Exchange Commission announced today that it filed civil actions alleging securities fraud in five separate kickback schemes uncovered by an FBI sting operation conducted pursuant to a cooperation agreement between the FBI and the Commission. The defendants, who reside in South Florida, New York, California, and Nevada, are insiders or promoters of publicly traded companies who made stock sales to a hedge fund in exchange for illegal kickbacks to an individual whom they believed to be the hedge fund manager, but who was in reality an undercover FBI agent. The five complaints charge the following Defendants with violating Section 17(a)(1) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder: (1) Vincent Cammarata, Rex A. Morden, and Affinity Financial Group, Inc.; (2) William L. Haynes, Efrim Gjonbalaj, and Real Asset Management LLC; (3) Mark Foglia and Western Financial Services, Inc.; (4) Virgil G. Williams; and (5) Sean P. Sheehan.

In related criminal prosecutions, the United States Attorney's Office for the Southern District of Florida ("USAO") today announced the criminal indictments of defendants Morden, Haynes, Gjonbalaj, Foglia and Williams.

According to the SEC's complaints, which were filed in the United States District Court for the Southern District of Florida, the five schemes involved sales of securities in publicly traded companies to a purported hedge fund. To make the sales, the defendants agreed to pay kickbacks to the individual managing the hedge fund. In fact, there was no hedge fund and the purported manager was an FBI operative in the sting operation. The Commission's complaints allege that, in each case, the hedge fund manager told the seller or promoter that the kickback had to be kept secret, because it would violate his fiduciary obligations to the hedge fund. The manager also told the seller or promoter that he had created a phony consulting company to which the kickback could be paid pursuant to a consulting agreement. The sellers or promoters were explicitly told that the consulting entity did not exist, that no actual consulting work would be performed, and that the phony consulting arrangement was simply a means to secretly pay the kickback to the hedge fund manager. All of the defendants agreed to pay a kickback and, with one exception, the defendants paid the promised kickback to the representative after the hedge fund bought the stock defendants were promoting. Every buy transaction by the hedge fund had a material effect on the stock trading volume of the companies in question.

In its actions, the Commission is seeking permanent injunctions prohibiting Defendants from committing future violations of the foregoing federal securities laws, disgorgement of ill-gotten gains plus pre-judgment interest thereon, and civil penalties. The Commission is also seeking an officer and director bar against Williams and penny stock bars against all the individual defendants.

Haynes was previously enjoined from further violations of the antifraud and registration provisions of the federal securities laws following his participation in a $7 million offering fraud. SEC v. Global Asset Partners, Ltd., Case No. 01-8862-CIV-Middlebrooks (S.D. Fla.). In addition, Haynes was previously barred from associating with a broker-dealer based on the entry of the permanent injunction. In the Matter of William L. Haynes, Exchange Act Release No. 45820 (April 25, 2002).

The Commission acknowledges the assistance and cooperation of the United States Attorney's Office for the Southern District of Florida and the Federal Bureau of Investigation in investigating this matter. The Commission's investigation is ongoing.



http://www.sec.gov/litigation/litreleases/2007/lr20390.htm

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glassman
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so this i how these guys get pops in volume and PPS...

i run a screener looking for these on the assumption that some group like shakerz is buying in to start pumping for a run...

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wallymac
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quote:
Originally posted by glassman:
so this i how these guys get pops in volume and PPS...

i run a screener looking for these on the assumption that some group like shakerz is buying in to start pumping for a run...

The problem is that many times people blame the company, which does happen, but I have a feeling that it's paid promoters that are doing the illegal maneuvers and then dumping whatever stock they have.
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wallymac
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OK, here's a different story.

Eight charged in pump-and-dump scheme
They allegedly falsely inflated prices of stocks

John Stucke
Staff writer
December 7, 2007

Eight people have been arrested statewide in connection with a penny-stock scheme, including a Bellevue woman who was banned eight years from participating in U.S. securities markets.

A 21-count federal grand jury indictment alleges they fleeced investors of $1.2 million through "pump-and-dump" scams, using mass spam and faxes to falsely inflate the worth of a stock, then dumping the shares through brokerages in the United States, Canada, and the islands of Turk and Caicos.

A ninth person involved in the scheme is Bellevue attorney Tolan Furusho, who has pleaded guilty to conspiracy to commit securities fraud and two counts of failure to file federal income tax returns.

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Furusho once represented a tiny Spokane Valley company called Courtside Products that found itself ensnared in a national crackdown on pump-and-dump schemes two years ago when it hired a consultant who then employed a mob-connected stock promoter in Arizona.

The entire effort backfired and left Courtside struggling to clear its name and survive.

The Bellevue woman arrested is Beverlee Kamerling, 63. Her son, 22-year-old Nicholas Alexander, and five others from Florida and Utah also were named in the indictment for secretly acquiring publicly traded companies to begin the pump-and-dumps.

The companies involved included America Asia Energy Corp., Coattec Industries Inc., Detex Security Systems Inc., and Global Gaming Network.

Kamerling, who repaid $1.5 million in ill-gotten gains from the previous stock scam, attempted to hide her involvement this time by installing her mother, son and boyfriend as officers of the various companies, according to the federal prosecutors in Seattle. They also allege she failed to file income tax returns in 2004 and 2005 on income of about $850,000.

Alexander's role included shredding documents after he learned of the grand jury subpoenas and of using prepaid cell phones to avoid detection by the FBI.

Also indicted were Joel Ramsden, 32, of Delray Beach, Fla.; John Johansen, 37, of Plantation Fla.; John Worthen, 66, of Salt Lake City; Seth Quinto, 36, of Miami; Donald Goldstein, 65, of Highland Beach, Fla.; and his son, 35-year-old Jamie Goldstein, of Boca Raton, Fla.

Securities crimes carry maximum penalties of 20 years in prison and fines up to $250,000.

The case was investigated by multiple agencies, including the U.S. Postal Inspection Service, the Washington State Department of Financial Institutions, the FBI and the IRS's crimes unit.

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wallymac
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Here's an older story but it sure validates my theory.

Sacked by a scam?
Courtside owners say they were duped by stock promoters

John Stucke
Staff writer
September 6, 2007

From The Spokesman-Review on Feb. 13, 2005:
Lola Emter is exhausted.

From the moment her little Spokane Valley sports-bag company went public, her life has been dominated by angry investors, lawyers, unscrupulous stock dealings and the U.S. Securities and Exchange Commission.

Courtside Products Inc., which she runs as CEO with her son, Curtis Medlen, is entangled in a new SEC effort to short-circuit penny stock fraud.

In trying to stop so-called pump and dump schemes that have flourished with the use of e-mail — where a stock is hyped to inflate the price, then sold — the SEC has suspended trading in three companies whose over-the-counter shares are listed on the National Quotation Bureau’s "pink sheets." One of them was Courtside.
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John Reed Stark, chief of the SEC’s Internet enforcement division, is investigating.

The episode, which has garnered attention from the New York Times and Wall Street Journal, serves as a cautionary tale.

Admittedly naïve about the finer points and seedy aspects of dealing in securities, Emter hopes her company’s reputation is protected and that its business won’t be forever harmed by a public offering gone awry.

Courtside, she said, is based on a good product – the Sport Saq – along with integrity.

She took the company public, she said, for two reasons:

The first is purely personal. She wants to recoup her investment and collect back wages.

Since the early 1990s, Emter and her husband, Lloyd Emter, have invested more than $400,000 cash in Courtside. The couple sold several rental properties and took out a second mortgage on their Bella Vista home to keep the business going.

Furthermore, Emter hasn’t taken a paycheck since 1996. All she hopes to collect in accrued wages is about $250,000 – a very modest wage of less than $30,000 a year.

"We used to have a pretty good lifestyle, but not anymore," said Emter, who is 65 years old. "I’ve taken one vacation in eight years, and that was to see family in California."

The other thing Emter wants the money for is to see the company grow. She’s a believer in the bags her son Curt Medlen first designed and stitched together at home in 1993.

Medlen says the idea of making sport-specific gear bags "came to me in a vision. I woke up at 4 a.m. at a motel room in Phoenix after a dream."

He was there at the time professional basketball star Charles Barkley was playing for the Phoenix Suns. A basketball enthusiast, the then-26-year-old Medlen sketched a bag design, made it on Lola’s sewing machine and asked her for money to market and sell the bag. He started selling the bags out of Emter’s antiques shop.

The first real success for the $70 bags was sales to area sports teams including those at Hoopfest.

Though sales ebbed and flowed over the years, revenues at one time topped $500,000 annually, Emter said. Courtside once contracted with 28 sales representatives to sell the bags nationwide.

Sales, however, dipped in 2003 and 2004 with the loss of a couple large customers. Emter contends it had nothing to do with the product, but rather with over-zealous sales expectations from some accounts.

It cemented her belief that Courtside needed to expand and avoid the pitfall of relying on a few customers.

By last May, Emter had identified three funding options: A bank loan, finding a large private investor, or taking the company public by offering shares on the pink sheets.

Emter ended up working with Keith Robertson, a former Merrill Lynch broker. Robertson looked for a private investor but reported back in June that issuing shares would be more promising.

Robertson has been with four different investment firms in Spokane, beginning with a three-year stint at Metropolitan Mortgage & Securities Co. in 1994. He left Merrill Lynch last March, after working there for six months. Robertson now is a self-employed financial adviser; his service is called C3 Consultants.

Emter said she gave Robertson the green light to set up a public offering when she understood that Courtside could reap at least $3 million from the sale of stock.

Robertson, in turn, said he was introduced by an undisclosed third party to Michael Paloma, a stock promoter from Phoenix. Paloma markets himself as an actor, musician and business promoter.

From the moment Paloma was hired to handle the sale of Courtside shares, Emter said she’s faced angry investors and "sleepless nights filled with stress."

Unknown to her at the time, Paloma has a rocky background.

He ran afoul of the SEC for securities fraud and paid $534,000 to settle dual allegations that he issued press releases falsely claiming his company, Desert Winds Entertainment Corp., had signed a big contract with Warner Brothers Television, and then filed false financial reports listing the bogus contract as an asset and using the information to sell restricted shares of stock.

His partner in Desert Winds at the time, Matthew Bardasian, pleaded guilty to an unrelated criminal matter, according to an SEC report.

Paloma and Bardasian have been barred by the SEC from acting as directors or officers of public companies.

Robertson said he knew of Paloma’s background, but thought such tough lessons would ensure a clean offering for Courtside.

"We were manipulated," Robertson now says.

Paloma did not return a phone message left for him at his current company, Pine Canyon Enterprises.

Robertson said once Paloma and Courtside were hooked up, "everything was immediately screwed up."

Paloma was given 7.5 percent of Courtside’s stock as part of the agreement to act as promoter, and according to Robertson, engaged brokers to move the shares. Within days of going public, a blizzard of faxes and e-mails calling Courtside "one of the most amazing opportunities ever!" were sent to people worldwide. Emter and Robertson say they don’t know who sent the stock solicitations. After that, Emter said she received threats, including one targeting her family. Shook by the event, she was later shocked when she learned about the e-mail spam. She called investors to apologize and explain what had happened.

Meanwhile, Robertson said he "placed 200 calls to Michael and he wouldn’t tell me anything."

Courtside shares were selling on the pink sheets for up to 80 cents by late October.

The price gyrated as more faxes and e-mails were sent out.

By the time the SEC stepped in and halted trading Jan. 28, the shares had fallen to about 4 cents. Trading is expected to resume soon.

Emter has been told by her Bellevue, Wash.-based lawyer, Tolan Furusho, that the promoters behind the faxes and e-mails may have collected as much as $4 million using the pump and dump scheme. Courtside’s proceeds so far have been about $75,000. Furusho said he believes Emter and Robertson are not culpable.

"The company here is the victim," he said. "Courtside will be OK, but this is a cautionary tale of what happens if you want to go public and don’t do it the right way or don’t fully understand the securities market."

"There’s more sharks out there than goldfish."

MEMO: Business writer John Stucke can be reached at (509) 459-5419, or by e-mail at johnst*spokesman.com.

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wallymac
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Sunday, December 9, 2007

Two plead guilty in stock scam
Two tiny Spokane companies victimized by Arizona men with ties to mafia family

Related Spokesman-Review stories:
From Feb. 2, 2005: SEC halts trading in Courtside Products
From Feb. 13, 2005: Sacked by a scam?
From Feb. 19, 2005: Courtside Products shares trading again
From Dec. 29, 2005: Spokane firm victimized by pump and dump

John Stucke
Staff writer
September 7, 2007

Two Arizona stock promoters with business ties to a New York mafia family have pleaded guilty for roles in scamming two tiny Spokane companies out of millions of dollars.

The case is part of a larger federal crackdown on pump-and-dump penny stock frauds that proliferate through e-mail spam and "blast" faxes making claims of easy cash opportunities by investing in little-known companies.

The two men, 47-year-old Michael Saquella (also known as Michael Paloma), and Lawrence Kaplan, 63, face up to five years in prison.

Paloma is a repeat scammer, according to the U.S. Securities and Exchange Commission, who worked with Kaplan to manipulate trading of at least seven small companies, including Courtside Products Inc., and Xtreme Technologies Inc. of Spokane.

Courtside is still in business after the fiasco unfolded in 2005 and was reported in The Spokesman-Review, earning mention in national newspapers. Designing and manufacturing sports bags, the company has limped along by tapping what's left of family financial reserves during the past two years while federal authorities unwound the elaborate scheme.

"We're still here, but it's been tough" Lola Emter, chief executive officer of Courtside, said Thursday upon hearing the news of the guilty pleas and a related settlement with the SEC that required Paloma and Kaplan to disgorge more than $2.7 million earned by the scam. The money is expected to be returned to the companies.

Xtreme, which billed itself as a telecommunications company, is no longer in business. Owned at the time by Mike Burk, the company was absorbed by different owners and is now called Xtreme Oil and Gas Inc.

Burk was unavailable for comment Thursday.

The problem for the Spokane companies began when they hired local financial advisor Keith Robertson to find investors. Robertson had worked for several brokerages before starting his own C3 Consultants company.

When Robertson told Emter and Burk that attempts to find private equity had dead-ended, he encouraged them to consider selling shares of their companies.

He introduced them to Paloma after learning of the stock promoter through an acquaintance.

Paloma passed himself off as a financier. As part of the deals, he provided bogus legal opinions and insisted that that the companies give him large blocks of stock.

Using the well-worn fraud techniques, he hired spammers to hype the stock, initiated inside trades that gave the appearance of active trading volume, then dumped the shares when the price was high.

The prices soon collapsed, leaving investors burned and the companies without the cash infusion promised. Also, the companies were left to cope with a large federal investigation into the matter and without an ability to raise cash for operations.

Paloma has also been fined and disciplined by the Washington State Department of Financial Institutions.

He didn't contest the state's civil complaint filed last June.

Though he strongly denies any wrongdoing, Robertson's role in the business dealings resulted in a state civil complaint.

State securities investigators say Robertson acted as an investment advisor, a broker dealer and as a salesperson for Courtside and Xtreme when he didn't have a state license to perform any of those services.

Furthermore, the representations he made about how the stock offering would work, and that the companies would have stock that traded freely and openly, were inaccurate and misleading, according to DFI.

Suzanne Sarason, chief of compliance and exams for DFI, said the agency is engaged in settlement negotiations with Robertson.

Robertson is upset with the charges and strongly denied doing anything wrong.

"I just tried to find money for Lola and now DFI is chucking me under the bus," he said. "Paloma is the guy who did everything wrong and screwed these folks out of millions of dollars."

Robertson said he knew of Paloma's prior criminal background before dealing with him and shared that information with his company clients.

"We just thought there's no way he would be so stupid and do something criminal again," Robertson said. "After looking over our proposal for public offering, Michael said he could make millions off this gal (Emter), but make money for her, too."

Robertson said he had been asked to testify in front of a grand jury investigating Paloma, and that he was prepared to testify as a witness had Paloma gone to trial.

Paloma's alleged involvement with organized crime stems from his connections with another company, Commanche Properties Inc., which had been caught up in the pump-and-dump scheme.

The Tucson firm is linked with the Bonanno crime family of New York. According to its own press releases, Commanche entered into a film deal with Salvatore "Bill" Bonanno, the eldest son of the late Joseph Bonanno, who for decades headed one of New York's large mafia families.

This arrangement, according to a January 2005 press release issued by Commanche president Anthony Tarantola, included a film project about two men fleeing the mob.

In a press release three weeks later in February 2005, after the SEC launched an investigation into the penny stock swindles, Tarantola denied that Commanche was involved in the pump-and-dump schemes.

The press release stated that Paloma, who did consulting work for Commanche and was a company shareholder, was not responsible for the rapidly unraveling fraud. Nor was Bonanno, according to the same statement to investors and the media.

The FBI assisted in the case, along with the U.S. Attorney's office, the United States Postal Inspection Service, and the Financial Industry Regulatory Authority (previously known as the National Association of Securities Dealers, or NASD).

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cactus33
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Its great info you are providing, but, its nothing earth shattering, you will always have this element, especially in such a lucrative way to make money.. more importantly, what are the stocks they influence, my guess.. not many out of the grand scheme of things..but interesing info regardless.
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chuck9
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Cactus, what type of trading are you interested in?. Also, what value of stocks do you usually trade?
chuck

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wallymac
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Con artists turn shell companies into cash
http://www.theglobeandmail.com/servlet/story/LAC.20071227.RSHELLCO27/TPStory/Bus iness

JANET MCFARLAND

December 27, 2007

Oklahoma lawyer John Heskett logged onto his computer one day in late June, 2005, to check out an inactive shell company owned by his clients who were considering using it in a business deal.

What he saw made no sense.

"I saw this wild trading going on, and I couldn't imagine why," he said. "I was in total disbelief. I knew there could not be that many shares in the market, not even close, not even 1/100th of those shares in the market ... I had to pinch myself and say, 'Am I crazy?' " After some online searching and a few phone calls to the company's transfer agent, Mr. Heskett contacted the U.S. Securities and Exchange Commission to report a bizarre crime: Someone, he said, had stolen his client's public company.

Sixteen months later, the SEC and the British Columbia Securities Commission announced they had reached settlements with two Canadian men who admitted to illegally taking control of Greyfield Capital Ltd. and arranging to have 600 million new shares issued using the company's ticker symbol.

Surprisingly, the unusual case is not the only one of its kind in Canada or the United States. Regulators say corporate identity theft has become another twist in the world of securities fraud, where criminals seem to find endlessly creative ways to dupe investors.

Martin Eady, director of corporate finance at the British Columbia Securities Commission, said criminals have traditionally started their own shell companies to conduct frauds. But, he said, it's far cheaper to steal a dormant shell company.

"It typically costs about $100,000 to start one of those companies," he said.

When buying a dormant shell, he added, investors want a "clean" shell with no liabilities and clear titles and assets. "So, it can be costly to rehabilitate an old shell company," he said.

While there are obvious dangers in assuming the identity of an inactive company - that the real owners will notice and complain - criminals reduce the risk by targeting virtually unknown companies that trade on the U.S. over-the-counter market and have been dormant for years, or are in default in their filings.

Earlier this year, the Ontario Securities Commission halted trading in 10 companies' shares while investigating an alleged scheme in which the companies assumed the identities of 10 dormant firms.

The dormant companies had previously traded on the U.S. over-the-counter market.

The OSC temporary order also alleged that Select American Transfer Co., acting as the transfer agent for the companies, may have participated in the scheme by issuing false share certificates.

But identity theft frauds can occur without the transfer agent knowing what's really going on.

In the Greyfield Capital case, Mervin Fiessel and Robert Doherty, both of Kamloops, B.C., admitted they forged the signature of a former company director on a letter to Greyfield's transfer agent announcing a change of directors. They also forged documents to get the transfer agent to issue new shares and allow them to trade publicly without restrictions.

The men admitted they issued a flurry of press releases, and also talked up the company on Internet bulletin boards for penny stock investors, claiming to be running a Kamloops-based car dealership. They touted it as the largest dealership in Western Canada, even though it was not even the largest dealership in Kamloops.

"We actually went to look at their operations," Mr. Eady says. "It was rather comical. Their news releases claimed [it] to be a very major going concern, and we turned up at the address and it was simply a good old-fashioned used car lot."

The scheme ended when the SEC launched its investigation following Mr. Heskett's phone call in July, 2005. The two men have been banned from trading securities in British Columbia, except in limited circumstances, and were required to make payments totalling about $325,000.

Mr. Heskett, meanwhile, says his clients were also victims, even though they did not buy the company's fake shares. Their shell company was essentially ruined for future use because so many fraudulent shares remain outstanding. His clients have abandoned plans to use the company.

"These guys trashed the shell," he said.

OSC enforcement director Mike Watson said that in some cases, criminals seem to steal shell companies to quickly flip them to other buyers, who think they are purchasing a legitimate public company.

More often, he said, they use them to conduct a pump-and-dump fraud. That means the crooks artificially inflate the value of the shares, sell their holdings at a significant profit, then disappear.

Mr. Watson said one difference with frauds conducted using a stolen company is the criminals typically arrange to get many millions of shares issued to themselves, and also arrange to have the shares issued without typical trading restrictions that accompany private placements, allowing them to trade the shares immediately.

"When it collapses, they simply pull another [shell] company off the shelf and start over again," he said.

He said brokerage firms can also become fraud victims. They are required to provide shares to complete trades, and if the shares prove fraudulent, the firms can be forced to compensate the buyer.

To target a brokerage firm, criminals set up a scheme to "sell" shares to accomplices who pose as ordinary investors. The so-called victims then pretend to "uncover" that the shares are fraudulent and insist the transaction be completed by the unsuspecting brokerage firm.

"The broker finds himself in a position where if they can't come up with the shares, they perhaps have to make cash compensation," Mr. Watson said. "What you've done is taken shares you've printed off your printer and sold them to a broker for $5-million."

Earlier this year, British Columbia regulators announced a multipronged plan to reduce the fraudulent abuse of corporate shell companies.

The new rules, which have been published for comment, would require companies trading on the pink sheets over-the-counter market to file financial statements, press releases and other disclosure documents just like other public companies trading on larger exchanges.

The BCSC will also require over-the-counter issuers to provide shareholder lists and other information. The commission has also proposed new resale restrictions on people who buy shares of an over-the-counter company before it goes public.

Mr. Eady said the new rules have been proposed because British Columbia has a disproportionate amount of fraud involving over-the-counter shares compared to other jurisdictions.

"I know the TSX Venture [Exchange] has been quite a lot more choosy about who they will list compared to the days of the old Vancouver Stock Exchange," Mr. Eady said. "But Vancouver is still a nice place to live, and we still have people well experienced in that market, so they've simply found another home."

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BooDog
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far out Wally. I gotta couple empty shells they can bump up!

--------------------
All post are my opinion. Do your own DD. Who's clicking your buy/sell button!?

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glassman
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BCIT

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Don't envy the happiness of those who live in a fool's paradise.

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T e x
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Select American?

That's BHUB, et al...

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Nashoba Holba Chepulechi
Adventures in microcapitalism...

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beechwood
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You mean most penny stocks are a scam!?!?
NOOOOOOO!!!
I'm shocked, appalled, and left
totally speechless!!!
Duh!....LOL

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