Tuesday, May 3, 2016

SEC and Law Enforcement Partners Crack Stock Promotion and Kickback Schemes

The Securities and Exchange Commission today announced fraud charges against 10 individuals involved in schemes to trick investors into buying shares of a particular company stock.  

The schemes were allegedly fraught with cash bribes and other kickbacks to registered representatives and unregistered brokers who solicited investors to buy stock in ForceField Energy Inc.  The SEC alleges that investors were unaware those soliciting them were being paid by a ringleader – ForceField’s then-chairman of the board Richard St. Julien – to steer them to the stock, and that some of the perpetrators attempted to evade law enforcement by going so far as to communicate with prepaid disposable “burner” phones and encrypted, content-expiring text messages.    

But the SEC and other law enforcement have followed leads, utilized technological tools, and tracked down the alleged culprits, filing a complaint against St. Julien and nine others in federal court in Brooklyn, including one who referred to himself as St. Julien’s “brown bag man” as he distributed cash bribes and another who touted the stock in a newsletter called “Wall Street Buy Sell Hold.”

“We allege that these men sold investors on the merits of buying ForceField Energy stock while leaving out the most important detail of all: they were being bribed with money and other benefits behind the scenes to tell them that,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “The SEC and its law enforcement partners have pieced together the schemes despite the best efforts of the alleged perpetrators to communicate and distribute cash in clandestine ways.”

The U.S. Attorney’s Office for the Eastern District of New York brought criminal charges against St. Julien last year.  In a parallel action today, the U.S. Attorney’s Office announced criminal charges against the other nine individuals.  

According to the SEC’s complaint against St. Julien, purported investor relations professional Jared Mitchell, and investment newsletter publisher Christopher F. Castaldo along with registered representatives Richard L. Brown, Gerald J. Cocuzzo, Naveed A. (Nick) Khan, Maroof Miyana, and Pranav V. Patel and unregistered brokers Herschel C. (Tres) Knippa and Louis F. Petrossi:

  • St. Julien sought to conceal his illegal conduct by using a company in Belize to pay the kickbacks, wiring money from a company bank account to Mitchell, who called himself the “brown bag man” and withdrew the payments and paid cash bribes in person to Brown, Cocuzzo, Khan, Miyana, and Patel.  
  • Castaldo lured his victims to invest in ForceField through a nationwide cold calling campaign he conducted from his Long Island, N.Y. office.  Castaldo recorded the prices and amounts sold to investors and sent the information to St. Julien so he could receive the kickbacks, which were wired to him through the Belizean company. 
  • Neither Petrossi nor Knippa was registered as a broker to solicit investments in ForceField’s private placement offerings, and they received undisclosed kickbacks from St. Julien.
  • Petrossi falsely told one investor in an e-mail that “I can not [sic] be bought,” and Knippa went so far as to appear on the Fox Business Network’s “Varney & Co.” show and the Business News Network as a purported market commentator to tout ForceField as a great investment.  In neither appearance did Knippa tell the host or viewers that he was being paid to solicit investors for ForceField.  Meanwhile Knippa told St. Julien in text message exchanges, “I can pitch (ForceField) as good as anyone in the world.”

The SEC’s complaint charges all defendants with violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 as well as other various violations of the federal securities laws.  The SEC seeks disgorgement plus prejudgment interest, penalties, and permanent injunctions against all defendants as well as penny stock bars against St. Julien, Castaldo, and Petrossi and an officer-and-director bar against St. Julien.  

The SEC’s continuing investigation is being conducted by John O. Enright, Ann Marie Preissler, James E. Burt IV, Joseph Darragh, Thomas Feretic, Leslie Kazon, Michael Paley, and Sheldon L. Pollock in the SEC’s New York office.  The litigation will be led by Mr. Enright and Ms. Preissler.  The case is being supervised by Sanjay Wadhwa.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of New York, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority.



SEC Press Release

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