UPDATE 1-FBI arrests two in $140 mln penny stock fraud
NEW YORK, Aug 13 (Reuters) - Federal prosecutors on Tuesday said they have made arrests in an international penny stock scheme that involved fraudulently inflating shares prices and trading volumes.
The fraud generated more than $140 million through various brokerage and bank accounts, according to a statement from the office of U.S. Attorney Loretta Lynch in Brooklyn.
Two people, Joseph Manfredonia, 45, of New Jersey, and Cort Poyner, 44, of Florida, were arrested on Tuesday morning, according to Peter Donald, an FBI spokesman.
A superseding indictment filed earlier this month also names four Canadians and three other U.S. citizens allegedly involved in the scheme.
The scheme involved fraudulently inflating share prices and trading volumes of certain penny stocks. The defendants also operated a so-called advance fee scheme, making false promises to investors to induce them to pay fees for non-existent services to sell their illiquid penny stock shares, according to the indictment.
Both schemes were allegedly orchestrated by Sandy Winick, a Canadian who has lived in China, Thailand, Vietnam and the United States, according to the indictment.
Manfredonia used phony press releases to promote the penny stocks and recruited others to manipulate their prices and trading volumes, according to the indictment.
Poyner bribed brokers to purchase the penny stocks on behalf of their clients, according to the indictment.
Gregory Curry and Kolt Curry, Canadians who also lived at various times in Thailand, managed call centers, and prepared false letters, websites and e-mail accounts used to deceive potential and actual victims. Kolt Curry also made phone calls to potential clients.
Gregory Ellis, a Canadian, acted as president of several companies that issued the penny stocks and called potential customers as part of the advance fee scheme, according to the indictment.
Gary Kershner, a U.S. citizen who lived in Arizona and Kansas, made false statements to regulators and investigators, and created fraudulent documents, according to the indictment.
Songkram Roy Sahachaisere, a U.S. citizen who lived in California, promoted the penny stocks through Investsource Inc, a public relations firm he owned, according to the indictment.
William Seals, of California, bought and sold several of the penny stocks to manipulate their share price and market volume, according to the indictment.
Their lawyers could not be reached immediately for comment.
Winick has run into trouble with regulators in the past.
In 2010, the U.S. Securities and Exchange Commission won a default judgment against him after he failed to respond to a complaint accusing him of creating dozens of shell companies under a public company he controlled, First Canadian American Holding Corp, later known as Blackout Media Corp.
The SEC accused Winick of creating 59 subsidiaries in Blackout with no legitimate business purpose except to sell unregistered shares in the companies and pocketing the proceeds.
In 2012, he was ordered to disgorge $3.2 million in ill-gotten gains and was permanently barred from the penny stock market, among other penalties, according to court documents.
Blackout is among several companies mentioned in the indictment filed earlier this month.