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9 Feb

Here it is: that MGT Capital SEC Subpoena

MGT Capital was subject to a subpoena sent by a lawyer at the Securities and Exchange Commission named Katherine Bromberg who is senior counsel in the New York office of the division of enforcement. The Subpoena demanded a response by September 28, 2016. MGT’s stock had been on a soar after it was announced the company was going to merge with John McAfee’s private security company. MGT CEO Rob Ladd was forced to announce the receipt of the subpoena by the exchange the company listed on, the NYSE, and the stock started a slide. The NYSE latter delisted the company without explaining in writing what their reasons were and did not allow the issuance of millions of new shares that the company approved in a board of directors vote.

The company is now on the OTC pink sheets waiting for the top-tier of the OTC markets to approve their listing. John McAfee was eventually made a director of the company but the merger of his security assets isn’t completed yet. The company website says “MGT Capital Investments, Inc. is in the process of acquiring a diverse portfolio of cyber security technologies. With cyber security industry pioneer, John McAfee, at its helm…”

In September MGT CEO, Rob Ladd, who signs all SEC filings, said in a press release the company didn’t think the SEC subpoena questions were focused on ‘the company’. Latter that month I was first to report on some of the people named in the SEC subpoena for the trade publication I report for Growth Capitalist. I reported Barry Honig, Michael Brauser and Josh Silverman’s hedge fund as being subjects of the subpoena questions. I had interviewed an executive at the company who said they thought “the focus of the SEC subpoena was about Barry Honig and the people he invested with.” I then wrote an opinion piece at teribuhl.com that Honig and friends were the subject of this subpoena.

Below is the subpoena for the reader to see and formulate their own opinions. This is the first time it is being made public. The name of the companies on page 7 are all owned by the names of the people on page 7-8. I was told by a person at the company all of these people invested with MGT Capital and you need a flow chart to show their interconnectedness. I have also researched other public filings and found these people have invested in the same equities in the past. Most of these people say they are passive investors and don’t know each other or don’t ‘invest together’. It’s my belief after a decade of proven investigative reporting and based on knowing how to read a SEC subpoena, along with interviews with people involved in the transaction and past investing transaction of Barry Honig, that the regulator is looking for evidence that these people traded as a group and therefore became beneficial owners of the stock. If you have beneficial ownership of a stock it affects when and how much you can sell your stock so investors, like the group here, often try to keep their public ownership of the stock below 10%. I think the regulator also wants to know if any of the investors, who except for Josh Silverman were not on the board of the company, had any influence in the McAfee merger or the paid stock promotion by Stock Beast. But the most interesting question is number 10.

All Documents and Communication concerning MGT’s acquisition of certain technology and assets of D-Vasive, as stated in MGT’s Form 8-K filed on May 9, 2016.

MGT had announced in its August proxy statement on page 23 that D-Vasive had had gotten a $850,000 bridge loan with convertible debt but didn’t disclose who did the bridge loan. John McAfee owns D-Vasive. I was told by a person at MGT that some of the names on the SEC subpoena had also done the bridge loan. If the merger had been approved, these people would have likely had D-Vasive stock warrants that would have became MGT stock and while the stock was flying high would have made a killing if they were able to sell. There are a lot of unanswered questions about that transaction and since D-Vasive is private they don’t have to answer them. Well unless a regulator asks. Like the timing of the warrants being issued, share registration, and who is holding the shares for the required 6 month period.

These people are sophisticated investors with expensive lawyers who help structure transactions designed to protect them form violating any securities laws like trading as a group without disclosing it. That type of SEC violation is hard to prove and I don’t know if the regulator will get the evidence to prove it but it is good to see them asking the questions. I want to hear from readers and market participants on what you think some of these SEC questions are trying to get at. Use the comment section or email me at teribuhl.com with your thoughts.

MGT says it has answered the SEC subpoena.

SEC Subpoena MGT Capital September 2016 by Teri Buhl on Scribd

UPDATE January 2018: On September 15, 2016, MGT Capital received a subpoena from the Securities and Exchange Commission. The subpoena requested documents and communications between MGT and Barry Honig. It also sought documents and communications between MGT and eight other individuals and eleven entities associated with the individuals.

I have not confirmed with the SEC that Barry Honig is in fact the subject or target of any SEC investigation. No person at the SEC has ever informed me that the SEC is investigating Mr. Honig. The SEC, when called for comment, told me that they do not comment on ongoing investigations.

3 Comments
9 Feb

California DOJ investigating Honig and The Frost Group

Original Text

The Northern California DOJ has been sniffing around asking tough question about the investing and trading activities of a billionaire Philip Frost, a former boxer turned penny stock investor Barry Honig, and a man Honig has done investing deals with Michael Brauser.

A person who took investments from this trio and ask for anonymity for fear of retribution told this reporter,”The FBI told me in our interview they were investigating Honig, Brauser, and Frost.”

A term sheet filed in a legal battle in Northern California court shows all three men invested together in a company called Biozone. The case, which alleged the Frost Group was involved in a pump and dump, made it pass a motion to dismiss and then settled. A person familiar with the settlement said the plaintiff got $2 million although it’s unclear if the Frost group actually paid the settlement in full.

Three years latter the FBI investigation into Biozone is still open. This reporter has seen a letter from the FBI that states this person is a potential victim of securities fraud. A check in the FBI’s victim notification system, seen by this reporter at press time, show the investigation is still active but doesn’t list specifically who the investigation is about. Biozone is the only company the person interviewed by the FBI held stock in.

The Biozone investor also said they had been interviewed by the Securities and Exchange Commission about their dealings with Barry Honig, his deal lawyer Harvey Kesner, and others the regulator thinks invest with Honig.

Attorney Kessner has been representing Honig in his microcap investing deals for years and often ends up as counsel for the companies Honig invest in. He recently became a named partner at a New York law firm that is very active in the microcap stock market called Sichenzia Ross Friedman Ference LLP. Kesner replaced partner Richard Friedman who suddenly announced he was leaving with his team to join another firm Sheppard Mullin in October. The firm is now called Sichenzia Ross Ference Kesner.

Kessner through his attorney told this reporter he thinks Freidman’s departure from the firm he had been with for a long time wasn’t sudden but contemplated for months but we haven’t heard directly from Friedman on why he switched law firms.

Rumors have been swirling around the microcap space for a while now that attorney Kesner’s work with Honig could place him in the hot seat with the SEC but the Biozone investor is the first person I’ve interviewed who said the SEC probed him about Kesner’s role with Honig. Kesner has not been publicly named in any SEC enforcement actions. Kesner was fired from big law Haynes and Boone, where he worked before joining SRFF. He then sued the firm for breach of contract and defamation in 2010 but it’s unclear if anything came out of that reaction to being fired. Haynes and Boone said the suit was meritless. Kesner withdrew the suit voluntarily a month after it was filed and there was a statement the parties had settled without any details.

EDITOR NOTE: This story was hacked and taken down from the publication on February 7 2017. It originally ran on November 8th 2016. Barry Honig sued me for libel for multiple stories I reported on and then suddenly dropped the suit two days before our motion to dismiss was to be filled with back up documents sourcing the reporting and a copy of a SEC subpoena that names him and others who invested in MGT Capital. Honig had originally demanded I apologize for my reporting and denies he is under SEC investigation. The reporting stands and I never apologize for informing the public on a matter of public interest. I would like to thank my attorneys Chuck Tobin and Christine Walz at Holland and Knight for their excellent legal work that helped protect sources and support accurate truthful reporting and opinion.

UPDATE 1-2019: Since publication of this article, I learned that Daniel Fisher, the plaintiff in the Biozone lawsuit reference below, submitted a letter to the SEC, through his attorney, withdrawing the SEC whistle-blower complaint that Mr. Fisher filed against Barry Honig, Michael Brauser and The Frost Group. In a separate letter from his attorney to the FBI, Mr. Fisher also withdrew any direct connection to the FBI investigation referenced below. Mr. Fisher sent the letters pursuant to a voluntary settlement agreement in the Biozone lawsuit and an Order enforcing that settlement by Judge Laurel Beeler of the Northern District of California which stated: “The court orders [Daniel Fisher] to withdraw his FBI and SEC grievances against [Honig, Brauser and The Frost Group]….which fall[s] within the scope of his commitment under the settlement.”

In a separate letter to Judge Beeler enclosing Mr. Fisher’s withdrawal letters, his attorney stated: “[Mr. Fisher] does not believe this SEC notice has any impact on the existing SEC investigation into [Biozone’s successor] Cocrystal.” In an SEC filing made earlier this year, Cocrystal Discovery disclosed that it had received a subpoena from the SEC in 2015 and that it was the subject of an ongoing SEC investigation.

4 Comments
8 Nov

Hacked By XwoLfTn

Hacked By XwoLfTn – Tunisian Hacker

UPDATE 2.7.17 6pm – Well it looks like someone hacked my publishing platform and took down a story in the last 24 hours. Luckily I have a paper copy of the story and will be re-reporting the original story within the week.

Hacking a business site and trying to steal my assets (the reporting) is a federal crime. I have reported it to the FBI office in NYC and have a security company looking into the IP addresses that entered the site.

I’m asking readers for $300 in donations to help pay for a private server to host this site and extra firewall protection. The reporting that was hacked was about Barry Honig and his deal lawyer’s financial interest in a stock transfer company. I need your help to keep the reporting visible for everyone to read. You can donate via the Paypal button on the top right of the homepage. Thanks in advance for your support.

4 Comments
23 Sep

MGT Capital Receives SEC Subpoena Seeking Information about Barry Honig and Eight Other Individuals

Microcap investor Barry C. Honig is a subject of an SEC subpoena related to his role in trading and investing in shares of MGT Capital ($MGT). MGT Capital is trying to complete a reverse merger with famed tech entrepreneur John McAfee. I am reporting exclusive news today for Growth Capitalist on what’s inside the Securities and Exchange Commission subpoena MGT Capital announced was lobbed against them late last week.

News of the SEC formal demand for answers from the company delighted short sellers to the tune of a 40% drop in MGT’s stock. The company, currently run by CEO Robert Ladd, says it does not believe the SEC is targeting any of the company executives. But shareholders have expressed doubt this week given the lack of details the company was allowed to disclose about the regulatory investigation. On top that the NYSE, where MGT trades, announced it wouldn’t accept the new shares that are set to be issued in the reverse merger with John McAfee’s cyber security companies. The national stock exchange was kind of a jerk about it because they didn’t offer up a reason for the share issuance halt. Unfortunately, it’s a big clusterf–k of unknowns for the company and shareholders right now.

But one thing that my reporting makes very clear is the SEC wants to make sure Barry Honig isn’t’ doing anything shady (or out right illegal) with this company. According to insiders who saw the SEC subpoena, a large portion of the regulator’s questions are about Honig, his company GRQ Consultants, and people who invest with him. I can also confirm Honig has been calling SEC enforcement defense lawyers this week looking for representation. I first reported on Honig’s alleged illegal actions in my “Attorney Gregg Jaclin blew up his life and got busted for creating a shell factory scheme” story this Spring. The central theme of alleged bad behavior is Barry uses other people to run a company he is secretly controlling and indirectly pays stock pumpers to tout the company without disclosure.

You can see here in a DOJ plea deal made by one of Honig’s alleged puppet CEOs how Honig allegedly runs things behind the scene. This plea deal was first reported and unearthed by me in a story for Growth Capitalist in May.

The SEC has never been able to pin anything on Honig. We do see a FINRA action settled against him as a young trader in 2000 when he was working for a questionable PIPE financing firm called Ramius Capital (or Ramius Securities). On June 14, 2000 FINRA said Honig had acted as an affiliate trading with others and hid it by running the trade through two people instead of one.

Barry Charles Honig (CRD #2362713, Registered Representative, New York, New York) submitted a Letter of Acceptance, Waiver, and Consent in which he was fined $25,000 and suspended from association with any NASD member in any capacity for 10 business days. Without admitting or denying the allegations, Honig consented to the described sanctions and to the entry of findings that he sought to inappropriately coordinate a trade report to ACT with another market participant as two separate trades instead of one.

Honig has a SEC deal lawyer, Harvey Kesner at www.srff.com , who apparently has been able to keep the SEC at bay in tons of questionable pump and dump deals Honig invested in. I know from interviewing MGT’s executives and reviewing Honig’s financing transactions that he wasn’t a control person at MGT. CEO Rob Ladd, who used to run a hedge fund, put blockers in Barry’s finance deal that don’t allow him to own a certain percent of the company. What we don’t know is whether Barry teamed up with his favorite investing partner Michael Brauser and acted as an affiliate in trading MGT stock, which blew up to a 700% gain when news of a John McAfee merger was announced in May. Affiliate trading without disclosure is a big SEC no-no, which I explain my story today at www.growthcapitlist.com. Honig through his attorney did not return a request for comment.

For now it’s a wait and see as MGT scrambles to get the SEC to clarify to stock exchanges that the reverse merger deal is clean. And market participants sit on the side line to see if the SEC can get the goods to finally charge Barry Honig.

Clarification 9.23.16: Barry Honig is pulling out the big legal guns apparently worried about anyone reporting on what’s inside that SEC subpoena. As of 5:30pm I was contacted by a California attorney, Charles Harder (who repped Hulk Hogan), for Honig demanding to have the story taken down and to write an apology. I refused and stand by the sourcing in this story. I have spoken with people who have seen the subpoena again and clarified a sentence in the story that relates to a large portion of the SEC’s questions are centered on Barry Honig, his company and people he invest with. The original sentence said “90% of the SEC questions are about Barry Honig.” Additionally, Honig had two days to respond to questions about the subpoena before the story ran and refused to return a call and email for comment.

Update 10.7.16: One of the sentences in this story that Barry Honig has denied through his attorney Charles Harder is that he invest with Michael Brauser. Harder wrote in item #9 in his demand letter they sent me to get the story taken down:
“Implication that Mr. Honig “teamed up with his favorite investing partner Michael Brauser”. False; the two have not teamed up.”

I’d like to take the chance to remind readers of this 2012-2013 litigation against Barry Honig, Michael Brauser, and the Brauser Honig Frost Group for their role in Biozone Pharmaceuticals, Inc. It was filed by the company’s former founder Daniel Fisher. This is from Fisher’s amended complaint filed in Northern California District Court on 11.22.12 . Case number 3:12-cv-03716-WHA

“In January 2011, Plaintiff Fisher met with a group of investors, the Defendant representing
itself as Brauser Honig Frost Group (“BHFG”). Over the course of the following six months, this
group of investors misled Plaintiff Fisher through an investment scheme designed to divest
Plaintiff of all of the economic rights and goodwill he had built through his company over the
course of the previous 22 years.”

After Fisher beat their motion to dismiss and the case moved into discovery we see the case was settled with the defendants paying Daniel Fisher half a million dollars.

And that’s just one reason why I stand behind my reporting, opinion, and sourcing in this or any story of mine on Barry Honig!

UPDATE 11.4.16 : I have filed a letter to the federal judge in Honig’s lawsuit against me that you can read here. Honig used a process server who lied in an affidavit that he served me. I have video to prove he is lying. Additional, I informed the judge Honig asked MGT Capital CEO Rob Ladd to call me and set up a private ‘off books’ meeting. A move that is pretty much a no-no legal tactic given he sued me. His lawyers are supposed to be the ones to contact me. I obviously said no to the meeting and told Rob Ladd if Mr. Honig wants to speak to me and comment on any of my reporting he can call me through his attorneys – he has enough of them. This secret meeting tactic is something I have learned he has used in other litigation…it feels like the purpose is to try and figure out if I am going to give up names of my story sourcing.

I still need a pro bono lawyer to go up against Hulk Hogan’s attorney Charles Harder. Honig apparently tried to hire Harder (an expensive lawyer who has been in the news for his anti-journalism legal work) to scare me into stoping reporting and it didn’t work. If you are interested in this easy to win suit please email me at teribuhl@gmail.com. I’ve been told NY laws make it favorable to sue back for attorney fees in NY court and this is an easy case to win given my sourcing and the fact a lot of what I wrote here is opinion. Donations are also helpfully now in case I have to defend my self pro se.

UPDATE 1-10-17: I’ve secured a top first amendment lawyer to represent me pro-bono. Chuck Tobin of Holland & Knight filed last week in Manhattan Federal Court to be lead counsel. We have till February 10th to file a response to Honig’s claim. I would like to thank Holland & Knight for stepping up and defending the rights of a freelance journalist.

UPDATE 2-21-17:Barry Honig voluntarily withdrew his lawsuit against me on February 8th. This was two days before my attorneys were due to file our motion to dismiss and we were given no warning or notice of why the suit was being dropped. I thought the litigation was over but now it looks like Honig and his attorney Charles Harder were just making a move to judge shop because today I got a repeat retraction letter asking again to take down my reporting and apologize. It’s my expectation that team Honig will just refile their suit in another court or another state which means the bullying of this journalist for reporting on a matter of public concern continues.

UPDATE January 2018: On September 15, 2016, MGT Capital received a subpoena from the Securities and Exchange Commission. The subpoena requested documents and communications between MGT and Barry Honig. It also sought documents and communication between MGT and eight other individuals and eleven entities associated with the individuals.

I have not confirmed with the SEC that Barry Honig is in fact the subject or target of any SEC investigation. No person at the SEC has ever informed me that the SEC is investigating Mr. Honig. The SEC, when called for comment, told me that they do not comment on ongoing investigations.

14 Comments
5 Jul

AJ DiScala Co-Conspirator admits they did illegal trades in Microcap Fraud Ring

UPDATE 8.8.16– Court records show Goodrich was ordered to pay only $3,938 in forfeiture fines for his role in the manipulation of a stock called Cubed. He is still waiting to be sentenced.

Original Text
A So-Cal stock broker admitted to aiding in the pump and dump of penny stock Cubed with accused microcap fraudster AJ DiScala last week. Darren C. Goodrich, 37-year-old head trader at BMA Securities, plead guilty in Brooklyn federal court on June 27th to one count of conspiracy to commit securities fraud for his role in artificially controlling the price and volume of Cubed shares through fraudulent concealment of AJ’s crew’s ownership interest in the stock and engineering price movements through wash and match trades. The charge caries a 5 year max jail term plus criminal forfeiture of assets through fines and restitution. Goodrich was arrested on multiple counts of securities and wire fraud on November 2, 2015 with the possibility of over 20 years in jail.

I’ve reported extensively since 2014 on the alleged pump and dump stock schemes the DOJ thinks AJ DiScala led with New York-based attorney Darren Ofsink and Nevada-based attorney Kyleen Cane. All three are still fighting the charges with plans to go to trial. The DOJ has now secured four guilty pleas from DiScala’s crew of co-conspirators, which included his investment banking partner at OmniView Marc Wexler, who are presumable now helping the DOJ with their case. The DOJ says Goodrich only acted illegally in the manipulation of one of four stocks in their complaint.

According to FINRA records Goodrich was a licensed investment advisor and broker for 14 years. He spent most of his career as a broker for Burt Martin Arnold who founded El Segundo-based broker-dealer BMA Securities. The broker dealer has multiple FINRA enforcement actions, fines and sanctions against them. On November 11th, 2104 the broker dealer, Goodrich, and Arnold were charged by their regulator for failure to supervise deficiencies regarding sales of unregistered securities, failure of duty to conduct a reasonable inquiry into the issuance of large blacks of stock to only a few clients who sold millions of shares just six days after being issued the free trading shares. The manipulation of Cubed occurred between March-July 2014. The FINRA charges don’t say which microcap stock these charges are for but they sound very familiar to how the DOJ described the Cubed manipulation in their complaint against Goodrich a year later. Goodrich and Arnold (who was not charged by the DOJ) were suspended by FINRA for 30 days and broker dealer had to pay a hefty fine of $325,000. Goodrich left BMA Securities a month before he was arrested.

Goodrich’s plea deal causes new headaches for attorney Kyleen Cane. She is alleged to have been the thought leader behind their shares into escrow account scheme. According to DiScala, who I first interviewed in September 2014, Cane came up with the idea that the mom and pop investors, who brokers like Goodrich would convince to buy Cubed’s stock, would have their shares deposited in an escrow account for the first six months to a year to make sure their wasn’t a rush to dump the stock of the newly reverse merged company–this included AJ’s own shares he said he agreed to have put in escrow in an effort to support the newly traded stock. The DOJ says unbeknownst to investors Cane, who controlled the shares going in and out of escrow accounts, released millions of the shares, that were suppose to be restricted, to dummy nominee accounts that AJ and his co-conspirator brokers controlled. And those shares are what aided in creating a false impression there was a buying and selling in the stock to make a market and increase the share price. Cane in her legal motions denies her leadership role in the escrow scheme. But with Goodrich now pleading in open court that Cane told him how she was doing the scheme there is new strong evidence against her. This is on top of the wire taps that DOJ has of AJ and Darren talking about Cane’s scheme.

Cane was formerly a man named Michael Cane, according to bar records. She has filed some aggressive litigation in Stamford and Las Vegas state courts against some of the investor deal finders in Cubed who were not arrested named Max Kahn and Michael Caridi. She throws out the notion that Kahn and Caridi are two of the confidential witnesses the DOJ doesn’t name in their original charges in her complaint. According to Kahn and Caridi’s attorney at Anderson Kill this claim is ‘absurd’. But whoever got the DOJ’s attention to bring to case and ask for wire taps of AJ’s cell phone is still unknown.

Goodrich is still out on bail, his father an LA-based litigator Brenton Foster Goodrich put up $250,000 for his son’s million dollar bond and his wife Mindy Goodrich put their amazing ocean view home as collateral. There is no date set for his sentencing yet as I am sure the DOJ will wait till the DiScala case is concluded. Goodrich, who grew up in the Palos Verde section of L.A.’s southbay, was forced to sale his family home for $6.15 million in May. You can see a sales video tour of the beautiful 5 bedroom, five bath modern home here. I am assuming the house was sold to help pay legal fees and upcoming restitution.

Goodrich and BMA Securities did not return a call for comment. I reached out to AJ’s attorneys about Goodrich saying ‘AJ’s guilty’ but they did not return an email for comment.

3 Comments
15 Apr

Unsealed Bear Stearns emails shows Executives lied about Bank Failure

For a few months I’ve been fighting behind the scenes to get a private civil fraud lawsuit against Bear Stearns and its senior leaders Jimmy Cayne and Warren Spector unsealed. I won that battle last month in Manhattan federal court and discovered a war chest of internal emails by over a dozen Bear Stearns executives and confidential communications to its regulator, the Securities and Exchange Commission, that showed these men have misled the public for 8 years on the how, when, and why Bear Stearns really failed. I then chose to partner with one of my favorite and highly respected investigative journalist Roddy Boyd to report a story on how the SEC knew as far back as 2005 that something wasn’t right about the way Bear Stearns was disclosing its risk in the fixed income-mortgages department, run by Tom Marano, that eventually took down the bank. Shockingly the unsealed emails showed Bear’s CFO and public face to investors, Sam Molinaro, tell his team “we need liquidity ASAP” on the same day (Aug 3rd 2007) he held a public investor call reassuring Bear Stearns investors capital levels and liquidity was just fine.

The fact pattern I uncovered, which shows the depth of internal awakening by Bear Stearns executives back in the summer of 2007 that their beloved 100-year-old bank was in serious trouble and they planed to keep it quite from The Street and investors, is beyond troubling. But when I realized the SEC could have published a letter Molinaro sent them detailing what their real subprime risk was (and not disclosed in their financial statements) months before the bank failed and admitting they could go under; feels like the SEC aided these executives in their crimes of investor fraud and complete breach of their fiduciary duties.

I urge all my readers to take the time to read our story at the non-profit investigative journalism publication www.sirf-online.org. This publication was founded by Roddy Boyd and depends on the generous donations of readers to cover and report stories that a lot of main street financial publications won’t touch but should. You can find the DONATE NOW button on the top right of the home page. I spent my time and money going through the legal system to unseal this case and make these important documents available to The Street, other reporters, and the investing public to read for free. It took Roddy Boyd and I a lot of digging and skill to write an engaging story that corrects the record and exposes this truth that occurred during one period of the financial crisis. Please join the other readers who have donated to help us cover the cost of this important work.

I would also like to thank the New York-based law firm of Rottenberg Lipman Rich and attorney Tom Chase who represented me in our legal work to get the case of Bruce Sherman v. Bear Stearns unsealed. And to William D. Cohen who gave credit to my work in the New York Times today. He’s got his own amazing account from rare interviews with Bear executives that shows the level of deception these men went through to push blame to anyone but themselves.

6 Comments
23 Dec

Former NY Giants Amani Toomer’s brother Indicted in Mircocap Fraud

Some of the bad actors who aided top New York attorney Adam Gottbetter in years of stock manipulation were exposed this month when they were charged criminally by the New Jersey DOJ. We know now Gottbetter’s criminally enterprise consisted of the brother of one of NY Giants best wide-receivers Amani Toomer and a Homdel, NJ merchant banker who’d previously been convicted of aiding in the stock fraud at bucket shop L.C. Wegard & Co. in the 90’s. Donald Toomer Jr. was indicted on conspiracy and securities fraud charges December 21 and Samuel DelPresto, the owner of merchant bank MLF Group, plead guilty to one count of conspiracy via a plea deal in New Jersey federal court on December 15.

The pump and dump schemes at the heart of these charges occurred for years in a multiple microcap companies who became public through reverse mergers. One of the most publicized stocks in the scheme was Mesa Energy Holdings whose stock went from .50 cents to $3.50 and boosted former NY Governor George Pataki on its board. I first reported in June for Growth Capital Investor on the Gottbetter case, which left the microcap investing community wondering who all the co-conspirators in the government’s complaint were and who in the scheme was out there still working and wearing a wire. Case in point: DelPresto’s plea deal was signed June 2 and his arraignment and charges were kept secret by the DOJ until December 15.

Toomer was a defensive back for Utah State and recruited as a rookie free agent to the Cincinnati Bengals but had to leave NFL before his pro football career started because of a shoulder injury. FINRA’s brokercheck shows he then became a licensed wealth advisor working for PaineWebber in New Jersey. In 2005 he landed at bulge bank Wachovia managing their clients’ money out of the bank’s Las Vegas office and continued with Wells Fargo when it bought the bank during the financial crisis.

DelPresto and an unnamed co-conspirator stock promoter recruited Toomer in the scheme as early as 2008, according to the DOJ complaint. The duo promised Toomer a 10 percent kickback off the amount of stock he convinced his clients to invest. The kickback was not disclosed to Wells Fargo or Toomer’s clients. This reporter has discovered the co-conspirator is Vegas and Hermosa Beach resident Nathan B. Montgomery. SEC filings show Montgomery’s firm NBM Investments LLC held a beneficial ownership in Mesa Energy Holdings of 9 percent. Montgomery was sentenced to jail for conspiracy to defraud investors in CO2 Tech ($CTTD) in May 2012 and released early from his 40 month sentence on July 14, 2014. This was just weeks after the New Jersey DOJ convinced attorney Gottbetter to sign a confidential guilty plea deal in June 2014 and agree to work with the DOJ until the charges were announced in May 2015.

On December 15 the DOJ said in a press release, “In order to fraudulently inflate the price and volume of the Target Companies’ stocks, DelPresto’s conspirators paid cash kickbacks to an investment advisor in Las Vegas so that he would purchase the Target Companies’ stock on behalf of his clients.” We know now that investment advisor was Donald Toomer Jr. who worked as a Wells Fargo. The purpose of Toomer getting his clients to invest in the Target Companies was to, among other things, create the false appearance of market interest and demand in the stock; build trading volume that would be attractive to potential investors who would later receive promotional materials about the stock; and generate income to fund the promotional campaigns, including email blasts and newsletters, that occurred in the later phases of the stock manipulation scheme, according to the DOJ.

Toomer also stands accused of telling management at Wells Fargo that his clients invested in the stocks at the heart of the DOJ’s complaint because they came to him asking to be in the stock. When in reality he told his clients he’d done his own independent research and convinced them to invest through solicitation. After the clients lost money in the dump phase of the stocks, Montgomery gave Toomer cash to pay his clients off for the losses, according to the DOJ. Toomer is also charged with conspiracy to commit investment advisor fraud which faces up to a 20 year sentence.

By pleading guilty to one count of conspiracy and agreeing to a forfeiture of $13 million, U.S. attorney Paul Fishman of the New Jersey Dept. of Justice agreed to not pursue any charges for stock fraud for activities between 2007 and 2013 against DelPresto. The signed plea agreement, seen by this reporter, says the DOJ wanted to charged DelPresto for stock fraud manipulation schemes in : Kentucky USA Energy ($KYUS), Mesa Energy Holdings ($MSEH), Bioneutral Group ($BONU), Clear-Lite Holdings ($CLRH), NXT Nutritionals Holdings ($NXTH), Empire Post Media ($EMPH), Mustang Alliances ($MSTG), IDO Security ($IDOI), Brainy Brands Co ($TBBC), Premier Brands ($BRND), LTS Nutraceuticals ($LTSN).

Court documents show the government seized bank accounts of DelPresto’s wife Michelle who has recently come under fire for alleged false statements made about a nutritional supplement DZ10 that she promotes. Michele is a yoga and crossfit trainer who likes to post photos of her workouts on social media. Bank accounts of the couple’s three girls were also seized. The family lives in a customer built $2.6 million home at 8 Hop Brook Lane in Holmdel, New Jersey. Sam DelPresto was released on bond and is awaiting sentencing of up to five years in jail on April 5 2016.

Michelle DelPresto wife of convicted pump and dump criminal Sam.

Michelle DelPresto wife of convicted pump and dump criminal Sam.

Microcap attorney Adam Gottbetter is currently serving 18 months in jail for his role in the pump and dump of Kentucky USA Energy. Gottbetter and DelPresto have worked on microcap reverse merger deals for years. Notably Gottbetter was the deal lawyer for Mesa Energy Holdings who received shares for services in Mesa Energy, according to SEC filings. In April 2010 investigative journalist Chris Carey spelled out what he believed was a coordinated effort between DelPresto and Gottbetter to pump and dump Mesa Energy Holdings. Notable short seller Timothy Sykes was also way ahead of the government in trying to expose the pump and dumps by warning his clients as early as March 2010 about three of the four stocks DelPresto plead guilty to conspire to commit securities fraud.

Toomer was released on a $200,000 unsecured bond on Tuesday December 22. His attorney Michael Critchley did not return a request for comment.

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7 Nov

Feds Finally Arrest DiScala’s Microcap Attorney Ofsink

It took the Dept. of Justice over a year to use documents seized in the arrest of microcap financer A.J. Discala to nab his deal lawyer Darren Ofsink of Merrick, NY and the co-founder of the broker dealer, Halcyon Cabot Partners, DiScala used to allegedly execute stock manipulation in multiple emerging growth companies. In an exclusive interview with DiScala last year Ofsink’s name came up as a possible government witness against DiScala. Based on emails and deal documents in a publicly traded company called CodeSmart, seen by this reporter, it didn’t make sense that Ofsink wasn’t arrested with DiScala last summer. We now see the Brooklyn DOJ lawyers just needed to flip some of those arrested (AJ’s partner Mark Wexler) with AJ to get the necessary goods to issue a warrant for attorney Ofsink. The SEC followed the DOJ’s led on this case and also issued an enforcement action against Ofsink for stock manipulation Wednesday along with Morris and Halcyon’s co-founder Ronald Heineman.

I reported for Growth Capital Investor on Wednesday that Ofsink is accused of hiding beneficial ownership of stock for multiple people involved in the alleged pump and dump scheme. If you hold more than 5% of a company’s stock it must be publicly disclosed. Even more so if you were a financier on the reverse merger or public offering. The feds are also accusing Ofsink of helping CodeSmart create a sham consulting agreement so the company could move 750,000 shares to customers of two stock brokers arrested in this case. The shares came from deal insiders like DiScala who were initially given the stock at $.023. The idea, alleged crafted by Discala, Ofsink, and the CodeSmart CEO Ira Shapiro, was to give the aggrieved mom and pop investors deep discounted shares ($.14) so they wouldn’t complain to the Feds about the sudden drop in CodeSmart’s shares. There are also accusation that the trio wanted to create buying action in the stock during a downturn– the downturn was created by DiScala and team pump and dump. The SEC in a parallel suit is under the impression DiScala offered up his shares to aggrieved investors to make money but this doesn’t totally make sense given he could have sold them on the open market for soooo much more. Additionally there is no law against giving away shares.

The government’s case in this exchange appears to rest on proving the trio issued false sec filings about the ‘cheap shares to investors’ deal and mislead the rest of investing public. Ofsink as the deal attorney on CodeSmart should have known this was a no-no. DiScala in our interview of course said he was relying on Ofsink’s legal counsel if the transaction was ok.

A search of SEC public filing shows Ofsink, founder of New York-based law firm Ofsink LLC, has represented more than 50 public companies in financings. Bill Meagher of The Deal reported, Data from PrivateRaise shows that Ofsink represented either issuers or investors in a total of 39 transactions that raised a total of $348.1 million.

Ofsink also had a robust practice with China reverse merger deals that went public in the U.S., representing around 32 companies. Ofsink was often seen showing off photos of him eating scorpions during his China trips at microcap industry conferences. The biggest fraud he represented was $RINO, Rino International Corp, who settled with the SEC after the company executives were accused of overstating revenues and using company funds for their personal pleasures. RINO was kicked off NASDAQ in 2010.

But this wasn’t the only illegal action this crew took. The SEC has figured out Halcyon Cabot was allowing DiScala to trade his CodeSmart shares without having the money in his account to pay for it. One of the arrested Halcyon brokers, Craig Josephberg, was using money from the brokerage’s own account to fund DiScala’s trades, according to the SEC complaint. It wasn’t until the brokerage’s clearing firm said they were going to halt all of DiScala’s trading unless he paid $1.5 million due in trades completed, that the brokerage finally did their fiduciary duty and stopped DiScala trading. Apparently this whole lack of supervision by Morris and his co-founder Heineman is what got the SEC mad enough to charged the duo on Wednesday.

Ofsink and Morris, through their attorneys have made press statement that they plan to fight the DOJ charges through trial. Both pled not guilty and were released the same day on $1 million bond. The DOJ said in their complaint they plan to go after the men’s homes or any other assets they think they bought off their alleged illegal gains.

Last September I wrote a long piece called the Seedy World of Microcap Advisors. It’s been the most read story of the year on teribuhl.com. Based on my exclusive interview with DiScala and others he put me in touch with, along with a binder full of deal documents and emails, I reported there are other bad actors in this deal. Namely Joe Salvani and Ben Walsh, two microcap financing consultants who have some how escaped arrest so far. Salvani was sued by the SEC during this dot.com days but has never been arrested for his role in multiple microcap deals.

The DOJ claims the DiScala and crew fraud amounted to $300 million in illegal profits between all but that doesn’t add up and reads like a headline number Loretta Lynch needed to pump up her run for U.S. Attorney General. The DOJ and SEC often take the highest price a stock traded for and assume that’s when the pumpers sold and then just throw out the number in their press releases. When they get through discovery you often see how wrong they were and that’s why we see cases settle for so much less. Honestly if AJ Discala had even made $20 million on this deal we likely would have left the country with his smart, beautiful new wife, way before his arrest. Keep in mind AJ knows real estate from his family’s business and then managed his ex-wife actress Jamie Lynn Singer. He wasn’t even licensed in the world of micro-cap financing and based on our interviews he doesn’t believe he did anything criminal. That might be because he doesn’t how the laws work on securities financing and Ofsink was the perfect attorney to let him think this was all OK. Or he is just a really good actor and salesman and made me think he is dumber and inexperienced than he really his.

Watch for more reporting at www.growthcapitalist.com on the bucket list of illegal things broker dealer Halcyon Cabot was doing outside of the CodeSmart fraud next week. At least FINRA was finally revoked their license last month. If you were an investing client on Halcyon I would love to hear from you – teribuhl@gmail.com.

Donations are always helpful for this kind of shoe-string beat the street reporting , which other papers I’ve reported for often ignore because the firm size and players are considered too small. In my view fraud is fraud and it all needs reporting.

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