Don't think it can't happen to this Team/Crew!!!
Published Nov 04, 2015
Darren Ofsink, a Manhattan attorney and founder of Ofsink LLC; Michael Morris, a registered broker and managing director of Halcyon Cabot Partners, Ltd. (Halcyon); and Darren Goodrich, a registered broker; were arrested earlier today on charges of securities fraud, wire fraud, and conspiracy to commit securities fraud, mail fraud, and wire fraud in connection with a $300 million market manipulation scheme.
In addition to the three defendants arrested today, the eleven-count superseding indictment unsealed this morning charges four additional defendants who were arrested in July 2014: Abraxas J. Discala, also known as “AJ Discala,” the Chief Executive Officer of OmniView Capital Advisors LLC; Ira Shapiro, the Chief Executive Officer of CodeSmart Holdings, Inc., a publicly traded company; Craig Josephberg, a registered broker; and Kyleen Cane, a Las Vegas attorney and managing partner of Cane Clark LLP. Three defendants, Marc Wexler, Matthew Bell, and Victor Azrak, who were charged in the underlying indictment, have pleaded guilty and are awaiting sentencing.
As alleged in the indictment and other court filings, between October 2012 and July 2014, the defendants agreed to defraud investors and potential investors in four public companies: CodeSmart Holdings, Inc. (CodeSmart), trading under the ticker symbol ITEN; Cubed, Inc. (Cubed), trading under the ticker symbol CRPT; StarStream Entertainment Inc. (StarStream), trading under the ticker symbol SSET; and The Staffing Group, Ltd. (Staffing Group), trading under the ticker symbol TSGL (collectively, the Manipulated Public Companies) by artificially controlling the price and volume of traded shares in the Manipulated Public Companies through false and misleading press releases, false and misleading SEC filings, fraudulent concealment of the defendants’ and their co-conspirators’ ownership interests, engineering price movements and trading volume in the stocks, and unauthorized purchases of stock in accounts of unwitting investors.
In early May 2013, the defendants engineered a reverse merger of CodeSmart, a private company, with a shell public company. After gaining control of CodeSmart’s three million purportedly unrestricted shares, the defendants, including Ofsink and Morris, on two occasions fraudulently inflated CodeSmart’s share price and trading volume and then sold their shares at a profit when the price reached desirable levels — a scheme commonly referred to as a “pump and dump.” The first pump and dump occurred between approximately May 13, 2013 and August 21, 2013. During this period, the defendants manipulated CodeSmart’s stock price by raising it from $1.77 to a high of $6.94 (a 291% increase), before causing it to drop to $2.19 (a 217% decrease). The second pump and dump occurred between approximately August 21, 2013 and September 20, 2013. During this period, the defendants manipulated CodeSmart’s stock price by raising it from $2.19 to a high of $4.60 (a 104% increase), before causing it drop to $2.13 (a 116% decrease).
CodeSmart’s market capitalization at its highest closing price of $6.94 per share on July 12, 2013 was $86,347,800. However, that same day, CodeSmart filed with the SEC an amended Form 10-K, in which it listed only $6,000 in total assets, $7,600 in revenue, and a net loss of $103,141. By December 30, 2013, CodeSmart’s stock was trading at $0.66 per share, and on July 9, 2014, its stock closed at $0.01 per share.
In March 2014, the defendants took Cubed public through an asset purchase agreement. Between April 22, 2014 and April 30, 2014, they concocted trading volume in this stock by purchasing more than 50% of the total number of Cubed shares purchased during this period.
A judicially-authorized wiretap of Discala’s cellular telephone revealed that the defendants and their co-conspirators fraudulently manipulated Cubed’s stock by artificially controlling the price and volume of that stock through, among other things, wash trades and matched trades. Rather than generating significant market interest and causing a quick pump and dump that would elicit regulators’ scrutiny this time, the defendants gradually increased the price of Cubed’s stock to give it the appearance of a legitimate company with genuine and steady market demand for the security. The defendants used an escrow account maintained by Cane to successfully control the price and volume of Cubed’s stock. For example, on May 20, 2014, during a telephone call between Discala and Azrak, Discala emphasized his control over Cubed’s share price through the use of the escrow account, stating, “I’m the [expletive] brake and the gas, [expletive]. If I take my foot off the brake its 55 [dollars] tomorrow (laughter).”
On June 23, 2014, Cubed reached its highest closing price of $6.75 per share, resulting in a market capitalization of approximately $200 million. Previously, Cubed filed with the SEC a Form 10-Q and reported less than $1,500 in cash, zero revenue, negative stockholders’ equity, a net loss of $15,000, and accrued professional fees of $131,824.
