SEC Charges Eleven in Stock Manipulation Ring

[Jeff.Mitchell]

May 22, 2009


Newark man accused of leading stock scam

Six charged in 'pump and dump' operation

By SEAN O'SULLIVAN
The News Journal

WILMINGTON -- Six men led by a 24-year-old Newark resident are accused of raking in about $6 million through a complex series of frauds that jacked up the price of penny stocks by deceiving investors across the country into buying them, according to federal court papers.

The group operated a "pump and dump" scam over two years in which they colluded to "pump" up the price of penny stocks, then "dump" them when they reached a certain, profitable level, says a civil suit filed by the government and related criminal indictments unsealed Thursday.

They did this, according to court papers, by first making a series of large volume trades of the targeted stock between accounts they controlled. That made it appear to anyone who researched the company that there was sudden and substantial interest in the stock, driving the price up.

To further escalate interest in the stock, they would add a promotional campaign that included sending out positive spam e-mails about the company and making favorable mentions of it in Internet chat rooms, according to the indictments.

All of this was timed with official news releases from the companies -- which were working with the group in return for a piece of the profits -- that contained overly optimistic and bogus information about performance and profits that was dictated by the fraud operators, they say.

Once outside investors were drawn to buy the stock, and its price was at a new high, they would sell, reaping a substantial profit, the papers allege.

The nominal head of the operation -- that stretched across the country and across borders via the Internet -- was Pawel P. Dynkowski of Newark, who is still at large, according to court papers.

The prosecution is believed to be the first of its kind for Delaware, according to the U.S. Attorney's Office.

This high-tech, complicated, Internet-based fraud operation -- which used a variety of shell companies, prepaid disposable cell phones, instant messaging and encrypted electronic communications -- was brought down by a courier who was caught speeding through Texas with $155,000 in cash, money he was transporting from California to Dynkowski in Delaware, the papers say.

That arrest in January or February 2007 led authorities to seize five vehicles, including a Porsche and a Lamborghini, and more than $100,000 from Dynkowski's Newark home, where he lived with his parents, authorities say.

Dynkowski's attorney, John Malik, would not comment on the charges, on Dynkowski's wherabouts or whether he will turn himself in. Court papers indicate he also has a California address.

The others facing criminal charges turned themselves in and made court appearances, said Assistant U.S. Attorney Shannon T. Hanson.

Also named in the indictments are Joseph Mangiapane Jr., 43, of Laguna Niguel, Calif; Marc Riviello, 50, of Atherton, Calif.; Matthew W. Brown, 26, of Aliso Viejo, Calif.; Jacob Canceli, 50 of Mission Viejo, Calif.; and Gerard D'Amaro, 38, of Lighthouse Point, Fla.

Canceli and D'Amaro are stock promoters, according to court papers, and Brown operated the penny stock Web site, InvestorsHub.com.

Mangiapane is listed in court papers as CEO of Rubicon Financial Inc., the owner of AIS Financial, where Riviello worked.

All are charged with one or more counts of securities fraud, wire fraud, conspiracy to commit securities fraud, conspiracy to commit money laundering and/or money laundering. Each of the counts carries penalties of up to 20 years in prison and fines of up to $5 million.

A seventh man, Angelo "Bill" Panetta, 48, of Montebello Calif., is charged with perjury and obstruction of justice for allegedly lying to a federal grand jury. He faces up to 10 years in prison if convicted and up to $250,000 in fines for each count.

Two other men are named in the civil complaint filed by the federal Securities and Exchange Commission, but have not been charged criminally -- Adam Rosengard, a University of Delaware student from Voorhees, N.J., and Nathan M. Michaud, a Web site designer from Boston.

Michaud is alleged to have been an active part of the fraud operation while Rosengard is alleged to have essentially been a middleman, allowing some in the group to use an account in his name.

Attorneys for all charged declined comment or could not be reached.

How it worked

The "pump and dump" scheme was operated on the penny stock market, where stocks for small to tiny companies that often sell for fractions of a cent are traded -- in this case, through pinksheets.com and otcbb.com.

In one case, the stock price of a company called GH3, a Nevada company "that purports to market anti-aging products," was driven from .0004 per share at the start of the scheme, to 1.8 cents a share at the peak, a 4,000 percent increase.

As part of the scam, according to court papers, company officials would provide the defendants with massive amounts of stock, essentially for free or low cost, in exchange for kickbacks from the profits at the end of the campaign.

Dynkowski would orchestrate the fraudulent trading, chat on the Internet and issue bogus releases from the company, court papers say. He also set up false accounts to cover his tracks, they say.

In one exchange with a trader recounted in court papers, Dynkowski brags that an account would be traced to "some ... farmers in the middle of nowhere. ... They don't even know what they're doing. It's like who. What. Like what, the SEC's gonna go ask them questions? ... They don't even speak ... English. They have no idea what is going on."

According to the civil suit, during the pump and dump for a company called Asia Global, Dynkowski told Brown to have the company issue a news release as they were making trades to generate false activity, "and make it sound good ... like [Asia Global] announced record revenue net profits [sic]" and suggested it state the company had a 300 percent profit increase -- "Make it sound ENORMOUS."

Two days later, on Sept. 1, 2006, according to court papers, Asia Global issued a news release claiming its net income for the second quarter of 2006 had increased by 370 percent compared with the same period in 2005, and that its profits for July 2006 were 745 percent greater than July 2005.

In some frauds, according to court papers, they wouldn't just force the stock up once and sell on the way down, but would create several artificial peaks, selling each time as, or before, the price started to fall.

In addition to the U.S. Attorney, Immigration and Customs Enforcement, the Internal Revenue Service, the SEC and the Delaware State Police were all involved in the investigation.

COMPANIES INVOLVED

The companies involved in the "pump and dump" stock manipulation, according to court papers:

GH3 International Inc., a Nevada corporation that "purports to market anti-aging products sold under the name GeroVital H3, supposedly pursuant to a license from the government of Romania." It also allegedly offered anti-aging therapy treatments "in clinics across the United States."

Asia Global Holdings Inc., a Nevada company "purportedly operating in China with headquarters in Hong Kong." They advertised themselves as "a media company with rights to 'Who Wants to Be a Millionaire' in China."

Playstar Corp., an Antigua corporation with headquarters in Woodbridge, Ontario, that described itself as a communications company that was "purported to be in the business of SMS text services for cellular telephones."

Xtreme Motorsports of California Inc., a Nevada company with headquarters in Bakersfield Calif., it "claimed to produce 'dunebuggies' and 'sandcars.' "

INCA Designs Inc., a Nevada company, "purported to be in the business ... of designing and marketing swimsuits and resort wear to women and children."

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