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Re: samsamsamiam post# 72186
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Rise and Fall of Penny Stock Cynk in Feds' Sights
Criminal Probe Includes Scrutiny of Two Belize-based Businessmen

By Jean Eaglesham and Christopher M. Matthews
Sept. 11, 2014 7:49 p.m. ET

Federal prosecutors are investigating the rise and fall of shares in tiny Cynk Technology Corp. in a criminal probe that includes scrutiny of two Belize-based businessmen accused of money laundering and stock manipulation, according to a person close to the probe.

The criminal investigation into Cynk is running parallel to a civil probe by the Securities and Exchange Commission, said people close to the probes.

Investigators are scrutinizing the stock's climb and subsequent collapse this summer, which briefly gave the social-network operator a $6 billion valuation even though it reported no assets, no revenue and just one employee, the people said. Cynk shares closed Thursday at 20 cents, less than one-hundredth of their $21.95 peak hit in mid-July.

A representative of Cynk, which hasn't been accused of any wrongdoing, couldn't be reached for comment.

The Cynk probe comes amid efforts by U.S. authorities to clean up the penny-stock markets, where thousands of tiny "microcap" companies trade with few controls on their financial reporting and operations. Prosecutors are using an array of undercover operations to tackle what they call rampant fraud.

In a separate case Thursday, the Manhattan district attorney's office charged eight individuals with running a $290 million pump-and-dump scheme. The 85-count indictment alleged that a penny-stock promotion team working together with a handful of small companies used websites such as Monsterstox.com to manipulate the firms' stock prices and defraud investors. The scheme netted more than $30 million in stolen funds, according to prosecutors. Lawyers for two of the defendants didn't immediately respond to requests for comment. Lawyers for five others couldn't be identified.

"[My client's] conduct was at all times legal and proper," said Michael Bachner, an attorney for one of the defendants, Jay Fung.

One arm of the Cynk investigation is focused on Belize, the offshore financial center that the company lists as its base, according to a person close to the probe. Prosecutors are mining evidence from a two-year sting operation in which an undercover agent posed as a crooked penny-stock promoter, the person said.

That sting led to criminal charges disclosed Tuesday against six Belize residents, as well as three offshore brokerage firms and other companies they controlled. Prosecutors detailed how the men allegedly concocted a $500 million scheme using sham offshore companies that allowed investors to hide their stakes in manipulated penny stocks and evade U.S. taxes.

Belizean authorities conducted simultaneous raids on the brokerages on Wednesday, according a person briefed on the matter. Representatives of the Belizian police didn't immediately respond to requests for comment.

The undercover operation included wiretaps on five phones that captured real-time evidence of an alleged pump-and-dump scheme earlier this year. Prosecutors said the scheme sent the share price of Cannabis-Rx Inc. plummeting from $13.77 to 50 cents in less than a month. Llorn Kylo, chief executive of Cannabis-Rx, a real-estate firm based in Scottsdale, Ariz., that specializes in the regulated cannabis industry, said the company "and its law-abiding shareholders are victims of this alleged scheme." Cannabis-Rx hasn't been accused of any wrongdoing.

The indictment detailing the Belize-related charges, unsealed in a federal court in Brooklyn, N.Y., on Tuesday, doesn't refer to Cynk. But at least two of the men charged—Robert Bandfield, 70 years old, and Andrew Godfrey, 51—are being investigated as part of the Cynk criminal probe, said a person close to the probe.

Lawyers for the two men couldn't be identified.

A company founded and controlled by Mr. Bandfield, and where Mr. Godfrey also worked, called IPC Corporate Services, operated out of the same floor of the same office building as Cynk's reported address in Belize City at the time of its share rise.

Two of the brokerage firms charged following the sting— Titan International Securities Inc. and Legacy Global Markets SA—also have offices on the same floor. The third brokerage charged, Unicorn International Securities LLC, is based just down the road at 1 Coney Drive, the address now reported by Cynk in its profile on OTC Markets, the platform where its stock trades.

Jacob Frenkel, a lawyer representing Titan; its president, Kelvin Leach; and head securities trader Rohn Knowles in the criminal case, said, "Titan is confident that its compliance processes and adherence will reflect that any activity in Cynk was consistent with the law and best practices."

Christopher Bruno, an attorney for Unicorn and its president, Jim Can, said, "We're weighing our options as how we're going to respond to this indictment, including issues pertaining to extradition."

Write to Jean Eaglesham at jean.eaglesham@wsj.com and Christopher M. Matthews at christopher.matthews@wsj.com


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