Dragon International Group Corp (fka DRGG)

[Stockdung]

"$50,000 in cash to Mr. Brown, delivered in a paper bag, prosecutors said."


Contact: Andrew Brown
ROI Group Associates, Inc.
Tel: [phone]
Email: [e-mail]
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Government Accuses 6 Men of $55 Million Offshore Fraud
http://www.nytimes.com/2007/10/20/business/20trader.html?ref=business
By MICHAEL J. de la MERCED
Published: October 20, 2007

Federal prosecutors charged six men yesterday, including a New York corporate lawyer, three former executives and two Israeli investors, with making $55 million in fraudulent profits via private stock sales.

In Federal District Court in Brooklyn, prosecutors said that Edward and Steven Newman, Martin E. Weisberg, Andrew Brown, Zev Saltsman and Menachem Eitan ran a four-year scheme that revolved around Xybernaut and Ramp, two companies now in bankruptcy.

The Securities and Exchange Commission filed a civil lawsuit against them yesterday as well.

At the crux of the case is a security known as a private investment in public equity, or PIPE, in which a company sells shares to an accredited investor, usually at a discount. Because of the tendency of these kind of investments to depress a stock — they dilute existing shareholder stakes — they can prove lucrative to those with advance knowledge of them.

According to the indictment, Mr. Saltsman, 45, and Mr. Eitan, 51, two investors based in Israel, arranged to buy hundreds of thousands of shares in Xybernaut, a Fairfax, Va., maker of portable computer hardware, and Ramp, a New York producer of software for health care providers, from 2001 to 2004.

The two men used 37 offshore shell companies to buy the shares at a sometimes considerable discount. Prosecutors said they had arranged the sales with the cooperation of Edward Newman, 64, and Steven Newman, 61, brothers who worked as the chief executive and president, respectively, of Xybernaut until 2005; Mr. Weisberg, 57, a New York partner at Baker & McKenzie and a former Xybernaut director; and Andrew Brown, 38, the former president of Ramp.

Mr. Saltsman and Mr. Eitan sold both companies short, and then repaid the shares using their discounted stock. Altogether, prosecutors say, the two men made $16 million in profit from their Ramp sales and $39 million from their Xybernaut transactions.

To hide the transactions, which gave Mr. Saltsman and Mr. Eitan up to a 37 percent stake in Ramp and an 18 percent stake in Xybernaut, both companies illegally failed to disclose the PIPEs in regulatory filings. Prosecutors also say that Mr. Weisberg lied to regulators and Ramp’s auditors about two investments Mr. Saltsman and Mr. Eitan made in the company.

In return, Mr. Saltsman and Mr. Eitan are said to have paid more than $4 million in kickbacks to the other co-defendants. Among those payments were $1 million to Steven Newman through Mr. Saltsman’s Swiss bank account and $50,000 in cash to Mr. Brown, delivered in a paper bag, prosecutors said.

Mr. Brown was arraigned in Federal District Court in Brooklyn and posted a $1.5 million bond. Steven Newman was arraigned in federal district court in Virginia and posted a $1 million bond.

Mr. Saltsman was arrested in London on Thursday, and prosecutors are seeking his extradition, a spokesman for the United States attorney’s office said.

Arrest warrants were issued for Edward Newman and Mr. Weisberg. Lawyers for both men said their clients intended to turn themselves in on Monday.

Elkan Abramowitz, a lawyer for Mr. Weisberg, said: “My belief is that this indictment mischaracterizes Mr. Weisberg’s conduct in this matter. He acted at all times as an attorney and the payments described in the indictment will ultimately be shown to have been all legitimate.”

A spokeswoman for Baker & McKenzie, Mr. Weisberg’s law firm, said it believed that the events began before he started at the firm, and that he was on leave until the matter was resolved.

John M. Tran, a lawyer for Edward Newman, said: “We are doing everything we can to get him before the court,” and declined to comment further.

Alexander H. Gardner, a lawyer for Mr. Brown, declined to comment. No information on lawyers for Mr. Saltsman and Mr. Eitan was available. Prosecutors intend to seek the extradition of Mr. Eitan from Israel. He is not in custody.