SEC charges Saquella in $3-million (U.S.) pump-and-dump
U.S. Securities and Exchange Commission (C:*SEC)
Monday September 10 2007 - Street Wire
by Mike Caswell
The U.S. Securities and Exchange Commission has filed civil fraud charges against Michael Saquella, 47, for a $3-million pump-and-dump that included Canadian brokerage Research Capital Corp. as an unwitting conduit. Prosecutors say Mr. Saquella, a recidivist securities violator from Mesa, Ariz., manipulated seven pink sheets stocks over four years. (All figures are in U.S. dollars.)
The SEC suit parallels a criminal case against Mr. Saquella. On Thursday, Sept. 6, Department of Justice prosecutors announced they have charged Mr. Saquella and three others with conspiracy to commit securities fraud and mail fraud.
Mr. Saquella has pled guilty to the criminal charges and has agreed to pay $2.5-million to settle the SEC case.
SEC files suit
The SEC's 26-page complaint names as defendants Mr. Saquella, aka Michael Paloma, and Lawrence Kaplan, 63, a broker from Arizona. Since 2002, Mr. Saquella has orchestrated unlawful public offerings of at least seven companies.
To facilitate his schemes, Mr. Saquella surreptitiously gained control of privately held companies by promising their principals he could provide them with hundreds of thousands of dollars in financing.
Once he gained control, he listed the companies on the pink sheets. To help his scheme he enlisted the help of Mr. Kaplan, who executed wash sales and matched orders to artificially inflate each company.
Once he established an artificial appearance of market activity, Mr. Saquella arranged for fax and e-mail spam campaigns touting the stocks. "Ultimately, Saquella and Kaplan profited by dumping stock of the new issuers into the market at the artificially inflated prices," the complaint reads.
Then they stopped trading, and the stocks plunged. "Public investors who bought shares based upon the artificial appearance of an active market ... were left holding virtually worthless securities."
Seven companies
The SEC identifies seven companies Mr. Kaplan pumped. They are Courtside Products Inc. of Spokane, Wash., Latin Heat Entertainment Inc. of West Covina, Calif., Xtreme Technologies Inc. of Spokane, Wash., PokerBook Gaming Corp. of Hollywood, Fla., Motion DNA Corp. of Scottsdale, Ariz., TKO Holdings Inc. of Pompano Beach, Fla., and Commanche Properties Inc. of Tucson, Ariz.
With each company, Mr. Saquella entered into a standard agreement in which he would arrange for the company to be quoted on the pink sheets and he would arrange a financing of up to $1-million. The SEC says he concealed important facts, "including his intent to conduct an unlawful public distribution of the company's shares and then manipulate the market for those shares."
To facilitate the scheme, Mr. Saquella hired California lawyer Kenneth Christinson to draft opinion letters. The letters made it possible for Mr. Saquella to obtain shares free of restrictive legends.
He had the companies issue shares to various entities he controlled. He told the principals that the shares were going to investors or underwriters.
Next, he transferred hundreds of thousands of shares, typically at no cost, to Mr. Kaplan, who in turn contacted brokers and had them place limit orders for the companies at a set price.
Creating news
With the artificial trading giving the illusion of an active market, Mr. Saquella needed to "induce unsuspecting investors to buy the shares." To accomplish this, he hired an investor relations firm to report purportedly newsworthy events.
For example, Latin Heat, a purported publishing company, issued a news release at Mr. Saquella's request announcing that it had "initiated discussions with the largest publisher in Latin America for possible alliance [sic]."
At the same time, Mr. Saquella hired spammers to tout the stocks The junk mailers sent out the typical rubbish found in such communications. "New Hot Stock Pick!!!:Hispanic Market BOOMS," read the title of an e-mail touting Latin Heat.
After the promotional campaign was under way, Mr. Saquella and Mr. Kaplan dumped their shares. The SEC says Mr. Kaplan made $205,886 and Mr. Paloma made $91,736 from Latin Heat transactions.
Motion DNA
Another company Mr. Saquella dumped was Motion DNA Corp., a provider of diagnostic testing for medical professionals and sports organizations. On Jan. 27, 2004, Motion DNA issued 10 million shares to two Saquella-controlled entities. The shares were issued without a restrictive legend.
Three days later, Mr. Saquella began a series of wash trades, which he ran partly through Research Capital. The SEC says Saquella-controlled entities were at both sides of transactions designed to create an artificial market.
The SEC says trading by Mr. Kaplan and Mr. Saquella represented 98 per cent of Motion DNA's volume on Jan. 30, 2004. The regulator does not mention all the brokerages used; it names only Research and Secure Trading.
Over the next four months, Mr. Saquella co-ordinated a spam campaign that predicted the company would have annual revenue of $18.38-million by 2006, and assigned it a 10-day target price of $2.04.
The SEC says he sold at least 1,775,000 shares, for proceeds of $473,499.
AI
