SEC sues Georgiou for $20-million (U.S.) manipulation
2009-02-12 18:09 EST - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
Also Street Wire (U-AVCE) Avicena Group Inc
Also Street Wire (U-HYHY) Hydrogen Hybrid Technologies Inc
Also Street Wire (U-NOET) Northern Ethanol Inc
by Mike Caswell
The U.S. Securities and Exchange Commission has filed civil fraud charges against George Georgiou, 39, a Toronto man who allegedly made $20.9-million manipulating four companies, Avicena Group Inc., Neutron Enterprises Inc., Hydrogen Hybrid Technologies Inc. and Northern Ethanol Inc. (All figures are in U.S. dollars.) The SEC says Mr. Georgiou took the companies public on the OTC Bulletin Board and made sure he controlled all the non-restricted stock. He then allegedly paid nominees to hold the stock and execute manipulative trades at his direction.
Mr. Georgiou is currently living under house arrest in New York, while he awaits criminal fraud charges in Pennsylvania for some of the same allegations. He was arrested on Sept. 18, 2008, and later released on $2-million bond and ordered to live with his uncle on Long Island. A one-page criminal complaint and attached affidavit indicated he had manipulated stocks, but contained few details.
SEC's complaint
The SEC filed a complaint against Mr. Georgiou in the Eastern District of Pennsylvania on Feb. 12, 2009. It identifies him as a former broker who was disciplined by the Investment Dealers Association for unauthorized trading and misleading a client. The IDA banned him for 10 years on Jan. 31, 1995.
According to the complaint, Mr. Georgiou manipulated Avicena Group, a purported pharmaceutical company based in Palo Alto, Calif., between March, 2006, and November, 2007. The SEC says he agreed to invest $3-million in Avicena in April 2004, which gave him ownership of 21 million of the company's 51 million shares. He allegedly directed that the company enter into lock-up agreements with all other shareholders, so he controlled all the free-trading stock. In addition to controlling the company's stock, Mr. Georgiou allegedly obtained authority to appoint board members, which allowed him to scuttle at least two financings that could have diluted his interest, and to access news release in advance. "With advanced knowledge of press releases, Georgiou was able to time his manipulative trades to give the appearance of increased public interest in Avicena. Management allowed him to dictate when releases would be issued, and indeed, gave Georgiou significant input into the content of releases," the complaint states.
On March 24, 2006, Avicena began trading on the OTC Bulletin Board. That same day, Mr. Georgiou allegedly contacted an individual who agreed to trade at his direction, and to enlist other nominees to do the same in exchange for cash payments. "That individual, who later became a cooperating witness, was significantly involved in each of the manipulations described in this Complaint and placed numerous manipulative trades at Georgiou's direction," the complaint reads. Several communications with the co-operating witness were entered as evidence. Over the period from March 24, 2006, to Nov. 6, 2007, trading at Mr. Georgiou's direction accounted for as much as two-thirds of all trades in Avicena, the SEC says. One some days it even accounted for all of the trading. The stock stayed in the $5 to $6 range.
In April, 2008, Mr. Georgiou allegedly admitted to the co-operating witness that he had manipulated the stock. According to the complaint, he said, "[Avicena was] an artificial market -- the moment I walk away, this is a $0.50 stock." The SEC says the company ultimately fell to one cent when Mr. Georgiou stopped trading.
Another stock he allegedly manipulated was Neutron Enterprises Inc., a Montreal company that develops on-line stock market simulation contests. The SEC says he told the co-operating witness in the spring of 2004 that they could make a lot of money by manipulating Neutron Enterprises using match trades, wash sales and e-mails. "Based on Georgiou's promises to the CW to issue nonrestricted shares and to provide him with a discount in a private placement, the CW agreed to participate in the manipulation, to get others involved, to have them buy and 'park' the stock, and then to sell when directed to do so," the complaint states. The SEC says Mr. Georgiou manipulated the stock from $1.30 to $2 to $3, and kept it there for nearly three years.
According to the complaint, he closely monitored his nominees' trading activity, ensuring that they followed his instructions. "For example, in an e-mail during this time, Georgiou asked the CW for the names of the brokerage houses holding his Neutron stock so that he could 'better tell what others are doing without having to second guess,'" the complaint states.
In March, 2007, Mr. Georgiou stopped paying attention to the stock, and it started to decline, the SEC claims. He allegedly told the co-operating witness that he was sorting out "various issues" with Avicena, and Neutron was slipping because he could not "give it any focus." Without Mr. Georgiou's support, the stock slid to 28 cents, and later to 1.5 cents, the SEC says.
The SEC also alleges that he manipulated two other companies, Toronto-based Northern Ethanol and Hydrogen Hybrid Technologies, in a similar fashion. With Hydrogen Hybrid, he also allegedly arranged for a mailer urging investors to buy the company. According to the complaint, the mailer touted the company as helping investors "make huge profits" while "helping to save the planet." The SEC claims the mailer failed to disclose that Mr. Georgiou had paid for most of the costs.
On Aug. 13, 2008, the co-operating witness introduced Mr. Georgiou to an undercover FBI agent, who said he could assist with the manipulation, the complaint states. The agent said he had connections to corrupt registered representatives who could purchase Northern Ethanol in customer accounts. "During the meeting, Georgiou stated that he would pay a 25 percent kickback to the UA in exchange for generating retail purchases of Northern Ethanol. Georgiou proposed that the UA commence a $10 million buying campaign into which Georgiou could simultaneously sell his holdings," the complaint states. Mr. Georgiou arranged a test trade, in which the FBI bought 15,000 shares at $1.11 on Sept. 3, 2008, the SEC says. After the trade, Mr. Georgiou allegedly wired a $5,000 kickback to an FBI-controlled bank account. One week later, on Sept. 18, 2008, the FBI arrested him. Most of the details of the alleged manipulation were not released until now.
The SEC is seeking an order permanently banning Mr. Georgiou from participating in penny stock offerings. It is also seeking payment of disgorgement plus appropriate civil penalties.
In a separate order issued on Feb. 12, 2009, the SEC halted the four stocks Mr. Georgiou allegedly manipulated, citing questions about the ownership and control of each company.
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