CO2 Tech's Krome pleads guilty
CO2 Tech Ltd (U:CTTD)
Monday January 16 2012 - Street Wire
Also U.S. Securities and Exchange Commission (U:*SEC) Street Wire
by Mike Caswell
Michael Krome, the New York lawyer charged for writing fraudulent opinion letters in the CO2 Tech Ltd. market manipulation, has pleaded guilty to one count of conspiracy to commit securities fraud. He entered the plea in a 35-minute appearance before a judge in Miami on Friday, Jan. 13.
Prosecutors allege that Mr. Krome and others, including recidivist securities violator Jonathan Curshen, were part of a 2007 scheme to boost CO2 Tech with false claims about a pollution control product in which Boeing had purportedly taken an interest. The men pumped the stock to $1.65 and obtained $7-million in illegal profits, according to the government. (All figures are in U.S. dollars.) Also named in the scheme was former Pacific International Securities Inc. broker David Ricci, who is a defendant in a parallel civil suit from the U.S. Securities and Exchange Commission.
According to prosecutors, Mr. Krome, 49, wrote fraudulent opinion letters that allowed his co-defendants to obtain 22.5 million tradable shares in CO2 Tech, many of which they sold during the promotion. He also tried to conceal their identities in subsequent interviews with the SEC. Mr. Krome had initially pleaded not guilty to the charges. He is now scheduled for sentencing on Wednesday, May 9, and remains free on a $100,000 appearance bond. The maximum sentence is five years in jail.
CO2 Tech charges
The charges against Mr. Krome and the others are described in a complaint the SEC filed in the Southern District of Florida on Feb. 18, 2011. According to the complaint, the CO2 Tech scheme arose after Mr. Curshen was hired to promote the company by two Israeli men, Ariav Weinbaum and Yitzchak Zigdon (who are also defendants). He agreed to sell massive quantities of shares using nominee accounts, which he controlled through a Costa Rican entity called Red Sea Management Ltd.
Mr. Krome's role came in the initial stages of the scheme. According to the SEC, he had CO2 Tech issue 22.5 million shares purportedly to settle a $200,000 debenture. The debenture, however, was a pretext to issue shares to the company's undisclosed promoters and was obviously fraudulent, the SEC said. Among other things, it was signed by a person who did not become chairman of the company until four months after the date of the debenture.
The actual promotion, as described by the SEC, began on Jan. 29, 2007, just two weeks after Mr. Krome wrote the opinion letters that made the stock tradable. The SEC said the company issued a misleading news release in which it claimed to have been working on a pollution control product for over a decade. The company further claimed that it had a manufacturing operation in Israel and London, but according to the SEC the London office was actually a mail drop and the manufacturing operation could not be found.
The next day, CO2 Tech issued a news release which stated that Boeing had taken an interest in one of the company's products. In reality, there was no such interest, as the company had no communication with Boeing prior to the news release, the SEC said. The only communication came in the form of a cease-and-desist letter that CO2 Tech received from Boeing after issuing the news.
As the news and related spam were going out, Mr. Curshen and Mr. Ricci carried out a series of wash trades that helped "jump-start" the stock, the complaint stated. On the day of the Boeing release, they began executing trades at gradually increasing prices. As buyers entered the market, they started dumping shares, the SEC claimed. The stock went from 91 cents to $1.65 that day on volume of 12.2 million shares. (It was last at 0.2 cent.) Their trading that day generated $5.5-million in profits.
The SEC sought disgorgement of ill-gotten gains, appropriate civil penalties and penny stock bans. In filing the case, the SEC acknowledged the assistance of the B.C. Securities Commission, the Costa Rican Police, the Israel Securities Authority, the United Kingdom Financial Services Authority and the City of London Police.
While Mr. Krome has now pleaded guilty to the criminal charges (and separately settled the SEC case), his co-accused look to be headed for trial. With Mr. Curshen, prosecutors will argue that he fraudulently promoted several stocks through Red Sea, including CO2 Tech, and funnelled $91.5-million through an account at HSBC in Vancouver, most of which represented proceeds from pump-and-dumps. Although he pleaded not guilty, he is already in jail serving a 16-month sentence from an unrelated case. (He tried to bribe corrupt brokers to buy shares of a Washington State company, Industrial Biotechnology Corp. It turned out the man purporting to represent the brokers was an undercover FBI agent.)
The two Israeli defendants, Mr. Weinbaum and Mr. Zigdon, have not yet made an appearance in the criminal case. Mr. Weinbaum has not been arrested, and Mr. Zigdon is in custody in Germany awaiting extradition. Both men have responded to the SEC case, and generally deny any wrongdoing.
Mr. Ricci, now a resident of Costa Rica, was not a defendant in the criminal case (although he is expected to be a witness). He settled with the SEC the day it filed its civil suit, agreeing to a penny stock ban and to an injunction barring future violations. He did not admit to any wrongdoing. Before going to Costa Rica, he worked at PI for five years, leaving the firm on Nov. 17, 1999.
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