CLEVELAND, OH — Eight men have been sentenced to prison for their role in a $39 million penny stock fraud. The men are from California and New York, says Carole Rendon, the U.S. attorney for the Northern District of Ohio. The men were prosecuted by Cleveland-based attorneys.
The group's leader, Zirk de Maison, of California, and the other men would sell a potential investor on a penny stock. Then the men, usually de Maison, would issue themselves millions of shares of the same stock at almost no cost. They would then artificially control the price and volume of the shares of a stock. To control the price and share, the men would pay undisclosed commissions to brokers, former brokers and boiler-room operators and promoters for soliciting investors to buy into the stock. The men would also conceal their own interest in the stock of the manipulated companies.
And their tactics worked. de Maison and the other men received $54 million in investments via the purchase of stock in these artificially inflated companies. That $54 million translated to about $39 million in investor loss. On top of that, de Maison embezzled about $39 million in investor monies, the court documents say.
The eight men and their charges are as follows, according to Rendon:
Zirk de Maison, of Redlands, California, was sentenced to more than 12 years in prison and ordered to pay $39.1 million in restitution.
Stephen Wilshinsky, of Woodland Hills, California, was sentenced to nearly three years in prison and $4.2 million in restitution.
Talman Harris, of Monroe, Connecticut, after a jury convicted him on all counts following a three-week trial, was sentenced to more than five years in prison and $843,423 in restitution.
Gregory Goldstein, of Stevenson Ranch, California, was sentenced to nearly three years in prison and $6.3 million in restitution.
Jack Tagliafero, of Glen Cove, New York, was sentenced to more than five years in prison and more than $5 million in restitution.
Victor Alfaya, of Port Washington, New York, was sentenced to nearly two years in prison and $3.6 million in restitution.
Kieran Kuhn, of Port Washington, New York, was sentenced to nearly four years in prison and $5.6 million in restitution.
William Scholander, of Queens, New York, was sentenced to nearly two years in prison and $843,423 in restitution.
Two additional co-conspirators have their sentencings scheduled for February and July 2017.
de Maison appears to have been the ringleader of the operation. The other men were pawns in the penny stock scheme.
Most of the above listed men were brokers and former brokers who were accused of abusing their client relationships and convincing their investors to buy some of the manipulated penny stocks. The men knew that the stocks were being artificially inflated and sold their investors on buying the stock anyway.
For their work, the brokers would get huge kickbacks, sometimes as much as half the investment, Rendon says. Those kickbacks, obviously, were not disclosed to the investors.
The other people on the list either worked in or operated boiler rooms. For those that haven't seen the Vin Diesel film (titled "Boiler Room"), a boiler room works similar to a call center. Employees cold call people and try to seduce them into buying shares of a company. In this case, the callers were getting people to buy artificially inflated stocks.
de Maison would give the boiler rooms marching orders, dictating what should be pushed down customers' throats that day. In conjunction with the stock pushes from the boiler rooms, de Maison would get press releases released from the companies being pushed (which he had a stake in) at the same time as the boiler rooms tried to sell the stocks, court document says. The hope likely being that when skeptical cold call victims Googled the company, they'd find recent news on how strong the stock was performing.
The boiler room salespeople used high-pressure tactics to coerce investors into buying into the stocks. The salespeople would also misrepresent the value of the company and its stock, court documents say.
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