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Replies to post #138690 on DD Support Board and Research Team
In 1989, a brokerage firm party owned by Appel, named Bailey, Martin & Appel, Inc. was accused of stock manipulation by acquiring 70 percent of the stock of Northgate Industry, a shell corporation with no assets. After acquiring this Northgate Industry stock at 20 cents per share, the brokerage firm later increased the price of the stock to $3.00 per share by buying and selling shares despite "limited wholesale and retail demand for the stock. By way of settlement, the National Association of Securities Dealers (“NASD”)1 fined the brokerage $50,000 and suspended both the brokerage and its owners from the Association.
In 1991, Bailey, Martin & Appel, Inc. and Howard Appel were each fined $125,000 by the NASD for further wrongdoing. Appel was also barred from association with any member of the NASD in any capacity. The NASD found that the brokerage firm, through Appel, effected principal sales of equity securities, agency cross transactions, and municipal securities to public customers at unfair prices. According to the findings, the firm, acting through Appel, failed to make certain disclosures on confirmations and sold unregistered shares of common stock to customers. In addition, the NASD found that the firm, acting through Appel, sold limited partnership interests on an “all or none” basis and caused funds to be disbursed from the escrow account before the contingency was met. The findings also stated that the firm, acting through Appel, failed to comply with NASD rules concerning options accounts, failed to maintain a program of written supervisory procedures, failed to maintain accurate books and records, and filed inaccurate FOCUS reports. Furthermore, the NASD determined that the firm did not record on its order tickets the names of the dealers contacted and the quotations received for transactions in non-NASDAQ securities.
In 2003, Appel was implicated in another securities fraud scheme. The plaintiff company contended that, although Appel had no official relationship with the defendant company, Net Value Holdings, Inc., he effectively controlled it through affiliated individuals and entities. The plaintiff further contended that Appel, and others, artificially inflated the stock prices of companies controlled by Appel and sold their own stock at high profits and thereafter allowed the stock prices to plummet, rendering worthless other shareholders' investments. Although the court concluded that the plaintiffs reliance upon the defendant's representations was not reasonable, the court provided enlightening details of some of Appel's methodology used in prior dealings:
Neither in negotiations leading up to plaintiff's investment in NETV nor in the stock purchase agreement itself did defendants mention any connection between NETV and Howard Appel, who since 1991 had been barred by the NASD for life from associating with any member of that organization in any capacity. Disbarment of Appel for life came about, in part, because of his sale of unregistered securities to customers. Plaintiff later learned that defendant's CEO Panzo had had a long history of collaborating with Appel in various investment schemes. Further, through a series of affiliated entities and individuals Appel played a significant role in NETV's founding, financing and particularly, in its control.
Appel, through an affiliated company, would acquire control of a public shell corporation and exercise that control to install defendant Panzo as a director or a senior officer, because Appel himself, on account of his past record, could not be a director of a public company. With Panzo in a top management position, the company would transfer substantial quantities of stock or warrants to Appel and Panzo’s affiliates, either in a sale transaction, or in payment for purported consulting or investment banking services, or as a finder’s fee in anticipation of a merger. Then the two men – through extraordinarily complex corporate legal maneuvers, often by way of subsidiaries of the companies of which they were principals, such as reverse mergers, stock exchanges between public and private corporations, reverse stock splits, a bewildering list of corporate name changes, and other corporate devices – would end up with large amounts of stock or warrants to purchase stock. Appel affiliates would then sell the securities at a relatively high price, generating large profits for Appel and Panzo. Subsequently, these companies' stock became virtually worthless.
NETV itself was similarly created through a merger of a public shell corporation with a private company largely owned by persons who were affiliated with Appel, and who also had participated as shareholders in eight other Panzo–Appel ventures. After the merger, these persons became NETV shareholders, and additional quantities of NETV stock were first transferred to and later sold by another Appel affiliate.
....if one were to substitute “LSI” for “NETV” and “Cohen” for “Panzo” in the above-quotation, one would have a concise description of Appel’s modus operandi, and how he manipulated LSI and its directors for his own personal gain.
In 2004, Appel was charged with conspiracy to commit securities fraud, and conspiracy to commit money laundering in relation to a stock manipulation scheme of over the counter stocks. The U.S. Attorney charged that Appel, and others, would obtain large blocks of stock of thinly traded over the count stocks for little or no consideration and deposit them into secret nominee accounts at various brokerages. Further, the U.S. Attorney charged that Appel paid secret kickbacks to brokers, in the form of cash and free stock, in exchange for the brokers causing their clients to purchase blocks of the stock from Appel and others at artificially inflated prices.
Mr. Appel ultimately pled guilty to both counts and received two one year and one day sentences (concurrent) and was ordered to pay $2.8 million in restitution. In July 2011, a time during which Appel was interacting with LSI and its stock, he paid $1.5 million in restitution to the court. Upon information and belief, Appel obtained this money through the fraud committed against LSI with the help of other defendants named in this suit.
In yet another, more recent securities fraud scheme, Appel served as an authorized representative and secretary of Bamco Gas, LLC (“Bamco”), a private, manager-managed Delaware LLC formed in 2004 to, inter alia, acquire exploration and development assets in the Texas Gulf Coast Region. Through a number of affiliated companies controlled by Appel, including 1025 Partners, LP; RMS Advisors; DHH Resources; RMS Gas, LLC; and PHT Gas, LLC, Appel was the single largest Principal Member with control of Bamco, owning 27.29% of that company.
Following an extensive investigation into Bamco, the Arkansas Securities Commission found that Appel and Bartlett committed securities fraud by withholding material facts and information necessary to render private placement memoranda relating to Bamco not misleading. On July 9, 2013, the Arkansas Securities Commissioner issued a public Cease and Desist Order directed to Appel and Bartlett ordering them to refrain from violating applicable laws, rules, and regulations surrounding the sale of securities.
Appel served his prison time for securities fraud violations from June 12, 2008, through April 24, 2009. His involvement with LSI began either when he was still in prison or shortly after his release.
Recidivist Securities Fraudster Charged with Multi-million Dollar Stock Manipulation Scheme
PHILADELPHIA – U.S. Attorney William M. McSwain announced that Howard M. Appel, 57, of Wayne, Pennsylvania, was charged today in a criminal information with one count of conspiracy to commit securities fraud.
The information alleges that Appel—a former licensed stockbroker with two prior securities-fraud related convictions—secretly acquired large blocks of stock in publicly traded companies, including Virtual Piggy, Inc. (ticker symbol “VPIG”), and Red Mountain Resources, Inc. (ticker symbol “RDMP”), to manipulate the market in those stocks. As alleged, Appel acquired title to the shares in the names of nominees in order to hide his ownership block from investors and made between $3,000,000 and $4,000,000 from his scheme. Using nominee accounts was necessary because he previously lost his license and was barred by the Financial Industry Regulatory Authority (“FINRA”) from selling securities or associating with any member firm.
The information further alleges that Appel and his co-schemers manipulated the stock price by taking numerous actions that were hidden from investors and security regulators including: working as a paid “consultant” to recruit investors, raise capital, and get the companies running; engaging in coordinated buying and selling, which he closely monitored, to raise the share price; and preventing co-conspirators from selling their shares without his permission. The information further alleges that Appel encouraged unwitting investors to buy large blocks of stock by touting the companies’ supposed impending success while, at the same time, selling off shares from his nominee accounts—sometimes to those same investors. Appel also allegedly traded on inside information that he obtained as a result of his “consulting” work for the companies, including the status of the companies’ efforts to get listed on NASDAQ. As alleged, none of these facts was disclosed to the investing public in any of the public filings the company and Appel were required to make.
Appel faces a maximum sentence of five years’ incarceration, a three-year period of supervised release, a fine of $250,000 or twice the gross gain or loss, whichever is greatest, and a $100 special assessment.
“As alleged, Appel orchestrated an end run around his FINRA bar by conspiring with others, at least one of whom was a licensed stockbroker, to use nominee accounts to manipulate the market and turn an illegal multi-million dollar profit,” said U.S. Attorney McSwain. “Apparently undeterred, this habitual fraudster once again used his market know-how to further his own self-interest and to violate the law. The efforts of our Office and the Securities and Exchange Commission’s New York Office demonstrate our steadfast commitment to using all of the tools at our disposal—both civil and criminal—to enforce the federal securities laws.”
The criminal case was investigated by the Federal Bureau of Investigation and is being prosecuted by Assistant United States Attorney Michael S. Lowe. The parallel civil enforcement proceeding was filed by the Securities and Exchange Commission’s New York Regional Office, under the direction of Mark P. Berger.
