2012-10-30 13:44 ET - 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 http://www.stockwatch.com/News/Item.aspx?bid=Z-C:*SEC-2008106&symbol=*SEC&news_region=C
George Georgiou, the former Toronto broker serving 25 years in a U.S. jail for fraud, has filed an appeal of his conviction and sentence. In a briefing filed on Friday, Oct. 26, he argues that prosecutors failed during his trial to disclose serious mental health and addiction problems with a key witness. Among other things, they withheld information that would have shown the witness, Kevin Waltzer, had struggled with bipolar disorder, alcohol and cocaine. Had Mr. Georgiou known of these problems at trial, he could have mounted a much more effective attack on Mr. Waltzer's credibility.
The appeal brief comes over two years after a Pennsylvania jury convicted Mr. Georgiou, 43, for a scheme to manipulate four pink sheets companies between 2004 and 2008. The government claimed that he caused $57-million in investor losses during the scheme. (All figures are in U.S. dollars.) Prosecutors also said that he caused the demise of a Bahamian brokerage, Caledonia Corporate Management Group.
Much of the testimony at the trial came from Mr. Waltzer, who had agreed to assist the government after he was caught in an insurance fraud scheme unrelated to Mr. Georgiou. As part of his co-operation, he told the FBI that he had helped Mr. Georgiou manipulate a number of stocks, in one case boosting a company to $6. Mr. Waltzer then helped the FBI arrest Mr. Georgiou by participating in a sting operation that ended with an undercover agent luring Mr. Georgiou to a hotel in Philadelphia.
Georgiou's appeal
Mr. Georgiou, in his 109-page appeal brief, is looking to put Mr. Waltzer's testimony in doubt. He claims that the government knowingly suppressed information about Mr. Waltzer's mental health problems and his addictions to alcohol and cocaine. The government did this despite indications that these problems continued even after Mr. Waltzer started co-operating with the government.
As Mr. Georgiou sees it, disclosure of Mr. Waltzer's mental illness would have "greatly diminished the strength" of the case against him. Mr. Waltzer was the "star witness" and the only one who claimed that Mr. Georgiou knowingly sought to manipulate any companies. Cross-examination of Mr. Waltzer "would have been absolutely devastating" had the defence known about his conditions, the brief states.
Defence lawyers only learned about the problems one month after Mr. Georgiou's trial, when Mr. Waltzer was sentenced on the insurance fraud charges. Mr. Walter's presentence report revealed that he had been taking prescription medication for years and was "using cocaine at least five days per week" during his crimes and for some time after. "The combination of Waltzer's mental illness, medications and drug use almost certainly affected his mental capacity, and his mental illness alone could have adversely affected his ability to testify truthfully," the defence contends.
According to the appeal brief, the government undoubtedly knew about Mr. Waltzer's mental health problems, but "either intentionally or consciously avoided the implications." If the problems had been in the forefront at trial, the defence could have shown that Mr. Waltzer's version of events was not credible, the brief states.
Mr. Georgiou also complains that government witnesses at the trial repeatedly called him a "con artist"; "stock manipulator"; and a "fraudster." He says the accusations were part of a plan by prosecutors to "demonize" him before the jury. Prosecutors themselves called him a "professional con man" or similar names at least 21 times in their opening and closing statements.
Lastly, Mr. Georgiou says the judge erred in calculating his sentence. The 25-year term he received was based at least partly on the judge's calculation of losses inflicted on investors. The figure, however, was inflated significantly because it failed to account for the severe market downturn in 2008.
Mr. Georgiou asks that the appeal court enter an acquittal or grant him a new trial.
Georgiou's indictment and arrest
Details of the charges against Mr. Georgiou are contained in an indictment filed on Feb. 12, 2009, in the Eastern District of Pennsylvania. The indictment accused him of running a four-year market manipulation scheme that only ended with his September, 2008, arrest. The stocks in the scheme were Neutron Enterprises Inc., Avicena Group Inc., Northern Ethanol Inc. and Hydrogen Hybrid Technologies Inc.
Much of the indictment described the sting operation in which the FBI ensnared Mr. Georgiou. In 2007, the government learned of Mr. Georgiou's activities after launching the insurance fraud case against Mr. Waltzer. In the course of negotiating a plea agreement, Mr. Waltzer agreed to inform on several individuals, including Mr. Georgiou.
The FBI then had Mr. Waltzer introduce an undercover agent, known as "Charlie," to Mr. Georgiou. The agent pretended to be a person with access to corrupt brokers who were willing to use discretionary accounts to buy shares in return for a 30-per-cent kickback.
According to the indictment, Mr. Georgiou agreed to small test transaction with Charlie in August, 2007. Charlie said he would have brokers buy 16,000 shares of Northern Ethanol. The FBI then bought the stock using an undercover account, and Mr. Georgiou sent a $5,000 payment.
The FBI subsequently arranged a face-to-face meeting between Charlie and Mr. Georgiou at the Ritz-Carlton Hotel in Philadelphia. At the meeting, the men allegedly agreed that Charlie would have the brokers buy $500,000 worth of stock every week for five months, and that the accounts would hold the stock for at least a year. At the end of the meeting, the FBI arrested Mr. Georgiou.
Since his conviction, Mr. Georgiou has been in the custody of the U.S. Bureau of Prisons. He is serving his sentence at FCI Milan, a low-security jail south of Detroit. His projected release date is Nov. 6, 2031.
In addition to the criminal charges, Mr. Georgiou faces a parallel civil suit from the U.S. Securities Commission, which has been on hold pending the outcome of the criminal case.
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