Securities Regulation Daily SEC charges four in $34M microcap stock price manipulation scheme
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Tuesday, May 15, 2018

SEC charges four in $34M microcap stock price manipulation scheme

By Amanda Maine, J.D.

The SEC announced charges against four individuals for manipulating the market for a microcap issuer, resulting in illicit profits of nearly $34 million. The individuals allegedly used deceptive practices to artificially increase the price and trading value of Biozoom, Inc. shares. The Commission also announced settled administrative proceedings against two brokers who helped facilitate the scheme (SEC v. Abellan, May 5, 2018).

Laying the groundwork. According to the SEC, the scheme was masterminded by Guillermo Ciupiak and Francisco Abellan Villena, both last known to have resided in Barcelona, Spain. The SEC alleged that Abellan and Ciupiak had Faiyaz Dean, an attorney, arrange to acquire for them the shares of an inactive shell company and to hide Abellan’s and Ciupiak’s control of the shares by placing them in the names of several Argentine nationals (Argentine Nominees). The Argentine Nominees had no actual interest in or control of the shares, according to the SEC’s complaint.

Dean also allegedly falsified the transaction documents relating to the acquisition of the shell company to conceal that its shares could not be freely re-sold. Abellan and Ciupiak, along with defendant James Panther, merged the shell company with a German biomedical company, creating Biozoom, Inc. Abellan and Ciupiak’s shares in the shell company became Biozoom shares, which Panther and Dean arranged to be deposited at U.S. brokerage firms in the names of the Argentine Nominees.

Pump up the stock. The SEC’s complaint alleges that, beginning on May 16, 2013, Abellan, Ciupiak, and Panther used deceptive practices to make the stock price of Biozoom move upward through trading at ever-increasing prices among the Argentine Nominees and the defendants’ brokers and traders. Abellan and Ciupiak used other foreign nominee accounts to engage in manipulative, coordinated bidding to make sure the price of Biozoom stock stayed up. As a result, there was an appearance of a significant demand for the stock while Abellan, Ciupiak, and Panther caused millions of shares to be illegally sold into the market.

Abellan, Ciupiak, and Panther also allegedly organized a promotional campaign that coincided with the manipulative trading. The promotional campaign included the development of a corporate website, a campaign of issuing two corporate press releases every week, the distribution of publications controlled by the defendants touting Biozoom, and advertisements on Yahoo! and Google.

The SEC suspended trading in Biozoom stock on June 25, 2013, and a federal court granted the Commission’s request for a restraining order and asset freeze. While more than $16 million in assets were subsequently located and distributed to harmed investors, Abellan and Ciupiak had already caused $17 million in illicit proceeds to be wired to their own offshore accounts.

Charges. The complaint charges the four defendants with violations of the antifraud provisions of both the Securities Act and the Exchange Act, as well as the registration provisions of the Securities Act for selling Biozoom shares without an effective registration statement. The SEC is seeking permanent injunctions, penny stock bars, disgorgement of ill-gotten gains, and civil penalties.

Administrative settlement. In separate administrative proceedings, the SEC settled charges with registered representatives of two broker-dealer firms for engaging in the illegal distribution of Biozoom shares. The representatives, Mark A. Karow of Legend Securities and Timothy C. Scarpino of Scottsdale Capital Advisers, allegedly were presented with red flags regarding the illegal distributions and failed to conduct a searching inquiry into the facts surrounding the sales to the Argentine Nominees. Karow, in addition to receiving commissions totaling nearly $70,000 from the Biozoom sales, also allegedly deleted text messages related to the Biozoom trades.

To settle the SEC’s charges, Karow agreed to pay disgorgement, interest, and a civil penalty totaling $94,400. He also agreed to the imposition of a cease-and-desist order and to be barred from the securities industry and from participating in penny stock offerings. Legend Securities was censured and agreed to a cease-and-desist order related to the firm’s failure to maintain Karow’s text messages as firm business records. Scarpino also agreed to a cease-and-desist order and to a five-year bar from the securities industry. Scarpino agreed to additional proceedings to determine if a civil penalty should be imposed upon him.

Karow, Legend Securities, and Scarpino did not admit or deny the Commission’s findings in its orders instituting settled administrative proceedings.

The case is No. 18-cv-4309. The releases are No. 34-10495 (Karow and Legend Securities) and No. 34-10496 (Scarpino).

Attorneys: Jennie Boehm Krasner for the SEC.

Companies: Legend Securities, Inc.

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