CEO, Attorney Plead Guilty to Market Manipulation

Microcap fraud has long been a focus of the Commission. The U.S. Attorney’s Office has also brought a series of criminal cases centered on market manipulation charges involving these entities. This week prosecutors in the Eastern District of New York secured guilty pleas from the CEO of microcap firm and its attorney. U.S. v. Shapiro, Case No. 14-cr-399 (E.D.N.Y.).

Named as defendants are Ira Shapiro and Darren Ofsink. Mr. Shapiro is the CEO of CodeSmart Holdings, Inc. Mr. Ofsink is a Manhattan based attorney. Each defendant pleaded guilty to one count of conspiracy to commit securities fraud.

The charges stem from the participation by each defendant in an $86 million market manipulation scheme centered on the shares of CodeSmart. In May 2013, according to the charging documents, the defendants and others took CodeSmart, then a privately held firm, public through a reverse merger with a public shell company. The defendants and their confederates then obtained control of the free trading shares of the new public firm.

Subsequently, the defendants assisted in pushing the share price up to artificial levels. Beginning in May 2013, and continuing through August of 2013, the co-conspirators manipulated the share price of CodeSmart stock, raising it from $1.77 to as much as $6.94 per share – an increase of 291%. The share price then dropped back to $2.19.

From late August 2013 through late September 2013 the co-conspirators repeated the process. This time the stock price went from $2.19 to a high of $4.60, an increase of about 104%. Then the price dropped back about 116% to $2.13.

At its highest point the firm had a market capitalization of over $86 million. Yet the same day the firm filed a Form 10-K with the SEC reporting total assets of $6,000, revenue of $7,600 and a net loss of $103,141. By the end of December 2013 the share price of CodeSmart stock was $0.66. By the middle of the next year it was $0.01. The date for sentencing has not been set.

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