by T. GormanPosted on Posted in SECActions

It is an old saying that if it is too good to be true then it probably is. This adage clearly applies too many offering fraud actions. Potential investors listen to a sales pitch soliciting them; the pitch is too good to be true; yet they invest and in fact that sales pitch was to good to be true, it was false. This happens over and over. And, this was precisely the situation in one of the Commission’s recent offering fraud actions, SEC v. Mastroianni, Civil Action No. 22-civ-5080 (D.N.J. Filed August 17, 2022).

Named as defendants in the action are: Anthony Mastroianni, Jr., and Global Business Development and Consulting Corp. Mr. Mastroianni is the sole owner of the Defendant Global. He is a barred broker – FINRA barred him in December 2016.

Over a five year period, beginning in February 2017, Defendants sold Global Notes to investors. The funds raised from selling the notes were to be used to make loans to other businesses. Profits from the sale were supposed to be used to repay investors. The notes had a 50% to 175% interest rate. As a result, 11 investors purchased notes. Defendants received at least $1.2 million.

Unfortunately, investors were not repaid. The reason – the deal was to good to be true; Defendants misappropriated much of the investor money. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. The U.S. Attorney for the District of New Jersey announced parallel criminal charges against Mr. Mastroianni.

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by T. GormanPosted on Posted in SECActions

Market manipulations often follow established patterns. For example, many actions involving microcap entities begin with the manipulator acquired a controlling block of stock. Next the manipulator, whose identity is often concealed, causes false information to be injected into the market place, pushing up the stock price. Finally, the manipulator sells his or her shares into the manipulated market and, when finished halts the flow of misinformation leaving investors with devalued shares while walking off with large amounts of ill-gotten gains.

In other instances, the manipulator may engage in spoofing – taking large positions in a stock that are either buys or sells and, after the market follows the price movement with additional transactions, quickly canceling all of the earlier positions and taking the other side of the initial trades. Again, the manipulator gets large profits while investors lose.

The Commission’s latest manipulation follows a different pattern. In this case a large group of manipulators hacked a series of brokerage accounts, forced them to purchase shares in one of two stocks they had selected at artificially inflated prices at which point the manipulators sold their shares at artificial prices for large profits. SEC v. Mohamed, Civil Action No. 1:22-mi-9999 (N.D. Ga. Filed August 15, 2022).

The complaint names as defendants 18 individuals. The international group essentially divided into two overlapping groups to implement the manipulation plan. The plan focused on the shares of two microcap companies – Bio-Technology Development Corp. or LBTD and Good Gaming, Inc. or GMER. Each group acquired large positions in one of the stocks. The groups then teamed with others to hack a series of brokerage accounts. Those accounts were forced to purchase shares of either LBTD or GMER at inflated prices. Defendants ultimately sold the shares, reaping about $1.3 million.

Much of the scheme focused on concealing the identity of the manipulators by taking certain steps over a period of about one year beginning in 2017. For example, as the groups acquired blocks of the two securities, they failed to file reports such as those required by Exchange Act Section 13(d). They also moved the shares back and forth among the groups, changing ownership and using dummy names. The complaint alleges violations of each subsection Securities Act Sections 17(a) and Exchange Act Section 10(b). The case is pending.

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