by T. GormanPosted on Posted in SECActions

Microcap stock manipulations continues to be a key area of focus for SEC Enforcement with the filing of two new cases involving the CEOs of two firms of manipulating the share price of their firms. In SEC v. Forum National Investments Ltd., Civil Action No. 5:14-cv-02376 (C.D. Cal. Filed November 18, 2014) the Commission brought an action against the company, its CEO Daniel Clozza and three others who assisted with the manipulation — Robert Dunn, William Anguka and Ahmad Ghaznawi. In SEC v. Noel, Civil Action No. 3:14-CV-5054 (N.D. Cal. Filed November 17, 2014) the Commission charged the CEO of YesDTC Holdings, Inc., Joseph Noel, with manipulating the share price of his firm.

Forum National, based in Toronto, Ontario, initially sold memberships in a travel club and chartered its yacht. Subsequently, the company entered the life settlement business, purchasing six life insurance policies for about $1.8 million with a face value of $31 million. In 2011 the firm offered a convertible debenture secured by two of the life insurance policies that had a combined face value of $9 million. Each unit entitled the buyer to $450,000 of benefits Forum would receive when the policies matured.

By September 2011 Forum was experiencing significant financial difficulties after selling only a few of the units. In November Mr. Clozza sought introductions to internet promotional companies. He was introduced to defendant William Anguka, who promotes stocks through internet based media, along with three of his associates. One of those associates was defendant Robert Dunn. Mr. Anguka stated that he charged $70,000 to $80,000 per month for his services. Eventually he was retained with an initial payment of $15,000. Mr. Anguka then retained Ahmad Ghaznawi, also a defendant, to assist. Mr. Ghaznawi does business under the name Skylab Global Investments.

Subsequently, Messrs. Anguka and Ghaznawi disseminated web pages and internet news letters touting Forum’s business prospects. Despite the fact that there was no basis for the claims, the stock price, quoted in the pink sheets, climbed rapidly from about $0.35 in May 2012 to over $2.00 per share in June 2012.

Mr. Dunn, along with relatives and associated of Mr. Clozza, sold more than one million shares of Forum stock, profiting from the inflated, artificial price. The Commission’s complaint alleges violations of Exchange Act Sections 10(b) and 13(a) and Securities Act Section 17(b). The Commission also initiated an administrative proceeding against Forum under Exchange Act Section 12(j). The actions are pending. See Lit. Rel. No. 23135 (November 19, 2014).

The SEC’s complaint against Mr. Noel also centers on a claimed stock manipulation. In February 2009 Mr. Noel formed Sonoma Winton, LLC and appointed his daughter as the sole member, although he continued to control the entity. Later that year he incorporated YesDTC, Inc. That company entered into a reverse merger with a public shell which had no meaningful assets. As a result of a stock split, about 94 million restricted shares and 44 million non-restricted shares became outstanding. Mr. Noel retained about 40 million shares. When those shares were combined with others held by Sonoma, Mr. Noel controlled about 65% of the outstanding shares. The name of the firm was changed to YesDTC Holdings, Inc.

During 2011 Mr. Noel is alleged to have conducted two pump-and-dump schemes. In each of the schemes Mr. Noel prepared and had issued false and misleading press releases touting the business of the firm which supposedly specialized in direct-to-consumer marketing. In each instance the share price spiked upward significantly. In each instance Mr. Noel secretly sold shares through Sonoma. Overall he netted about $300,000 in profits from the two schemes.

The complaint alleges violations of Exchange Act Sections 10(b) and 16(a), and Securities Act Sections 5(a), 5(c) and 17(a). The action is pending. See Lit. Rel. No. 23134 (November 17, 2014).

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by T. GormanPosted on Posted in SECActions

A business man, a real estate company he acquired from his grandfather, a registered representative who has now been barred by FINRA from the securities business and Maryland Division of Securities from the advisory business and an unnamed broker teamed-up to sell millions of dollars of bonds to the public. The real estate firm which issued the bonds eventually defaulted after the investor funds had been spent, leaving holders with little. SEC v. Azar, Civil Action No. 14-cv-3598 (D. Md. Filed November 14, 2014).

Wilfred Azar has been the majority owner of Empire Corporation, both defendants, since 1999. Joseph Giordano, also a defendant, was the branch manager and a registered representative associated with a registered broker-dealer. In addition, he is the sole owner, General Manager and President of Giordano Asset Management, a one-time registered investment adviser which served as the adviser to the Giordano fund.

Mr. Azar became President and CEO of Empire when he acquired the company from his grandfather, its founder. The company owned and operated a 250,000 square foot, ten-story office building in Glen Burnie, Maryland. Rental income from the building was the primary source of revenue for the company.

For several years prior to acquiring the company Mr. Azar sold bonds as secondary financing for its operations. He continued this practice after acquiring Empire. The bonds were sold through oral solicitation without a prospectus or other offering documents. Investors typically received a one page certificate with the terms of the investment. Usually the certificate provided for a term of five years at 10% interest, compounded daily.

Shortly after acquiring Empire Mr. Azar arranged for the broker where his long time friend and business associate, Joseph Giordano was employed, to custody the bonds so that holders could place them in an IRA account. While Mr. Giordano’s firm cautioned him to only sell the bonds on an unsolicited basis and prohibited him from recommending them, he ignored the restrictions. Over a three year period beginning in 2006 he raised at least $1.5 million from about 23 investors. Mr. Giordano also caused the Fund to purchase bonds. Although he had little financial data regarding Empire, over the period he became aware of its financial condition but continued to sell the bonds.

At the same time Mr. Azar arranged for Broker A, associated with another registered broker-dealer, to sell the bonds. Broker A, relying largely on Mr. Azar’s representations regarding Empire, raised about $3.6 million from bond sales. Collectively, Messrs. Azar, Giordano and Broker A raised over $7 million from about 50 investors. Investors were assured that Empire as a successful, profitable business. They were also told that their funds would be used to further develop the business.

As the bonds were being sold the financial condition of Empire deteriorated. Between 2006 and 2009 the financial condition of the company declined while its debt climbed. The debts came from not just from the operations of Empire but also the other unprofitable businesses of Mr. Azar. While portions of the money raised was used to repay investors, other investor funds were diverted to Mr. Azar’s life style.

By 2010 the Defendants were unable to recruit new investors. Empire was no longer able to repay existing investors. Most of the investors lost substantially all of their investment. The SEC’s complaint alleges violations of Securities Act Sections 5(a) , 5(c) and 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1), 206(2) and 206(4) and Investment Company Act Section 34(b). The action is pending. A parallel criminal action was filed against Mr. Azar by the U.S. Attorney’s Office for the District of Maryland. See Lit. Rel. No. 23232 (November 14, 2014).

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