Sting Operations And Market Manipulation, Florida To New York

Market manipulation schemes seem to be moving up and down the east coast of the United States. The Southern District of Florida Securities and Investment Initiative has, for example, brought manipulation cases involving company officials who paid bribes to have their shares manipulated (here).

Now the venue has moved to Brooklyn. The SEC and the U.S. Attorney’s Office for the Eastern District of New York have teamed up to bring cases involving two Swiss citizens, a Dubai based health company and an under cover government agent. SEC v. Axius, Inc., Case No. CV 12-3338 (E.D.N.Y. Filed July 5, 2012); U.S. v. Neuhaus, No. 1:12-cr-00439(E.D.N.Y.). The SEC’s case names as defendants Axius, Roland Kaufmann and Jean-Pierre Neuhaus. Axius is an OTC traded promoter of health, well-being and healthy life style companies. Mr. Kaufmann is a director and the president and CEO of the company. Mr. Neuhaus is a stock promoter.

In the first quarter of this year Messrs. Kaufmann and Neuhaus engaged in a scheme to manipulate the shares of Axius, according to the court papers. Specifically, in February the two men entered into an arrangement with an individual they believed represented a group of stock brokers with discretionary authority over the accounts of wealthy customers. Under the arrangement the individual would receive detailed instructions from Messrs. Kaufmann and Neuhaus regarding the purchase of Axius stock. Those instructions included cautions that the stock would have to be purchased at increasing prices and that it could not be sold. The instructions also detailed the size, price and timing of the orders. This permitted them to enter matched orders at prices predetermined by Mr. Kaufmann. The individual was to receive 26% to 28% in return for buying up to 1 million shares of Axius securities for up to $5 million.

The individual turned out to be an undercover law enforcement official. The SEC’s complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). In the criminal case the two men were each charged with conspiracy, securities fraud, violating the Travel Act and money laundering. Both cases are pending.