LOS VEGAS STOCK PROMOTER CONVICTED IN STOCK MANIPULATION SCHEME

The following excerpt is from the Department of Justice website:

February 1, 2012
“WASHINGTON – The principal of a Costa Rican brokerage firm and a Las Vegas stock promoter were each convicted yesterday in the Southern District of Florida of all charges for their roles in a stock manipulation scheme that defrauded investors, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division, U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida, Chief Postal Inspector Guy Cottrell of the U.S. Postal Inspection Service (USPIS) and James W. McJunkin, Assistant Director in Charge of the FBI’s Washington Field Office.

Jonathan Curshen, 47, the principal of Red Sea Management and Sentry Global Securities, two companies located in San Jose, Costa Rica, that provided offshore accounts and facilitated trading in penny stocks, was found guilty of conspiracy to commit securities fraud, wire fraud and mail fraud; two counts of mail fraud; and conspiracy to commit international money laundering.  Nathan Montgomery, 30, a Las Vegas stock promoter, was found guilty of conspiring to commit securities fraud and wire fraud.

The evidence at trial showed that in January and February 2007, Curshen, of Costa Rica and Sarasota, Fla., and Montgomery, of Las Vegas, were involved in a scheme to illegally manipulate the stock price of a company called CO2 Tech (ticker CTTD), which traded on the Pink Sheets, an inter-dealer electronic quotation and trading system.

Evidence at trial showed that Curshen’s and Montgomery’s co-conspirators controlled the outstanding shares of CO2 Tech, which were used in the stock manipulation scheme.  Montgomery and his conspirators engaged in coordinated trades in conjunction with the issuance of false and misleading press releases that were designed to artificially inflate the price of CO2 Tech shares to make it appear that it had significant business prospects.   According to these press releases, CO2 Tech purported to have a business relationship with Boeing to reduce polluting gases emitted from airplanes, when in fact CO2 Tech never had any business or relationship with Boeing.

According to the evidence at trial, Montgomery and his co-conspirators, Robert Weidenbaum, Timothy Barham Jr., Ryan Reynolds and others fraudulently “pumped” the market price and demand for CO2 Tech stock through these press releases and coordinated trades of shares of CO2 Tech stock in order to create the appearance of legitimate buying interest by legitimate investors.  The evidence showed that as Montgomery and his conspirators pumped the price of the stock, Curshen and his conspirators facilitated the “dumping” of shares through the trading desk at Red Sea and Sentry Global Securities by selling the shares at the direction of their conspirators to the general investing public.  The evidence showed that these shares, which became virtually worthless, were purchased by unsuspecting investors, including investors in the Southern District of Florida.  The evidence showed that Montgomery, Weidenbaum, Reynolds and Barham were paid approximately $1 million in cash by their conspirators to participate in sham stock trades of CO2 Tech.  The cash was delivered to Miami via a private jet from an airport outside New York.

The evidence further showed that, from approximately 2003 through 2008, Curshen operated Red Sea as a money laundering hub in Costa Rica that established bank accounts and brokerage accounts in the United States and Canada under false pretenses and through nominee owners.  The evidence further showed that Curshen and his co-conspirators laundered the proceeds of the stock fraud from accounts in the United States to an account in Canada, all in an effort to conceal and disguise the nature and source of the proceeds.
At sentencing, Curshen faces a sentence of up to five years in prison on the conspiracy to defraud count, and up to 20 years on each count of mail fraud and money laundering conspiracy.  Montgomery faces a sentence of up to five years for the conspiracy to defraud count.  The defendants are scheduled to be sentenced by Judge Richard W. Goldberg on May 11, 2012.      
         
Stock promoters Weidenbaum, Barham and Reynolds, who were also charged in this case, previously pleaded guilty to conspiring to commit securities fraud, wire fraud and mail fraud.  They also will be sentenced by Judge Goldberg on May 9, 2012.  Michael Simon Krome, a securities attorney from New York, who participated in the conspiracy and evaded federal securities registration requirements in order to provide co-conspirators with millions of unregistered and “free trading” shares of CO2 Tech that were used to execute the stock manipulation, also pleaded guilty to conspiring to commit securities fraud, mail fraud and wire fraud.

The case was investigated by the FBI’s Washington Field Office and the USPIS.  The case is being prosecuted by Trial Attorneys N. Nathan Dimock and Rina Tucker Harris of the Fraud Section in the Justice Department’s Criminal Division.  The U.S. Attorney’s Office for the Southern District of Florida provided significant assistance in this case.  The Department of Justice acknowledges the significant assistance of the Financial Industry Regulatory Authority (FINRA) and the U.S. Securities and Exchange Commission (SEC) in its investigation.  The SEC has a pending parallel civil case.  The Criminal Division’s Office of International Affairs and Costa Rican authorities also provided assistance.

This prosecution is part of efforts under way by the Financial Fraud Enforcement Task Force.  President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.”

SEC CHARGES HEART TRONICS WITH PUMPING UP IT'S STOCK PRICE

The following excerpt is from the SEC website:


December 20, 2011
“The Securities and Exchange Commission filed a lawsuit today in federal court in Los Angeles charging seven defendants, including California lawyer Mitchell J. Stein, in a series of brazen fraudulent schemes designed to artificially inflate the securities of Heart Tronics, Inc., f/k/a Signalife, Inc. (Heart Tronics), while Stein secretly made millions of dollars from selling the stock.  The seven defendants charged are:
Heart Tronics (known during the relevant period as Signalife), a company headquartered in California that purports to sell a heart monitoring device.  Heart Tronics common stock was formerly listed on the American Stock Exchange but is now quoted on the OTC Link under the symbol “HRTT.PK”;
Mitchell J. Stein of Hidden Hills, CA, a California attorney who was the architect and principal beneficiary of the fraud schemes.  Stein controlled many of Heart Tronics’ business activities and public disclosures;
Willie J. Gault of Encino, CA, a former professional football player and one of Heart Tronics’ co-CEOs from October 2008 through June 2011;
J. Rowland Perkins of Beverly Hills, CA, a former Hollywood executive and the other of Heart Tronics’ co-CEOs since June 2008;
Martin B. Carter of Boca Raton, FL, an unlicensed electrician who worked as Stein’s chauffer and handyman while carrying out the fraud with Stein;
Mark C. Nevdahl  of Spokane, WA, the trustee and stock broker for a number of nominee accounts Stein used to unlawfully sell Heart Tronics stock; and
Ryan A. Rauch of San Clemente, CA, a stock promoter paid to tout Heart Tronics stock to investors.
In a parallel criminal investigation, the U.S. Department of Justice and U.S. Postal Inspection Service announced today the arrest of Stein.
The SEC’s complaint alleges that Heart Tronics fraudulently and repeatedly announced millions of dollars in sales orders for its product between 2006 and 2008.   In fact, according to the complaint, Heart Tronics never had viable sales orders from actual customers, but Stein and Carter fabricated numerous documents to support the false disclosures to the public.  As alleged in the complaint, Stein profited by causing Heart Tronics to unlawfully pay Carter approximately $2 million in cash and Heart Tronics stock pursuant to a sham consulting agreement.  Carter kicked-back substantially all the proceeds to Stein.
The complaint also alleges that in 2008 Heart Tronics installed Gault, a celebrity athlete, and Perkins, a founder of a well-known talent agency, as figurehead CEOs to generate publicity for Heart Tronics and foster investor confidence.  However, the SEC alleges that Gault and Perkins rarely questioned Stein’s fraudulent agenda and abdicated their fiduciary responsibilities to shareholders by signing, or authorizing to be signed, false SEC filings and false certifications under the Sarbanes-Oxley Act of 2002.  In addition, the complaint alleges that Stein and Gault together defrauded an individual investor into making a substantial investment in Heart Tronics based on false representations that his capital would fund the company’s operations.  Instead, Stein and Gault diverted the investor’s proceeds for their personal use, including purchasing Heart Tronics stock in Gault’s personal brokerage account to create the appearance of volume and demand for the stock.
Stein also hired promoters to tout Heart Tronics stock on the Internet.  According to the complaint, one such promoter, Rauch, solicited numerous investment advisers, retail and institutional brokers, and other investors to buy Heart Tronics stock, but failed to disclose he was being paid by Heart Tronics in exchange for his promotion.
While Stein was orchestrating his campaign of misinformation and other schemes designed to inflate Heart Tronics’ stock price, the complaint alleges that he and his wife, Tracey Hampton-Stein (Hampton-Stein), the company’s majority shareholder, directed the sale of more than $5.8 million worth of Heart Tronics stock, while failing to disclose the sales as required under the federal securities laws.  Stein enlisted Nevdahl, a stock broker, to act as trustee for a number of purportedly blind trusts to create the façade that the shares were under the control of an independent trustee.  The trusts were blind in name only; according to the complaint, Nevdahl met the Steins’ regular demands for cash by continually selling Heart Tronics stock though the trusts.
The SEC’s complaint charges the following defendants committed the following violations of the federal securities laws:
Heart Tronics violated Sections 5(a) and (c), and Section 17(a) of the Securities Act of 1933 (“Securities Act”); Securities Act Regulation S-T, Rule 302(b); Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 (“Exchange Act”); and Exchange Act Rules 10b-5(b), 12b-11, 12b-20, 13a-1, 13a-11, and 13a-13.
Stein violated Sections 5(a) and (c), and Section 17(a) of the Securities Act; Sections 10(b), 13(b)(5), 13(d), and 16(a) of the Exchange Act; and Exchange Act Rules 10b-5, 13b2-1, 13d-1, and 16a-3; and he aided and abetted violations of Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13.
Gault violated Section 17(a) of the Securities Act; Sections 10(b) and 13(b)(5) of the Exchange Act; and Exchange Act Rules 10b-5 and 13a-14; and he aided and abetted violations of Sections 10(b) of the Exchange Act and Exchange Act Rules 10b-5(a) and (c).
Perkins violated Sections 10(b) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5(b) and 13a-14; and he aided and abetted violations of Section 13(b)(2)(B) of the Exchange Act.
Carter violated Sections 5(a) and (c), and Sections 17(a)(1) and (3) of the Securities Act; Sections 10(b) and 13(b)(5) of the Exchange Act; and Exchange Act Rules 10b-5(a) and (c), and 13b2-1; and he aided and abetted violations of Sections 10(b), 13(a), 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 10b-5(a) and (c), 12b-20, 13a-1, 13a-11, and 13a-13.Nevdahl violated Sections 17(a)(1) and (3) of the Securities Act; Section 10(b) of the Exchange Act; and Exchange Act Rules 10b-5(a) and (c); and he aided and abetted violations of Sections 10(b) of the Exchange Act and Exchange Act Rules 10b-5(a) and (c).
Rauch violated Section 17(b) of the Securities Act.
The complaint seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and civil monetary penalties from all defendants.  With respect to Stein, Gault and Perkins, the complaint seeks the imposition of permanent officer-and-director bars; with respect to Stein, Gault, Perkins, Carter and Rauch, the complaint seeks the impositions of permanent penny stock bars.   The complaint also seeks the return of ill-gotten gains from nine relief defendants, including Hampton-Stein and her company, ARC Finance Group LLC, Heart Tronics’ majority shareholder.
The SEC’s investigation was conducted by Adam Eisner and Rachel Nonaka under the supervision of Charles Cain.  The SEC’s litigation will be headed by Mark Lanpher.  The Commission acknowledges the assistance of the U.S. Department of Justice’s Fraud Section and the U.S. Postal Inspection Service.”