By Bernard Vaughan
NEW YORK (Reuters) - Federal prosecutors said on Tuesday they arrested seven people in a more than $140 million international penny stock scheme that involved fraudulently inflating share prices and trading volumes.
Two people charged, including the alleged mastermind, remain at large, according to the office for the U.S. Attorney for the Eastern District of New York.
The fraud generated funds from investors in about 35 nations through various brokerage and bank accounts, according to a statement from the office of U.S. Attorney Loretta Lynch in Brooklyn.
The arrests, made in five states and in Canada, followed one of the largest international penny stock investigations ever conducted by the U.S. Department of Justice and the FBI, according to the statement.
"As alleged in the indictment, the defendants used our securities markets as a platform from which to run elaborate fraudulent schemes to victimize unsuspecting investors across the globe," Lynch said in a statement. "Where others saw citizens of the world, the defendants saw a pool of potential marks."
The charges against the nine defendants include 24 counts of securities fraud, wire fraud and false personation of Internal Revenue Service employees, according to the statement.
The "pump and dump" scheme involved fraudulently inflating, or "pumping up," share prices and trading volumes of certain penny stocks, and then "dumping" billions of shares of those stocks on investors, according to the statement.
The defendants also operated a so-called advance fee scheme, using call centers from which they would induce investors to pay fees for non-existent services to sell their illiquid penny stock shares, according to the indictment.
Both schemes were allegedly orchestrated by Sandy Winick, 55, a Canadian who has lived in China, Thailand, Vietnam and the United States, according to an indictment. Winick remains at large and is presumably hiding in Thailand, according to Lynch's office.
Others charged include Joseph Manfredonia, 45, who used phony press releases to promote the penny stocks and recruited others to manipulate their prices and trading volumes, according to the indictment, filed earlier this month..
Cort Poyner, 44, bribed brokers to purchase the penny stocks on behalf of their clients, according to the indictment. He was also intercepted on a wire communication reminding others involved in the scheme to use mobile "throwaway phones" to avoid being caught, according to the statement.
Gregory Curry, 63, and Kolt Curry, 38, Canadians who also lived at various times in Thailand, managed call centers around the world, including in Canada, Thailand and the United Kingdom, and were planning to open a call center in Brooklyn, according to the statement. They also prepared false letters, websites and email accounts to deceive potential and actual victims. Kolt Curry also made phone calls to potential clients.
"Hitting the Americans would be like taking money from a baby," Kolt Curry said of the Brooklyn call center in an intercepted wire communication, according to the statement.
Gregory Curry, along with Winick, remains at large.
Gregory Ellis, 46, a Canadian, acted as president of several companies that issued the penny stocks and called potential customers as part of the advance fee scheme, according to the indictment. Ellis was arrested in Ontario, Canada.
Gary Kershner, 72, a U.S. citizen who lived in Arizona and Kansas, made false statements to regulators and investigators and created fraudulent documents, according to the indictment.
Songkram Roy Sahachaisere, 43, a U.S. citizen who lived in California, promoted the penny stocks through Investsource Inc, a public relations firm he owned, according to the indictment.
William Seals, 51, of California, bought and sold several of the penny stocks to manipulate their share price and market volume, according to the indictment.
Lawyers for those accused could not be reached immediately for comment.
Winick has been in trouble with regulators in the past.
In 2010, the U.S. Securities and Exchange Commission won a default judgment against him after he failed to respond to a complaint accusing him of creating dozens of shell companies under a public company he controlled, First Canadian American Holding Corp, later known as Blackout Media Corp
The SEC accused Winick of creating 59 subsidiaries in Blackout with no legitimate business purpose except to sell unregistered shares in the companies and pocketing the proceeds.
In 2012, he was ordered to disgorge $3.2 million in ill-gotten gains and was permanently barred from the penny stock market, among other penalties, according to court documents.
Blackout is among several companies mentioned in the indictment.
(Reporting by Bernard Vaughan; Editing by Jeffrey Benkoe and Dan Grebler)
