Feds Bust Pump And Dump Scheme; 15 Arrested
Following a three year investigation, fifteen people have been indicted on charges that they were involved in a multi-million dollar stock manipulation scheme. The scheme allegedly defrauded over 20,000 people out of more than $30 million in assets. Among those cited were Regis Possino, a former Los Angeles County deputy district attorney, Joey Davis, the head of a public relations firm, and Sherman Mazur, a real estate investor convicted in 1993 of bankruptcy fraud and tax evasion. Possino, who is 65 years old, was disbarred in the mid 1980’s after being convicted of drug-related charges.
According to investigators, the “pump-and-dump” scheme worked as follows:
- Stocks were heavily promoted using slick marketing campaigns involving celebrity endorsements, videos, and misleading news releases.
- The defendants engaged in cross-trading of the stocks to create the illusion of high demand.
- The price of the stocks increased as a result.
- The scammers then sold off the stocks, earning substantial profits.
Two examples of how celebrities were used as part of the stock manipulation scheme include:
- Frogad.com: This company is an online bulletin board for classified advertisements. The scheme used the celebrity Pamela Anderson to promote the company in an infomercial, increasing attention to the stock.
- GenMed: This company’s stock was promoted by the actor Eric Roberts.
Authorities note that neither Anderson nor Roberts profited from these stocks. They are also not suspected of any wrongdoing.
Over the course of the investigation, the Federal Bureau of Investigation and the Internal Revenue Service used a series of wiretaps to intercept more than 60,000 calls and 24,000 text messages. U.S. Attorney Andre Birotte, Jr. notes that this evidence was vital to the case against the defendants. One defendant allegedly admitted on these tapes that a company on which shares were traded did not in fact exist. He referred to it as “monkey business.”
Bill Lewis, assistant director in charge of the FBI in Los Angeles, reported that the defendants used “gimmicks and lies” to hold the attention of investors until stock prices peaked. Once they did, the defendants took their profits to offshore bank accounts. Federal prosecutors allege that several of these fraudulent schemes were carried out each year. While the investigation is ongoing, the U.S. Attorney’s office states that losses could reach as high as $300 million. The defendants each face up to 100 years in prison if convicted.