SPECIAL REPORT: PENNY STOCK GANGS II: The Teletek Matrix
By Stephanie Ayres
home.att.net
Some penny stock fraud networks are so far-flung and loaded with repeat offenders that they are more easily described graphically. And so this report starts with a diagram depicting what might be called "fraud clusters"-- networks of brokers, promoters, and penny stocks that have worked together and also with members of other clusters to defraud small investors. Gathering information on penny stock frauds leads a researcher back and forth from one cluster to another, and they start to appear as a network. This report tracks such a network, whose center of gravity was a penny stock called Teletek
Cold Calling For Teletek
"In essence, the Chairman and CEO of a company named Teletek recruited a nationwide network of stockbrokers and bribed them to recommend Teletek stock to their customers, often by sending thousands of dollars in cash by FedEx."
Barry Goldsmith, Executive Vice President of the NASD, testifying to a Congressional Subcommittee in September 2000
A tiny Las Vegas company called Teletek was at the center of a major stock market scandal in the late 1990s which resulted in numerous SEC actions and three federal criminal cases against Teletek executives and a nationwide network of brokers who took bribes to promote Teletek stock to their customers. Many of those promoting Teletek had already been or became involved in other schemes as well. This Special Report lays out the connections between some of the major boiler rooms that participated in the Teletek bribery scheme and shows that this was not a one-time experience for many of them. Broker bribery in the penny stock world became commonplace in the 1990s and has figured in many penny stock lawsuits and criminal cases since then, some of which are still pending or just now--in 2005--winding up.
As for Teletek itself its former president, Michael G. Swan, pleaded guilty in November 1999 to over 70 counts including racketeering, conspiracy, securities fraud, wire fraud, and money laundering. Another Teletek executive, Keith Shwayder, was also convicted of racketeering, conspiracy, money laundering, securities fraud, and mail fraud.
Among the individual brokers who were indicted and sued by the SEC over Teletek bribery were:
Thomas Anthony Calise of Vallejo, California, a broker at Mathews, Holmquest & Associates, who sold thousands of shares of Teletek to customers. Calise was sanctioned by SEC and indicted in 1998 federal case in Las Vegas.
Charles Stember of Denver, a broker at RAF Financial Corporation, received about $3,000 of undisclosed compensation from Teletek affiliates. He was barred by the SEC from associating with broker-dealers and was indicted in the same Las Vegas federal case as Calise.
Gerard W. King of Metuchen, New Jersey, a broker at Sunpoint Securities, was barred by SEC from association with broker-dealers and penny stock offerings in March 1999, and also indicted with Stember and Calise in the Las Vegas case known as US v Cozzolino. In addition to the securities charges, King pleaded guilty to money laundering.
Three brokers at RB Webster Investments Inc., a Lauderhill, Florida securities dealer which opened 1986 and ceased operations in 1993:
1. Steven Ira Wertman of Delray Beach, Florida, barred from associating with NASD members in 1988, pleaded guilty to racketeering in the federal case against Swan in Las Vegas in 1996, sentenced to 21 months prison.
2. Robert Bruce Orkin of Coconut Creek, Florida, the principal officer of RB Webster between 1986 and 1993, barred in 1993 by NASD for a 1989 market manipulation, convicted of securities fraud, wire fraud, and conspiracy in the Las Vegas case US v Cozzolino, sentenced to 65 months in prison and a fine.
3. Edward Charles William Donner III of Palm Beach, Florida, vice president and compliance director for RB Webster, pleaded guilty to one count of conspiracy and sentenced to five months in prison.
Teletek's Friends at Cohig & Associates in Solana Beach
Some of Teletek's most aggressive and most highly-rewarded promoters were brokers at the Solana Beach office of Cohig & Associates, where manager John B. Morris was also the general partner of a secret partnership called Carmel Equity Partners, an entity he created to receive bribes paid by Teletek to Morris and other Cohig brokers in Solana Beach. In January 2000 Morris was convicted in a Nevada case on conspiracy to commit securites fraud, and in December 2001 he was barred by the SEC from association with broker-dealers.
Other Cohig brokers joining Morris in receiving secret payments from Teletek and other companies for pushing stocks included:
1. Edward Bracken: pleaded guilty to conspiracy to commit securities fraud in 1997 Teletek case in Las Vegas, barred by SEC from association with broker-dealers.
2. Douglas Diggins: pleaded guilty to conspiracy to commit securities fraud in Las Vegas Teletek case
3. Kelsey Vandeventer: convicted of conspiracy to commit securities fraud and money laundering in Las Vegas Teletek case. Banned from the securities industry by SEC
4. Richard L. Goodrich: convicted of conspiracy to commit wire fraud and securities fraud in Las Vegas Teletek case. Banned from the securities industry by SEC.
5. Bruce E. Masnekoff: convicted of conspiracy to commit securities fraud in Las Vegas Teletek case.
6. Lawrence D. Isen: convicted November 2000 of conspiracy to commit securities fraud and wire fraud for receipt of secret payments to promote and sell stock of Eagle Holdings in New York criminal case
7. Peter P. Kim: convicted November 2000 of conspiracy to commit securities fraud and wire fraud in New York criminal case over Eagle Holdings payments
8. Thomas A. Carey: pleaded guilty to conspiracy to commit securities fraud and wire fraud September 1999 in San Diego case over Eagle Holdings payments
9. Frank Marsella: convicted in same San Diego criminal case as Carey September 1999 over Eagle Holdings payments
The Eagle Holdings Scheme
Some of the Cohig brokers were convicted or pleaded guilty to accepting bribes to promote a penny stock called Eagle Holdings. Two principals of Eagle Holdings--Gordon L. Hall and R.L. Porter-- were sued by the SEC in September 1996 for allegedly scheming to inflate the value of assets reported on Eagle's financial statements between 1992 and 1994. For example, Eagle bought a $367,000 note secured by real estate from a company controlled by Hall and valued it at $2.5 million on the company's financial statements. A $200,000 interest in undeveloped land in Oklahoma acquired by Eagle from a company controlled by Porter was valued on Eagle's financial statements at $1.3 million. According to the SEC, Eagle ascribed a value of $10.5 million to a debenture somehow related to an agreement to lease stock to offshore insurance companies. Meanwhile Hall made over $2 million of profit from sales of Eagle stock.
Eagle, Autocorp, Diamond, Chariot
Penny stocks often change their names, but few barrel through as many name changes as quickly as Eagle Holdings, which between 1996 and 1998 converted itself into Autocorp Equities, then into Diamond Entertainment Inc. and finally into Chariot Entertainment Inc. An August 1998 civil case filed in federal court in Salt Lake City by the SEC charged five individuals associated with Diamond/Chariot of inflating the company's assets with a bogus $5 million certificate of deposit supposedly issued by a Russian bank. The SEC alleged that the "CD" was really made by one of the defendants, Hillel Sher, at a Kinko's copy shop in Hollywood, Florida. The case also charged that Diamond/Chariot planned to issue stock to finance the acquisition of the phony certificate of deposit. Charged along with Sher in this scheme were Michael Carnicle, Amotz Frenkel, Nili Frenkel, and Robert Cord Beatty, who had been sued in 1995 along with four different associates for raising $2 million from investors for a phony prime bank scheme which had promised returns of 10% to 25 % per month from the trading of documentary letters of credit, standby letters of credit, prime bank notes and other items.
First American Biltmore Securities
Teletek's network of brokers did not stop with RB Webster and Cohig. There was also First American Biltmore Securities, employer of brokers Terry Lee Lewis, Trent David Gribben, and Steven Gale Trapp, all of whom pleaded guilty in one of the Las Vegas criminal cases over Teletek bribes. Trapp was also cited by the SEC for taking payments from other penny stocks, including Medgroup Inc., and a Canadian company called Enrotek. The SEC's September 2001 case against John Banach, the principal of Enrotek claimed that Banach came into contact with the hungry brokers at First American Biltmore through Dennis Williams, a former broker who had been barred from the securities industry himself, but apparently maintained his lucrative network of contacts. Banach allegedly was put in touch with Williams by California stock promoter Kevin Woodbridge, another key Teletek promoter who also was hired to promote Enrotek and an Idaho company called Aqua Vie Beverage Corporation.
Enrotek's only known asset was undeveloped land in Portugal, but with the help of Woodbridge and Williams, brokers at First American Biltmore Securities and Cruttendon Roth had incentives to promote Enrotek stock to customers. According to the SEC, Woodbridge and Williams had joined up to pay brokers to push stocksbefore, so the secret payments for Teletek, Enrotek, and Aqua Vie were just business as usual. Williams's contact at First American Biltmore was identified as Jay Nance, who achieved the dubious honor of being a lead defendant of one the three Las Vegas Teletek cases (US v Nance et al, CR-S-96-271 D.Nev), was a manager at First American Biltmore.
Aqua Vie Beverage
In February 2004 the SEC filed a civil case against Aqua Vie, based in Ketchcum, Idaho, its CEO Thomas Gillespie and its major shareholder, Joseph Wozniak. The case alleged that the defendants sold about 2.75 million shares of Aqua Vie stock after touting it on millions of spam faxes. Aqua Vie also failed to make timely filings of its financial statements with the SEC, which claimed that the company had no other source of cash than the proceeds of stock sales. In a July 2003 administrative proceeding, the SEC barred broker Robert Thomas Clawson from association with broker-dealers and also from penny stock transactions. Clawson worked with promoter Kevin Woodbridge to promote Aqua Via and Enrotek while working at brokerage firm Cruttenden Roth
Supermail and Franklin-Lord
Another SEC action addressed the role of First American Biltmore Securities in promoting the stock of Supermail International Inc and Scorpion Technologies. These stocks were also the subject of SEC civil actions. In December 1996 the SEC filed a complaint against two former First American Biltmore brokers, Brett L. Bouchy and Richard C. Whelan, who allegedly promoting Supermail stock to clients without disclosing that they owned the stock personally and stood to make a 200% profit on their sales of this stock. Bouchy and Whelan allegedly used nominee accounts to conceal these profits and also allegedly misappropriated funds from a client.
Supermail had other problems. After what a US Department of Justice official described to Congress as "one of the largest money laundering sting operations targeting a check cashing business in US history," the CFO, president, and vice president of check-cashing and money-transmitting company Supermail were arrested in July 1998. They were charged along with six others in a 67-count federal indictment. The investigation had initially focused on a Supermail outlet in Reseda, California where the manager had arranged to launder the proceeds of drug sales for a fee. As the volume of these transactions allegedly grew to over $3 million, Supermail executives allegedly approved the continuation of this activity.
In 1995 the Arizona Corporations Commission (ACC) imposed a $50,000 fine on Bouchy and Whelan, by then principals of an Arizona brokerage firm called Franklin-Lord, over their alleged involvement in the Supermail manipulation. The ACC also banned Bouchy from the securities industry in that state.
Scorpion Technologies
Scorpion Technologies was a software company based in Los Gatos, California. A 1996 federal criminal case in California alleged that company executives, including former Scorpion president Richard Bauer (sentenced to 41 months in federal prison), executives Terry G. Marsh and James T. "Tracy" Marsh (who entered guilty pleas) schemed to inflate the company's income using offshore shell companies which pretended to be Scorpion customers. Bauer's co-defendant, John T. "Jack" Dawson, was sentenced to 2.5 years. Bauer and Dawson both pleaded guilty to one count of conspiracy to commit securities fraud and one count of money laundering.
The SEC also filed a civil case against the Marsh brothers, Richard Bauer, former Scorpion controller Eric C. Brown, and principals of several brokerage firms who allegedly colluded with the Scorpion executives to distribute the stock. Among these brokerage defendants was Albert Terranova, an alleged control person of First American Biltmore Securities. The case resulted in Terranova's being barred from association with broker-dealers and from participation in penny stock offerings by the SEC in February 2003. A class action lawsuit filed in 1995 over Scorpion's alleged stock manipulation involving transfers of large numbers of shares to offshore entities and individuals using the SEC's Regulation S included additional defendants, some of whom have been involved in other schemes.
For example, Scorpion class action case defendant Barry Witz, a Beverly Hills, California lawyer, pleaded guilty in April 2004 in a federal criminal case in New Jersey to conspracy to commit securities fraud for touting a stock called Global Datatel Inc., along with stock promoter Stuart Bockler and Global executives using press releases, interviews, and "road shows" to disseminate false information about the company's financial situation.
Westfield Financial
Based in New York and named as a defendant in the Scorpion class action lawsuit, Westfield Financial was at the center of a local Manhattan case that called attention to the role of attorneys, even some well-known, prominent attorneys, in facilitating penny stock manipulations. In addition to an SEC case alleging its involvement in manipulation of the stock of an apparel company called Candies and a Delaware corporation called Response USA Inc, Westfield Financial principals George A.Carhart and Salvatore Mazzeo, along with consultant James E. Cohen, pleaded guilty in November 2002 to attempted enterprise corruption in a criminal case brought by the District Attorney of New York County which involved spectacular charges against prominent attorneys in England and Canada for helping US citizens use (or rather, abuse) SEC's Regulation S to manipulate stocks and engage in other fraudulent activity, some of which was carried out by the defunct securities boiler room A.R. Baron.
In November 2002 Stuart Creggy (a senior partner in the London firm of Talbot & Creggy and Queen's Magistrate for Westminster and Kensington) and Harry J.F. Bloomfield (senior partner of the Bloomfield, Bellemare law firm in Montreal, Quebec, a Queen's Counsel and honorary counsel for the African country of Liberia) were both convicted in the New York case for using corporations and bank accounts in secrecy havens such as Belize and Liberia to facilitate securities fraud schemes orchestrated by their New York clients. The attorneys allegedly persuaded a Liberian diplomat to falsify corporate records to conceal the true ownership of the shell companies being used in the securities scheme.
In January 1999 a New York attorney, Felice F. Mischel, a partner in the law firm Schneck, Weltman, Hashmall and Mischel, pleaded guilty to a charge of offering a false instrument for filing. Mischel had been corporate attorney for some of the entities whose stocks were being manipulated by A.R. Baron, Westfield Financial, and others. Another London attorney, Andrew Warren, was indicted in June 1999 on charges of enterprise corruption for aiding the scheme by setting up more shell companies in the British Virgin Islands and elsewhere which were conduits for channeling Regulation S stock into the US market in the course of the stock manipulations. Warren was also a partner in Talbot & Creggy. He pleaded guilty in June 2003 to attempted enterprise corruption.
Baron, Blair, and Bear
The New York County investigation of Westfield and its far-flung team of lawyers grew out of an investigation into the stock manipulations engineered by the penny stock firm A.R. Baron. The civil and criminal cases in the late 1990s against Baron and another Wall Street penny stock firm called D.H. Blair spilled over to taint the clearing firm which had handled their trades--Bear Stearns. Principals of Baron and Blair received prison sentences and Bear Stearns was subject to multi-million-dollar fines and court judgments over its association with A.R.Baron.
Smith, Benton & Hughes
Yet another of the defendants in the Scorpion class action case over Regulation S manipulation was a brokerage firm called Smith, Benton & Hughes, along with its principals, Michael Zaman and Claudia Zaman. In addition to its alleged role in the Scorpion scheme, Smith, Benton & Hughes figured prominently in some other penny stock cases, including the manipulation of United States Properties Inc., a penny stock pushed by brokers on the payoff payroll of Ian Richard Hosang, Frank Mancini, and Andrew Scudiero. Hosang was barred by the NASD from associating with member firms in October 1997 as a result of the organizations investigation of Norfolk Securities. Hosang pleaded guilty to conspiracy to commit securities fraud in the United States Properties case. Mancini was an alleged organized crime associate, and Scudiero was sued by the SEC in 1997 over his alleged involvement in the 1995 manipulation of Interactive Information Solutions Inc and StockNet Inc., despite having been barred from the securities industry by NASD in February 1993.
Hampton Capital Management
In addition to Smith, Benton & Hughes, the United States Properties manipulators also recruited brokers at Hampton Capital Management to receive bribes for pushing the stock to customers. Hampton Capital, based in Stamford, Connecticut was shut down in December 1997 by the Connecticut State Banking Commissioner after the firm refused to allow the state regulator to review the records at its main office as part of a state sweep investigation against securities boiler rooms. In the same operation, Connecticut also revoked the licenses of Nationwide Securities Corporation, Investors Associates (both now defunct) and United Equities Corporation of New Jersey. Of the firms caught in the Connecticut sweep, only Hampton Capital was accused of involvement in the United States Properties manipulation.
Connectisys
In another high-profile penny stock case, Smith, Benton & Hughes and its owner Zaman were accused in a 1997 SEC case of colluding with former Assistant US Attorney Andrew S. Pitt and his companies, Devon Investment Advisors Icc., and B& M Caital Corporation to manipulate the price through pre-arranged trading of the stock of Connectisys Corporation. Pitt had allegedly acquired a controlling interest in Connectisys (then known as Coastal Financial Corporation) while he was still an attorney for the US Government, then later allegedly schemed with Zaman and others to manipulate the price in a campaign which combined false public statements about the company with channeling unregistered stock through Devon Investment Advisors to Zaman for sale to the public.
La Jolla Capital
The last major link in the Teletek chain of bribed boiler rooms was San Diego-based La Jolla Capital, run by Harold B.J. Gallison, fined and sued by the SEC and NASD and sent to prison in a criminal case. For a time Gallison's La Jolla Capital was the West Coast's penny stock central. A 1997 NASD investigation cited the involvement of La Jolla Capital in the manipulation of 15 stocks, and the list didn't even include the ones that got La Jolla Capital into the most trouble--Teletek and Golf Communities of America. In 1999 a broker in the company's Las Vegas office, Anthony Campos, was sentenced to 18 months in prison and payments of $120,000 restitution for taking bribes to promote Teletek while working for La Jolla Capital in Las Vegas, an office then being managed by Jay Wells Nance, who had also managed a securities office of First American Biltmore, as noted above.
Golf Communities of America
Gallison and La Jolla Capital were both named as defendants in an SEC case in 1997 over broker bribery to promote a company associated with penny stock veteran George Badger, the secret owner of Golf Communities of America, the former Golf Ventures Inc., which proposed to built the Red Hawk International Golf and Country Club but never seemed to have enough money to complete the project no matter how much stock the company sold. Badger had turned to La Jolla Capital for help in pushing the Golf shares to small investors in his manipulation scheme after his first brokerage partner in the scheme, Burnett Gray & Company, was shut down.
Burnett Gray and Marion Sherrill
According to the SEC's case against Badger and his broker associates, Golf Ventures began paying Burnett Gray in 1993 as the result of a $10,000 consulting agreement with Burnett Gray principal Marion Sherrill. This caused money to flow to the Burnett Gray brokers to push Golf Ventures (later Golf Communities) stock to their customers. Badger even allegedly transferred Golf Ventures stock to Burnett Gray to help the brokerage firm maintain its minimum required capital.
Sherrill was back on the securities fraud landscape in January 2005 when the SEC sued him for allegedly selling unregistered promissory notes to customers of the Georgia brokerage firm where he was working as a registered representative. He was already subject to a November 2003 SEC cease and desist order over his activities in negotiating broker bribery deals between Burnett Gray and George Badger. The SEC case in January 2005 alleged that Sherrill simply sold his own notes to elderly customers as investments with a promise to pay 10% interest, then used the money for personal spending. Sherrill reportedly denied selling notes or receiving client funds.
Ronald Brouillette and Pay Pop
One of La Jolla Capital's more industrious brokers moved on to get into trouble over other small stock promotions, including a Canadian stock called Pay Pop Inc, which marketed stock by regaling investors with stories of major bank loans which never materialized, the purchase of Caribbean beachfront property which never happened, the signing of big contracts which were never drafted, among other misleading claims described in the SEC's complaint of September 2003 against Pay Pop, Brouillette, and Pay Pop principals Daryl G. Desjardins and Robert S. Zaba.
The Pay Pop-pers' scheme to manipulate the stock had some help from Alnoor Jiwan, an employee of CIBC Mellon, a large bank which served as Pay Pop's transfer agent. In order to get around SEC regulations on the trading of restricted shares, Zaba and Desjardins arranged for Pay Pop to bribe Jiwan to remove the restrictive legends to free almost 100 million Pay Pop shares for illegal trading in the United States. Co-defendant Brian Koehn posed as an accountant long enough to create fictitious financial statements for Pay Pop showing what the SEC described as "grossly inflated" assets. The case alleged that although Pay Pop received little benefit from all the sales of its stock, Zaba and Desjardins made about $3 million in profits from the scheme. California attorney Warren Soloski, who prepared legal filings for Pay Pop, was accused of making over $900,000 of profits from insider trading of Pay Pop shares during the manipulation scheme.
LASV Enterprises
The key figure behind the Pay Pop scheme was Zaba. This was not his only penny stock experience. In 2000 he had acquired control of a shell company with publicly-trading stock called LASV, and followed the game plan that had worked with Pay Pop. LASV issued public statements about extravagant projects to buy a multi-million-dollar casino in the Dominican Republic, about receiving a loan to buy an airline, and about the billions it expected to collect from a new Russian lottery it would operate. All of these activities were illusory and just designed to get people to buy the stock and drive the price up so Zaba could allegedly dump his own shares. This he did, along with attorney Soloski. The pair made about $2.3 million from the LASV scheme, according to an SEC statement of April 5, 2004.
Kevin Orton
Indicted along with the promoters and sellers of Teletek was a Salt Lake City accountant named Kevin Orton, whose role in the scheme was described by prosecutors to the "Las Vegas Review-Journal" in October 1999 as "paying bribes and operating the principal stock and bank accounts used to carry out the scheme. " (1) He was convicted on charges of racketeering, securities fraud, and wire fraud and sentenced to about nine years in prison. He had already started this sentence when he was named as a defendant in an SEC civil case against the Draper, Utah-based Intelliquis International Inc., a penny stock that was delisted from the Over-the-Counter Bulletin Board for failure to file reports with the SEC as required. In the financial statements it had filed, for 1999 through 2001, the SEC alleged that the company had overstated its revenues by 37% and its shareholder equity by 49%, much of this due to the company's policy of treating the transfer of products to consignment dealers as completed sales, a practice not consistent with US Generally Accepted Accounting Principles (GAAP) because of the uncertainty as to the ultimate sale. Intelliquis's auditor--Kevin Orton--was accused of allowing the company to issue the financial statements with this inappropriate accounting treatment.
Jones, Jensen & Company
According to information in an SEC administrative complaint in a separate case, Kevin Orton had been a partner in the Salt Lake City accounting firm of Jones, Jensen & Company, which seemed to be the auditor of choice for more than a few penny stock issuers that were later named in federal civil, criminal, or administrative actions. The name partners in the firm--R. Gordon Jones and Mark F. Jensen--were cited for lapses in auditing standards in other penny stock cases, including Pan World Minerals International, Dynamic American Corporation, and Sky Scientific.
Pan World Minerals and Dynamic American
Although Pan World and Dynamic American were two separate companies, both controlled by the same Utah residents--Robert G. Weeks, David A. Hesterman, and Kenneth L. Weeks, and both issuing stock to finance murky South American mining deals that had little benefit for the companies' investors, they were marketed to investors as separate companies. Dynamic American actually negotiated to buy a tin mining operation in Bolivia, but according to information in the SEC's cases against the two companies and their principals, Hesterman and the Weeks spent a great deal of time paying offshore entities to create shell companies to receive unregistered Dynamic American stock, on the flimsy premise that the shells were providing "consulting" services. In December 1996 Dynamic American's charter was revoked by the State of Utah. The Weeks and Hesterman were barred by the SEC from penny stock offerings in February 2002. In May 2001 auditor Jones was barred from practicing before the SEC over his alleged failure to obtain "competent evidential matter" to help establish a reasonable value for the Bolivian mining interests which Dynamic American had artibrarily valued at about $40 million. Whatever their value, the original owner reportedly took the properties back in late 1996, so shareholders would receive little or no benefit from them.
Sky Scientific
Another Jones, Jensen audit client whose accounting was challenged by the SEC was Sky Scientific, a penny stock issuer formed through a reverse merger with a publicly-traded shell company in 1993. After the merger, when Sky could sell shares to the public, the company suddenly began a publicity campaign to announce big mining projects, hired a team of stock promoters--Robert Schlien, Melvin L. Levine, William David Jones, and Philip M. Georgeson( 2)--to boost the stock's price. According to an administrative proceeding against several participants in the scheme, Schlien, Levine, and Jones distributed about 20 million shares of Sky Scientific among accounts at Canaccord Capital, Smith Benton & Hughes, and two other brokerages.
The Sky Scientific promotion raised about $80 million from investors before crashing upon revelations of faulty accounting. in October 1994. Within the previous year, the company had gone through six auditors, including Jones, Jensen, in search of someone to let it get away with including on its balance sheet almost $30 million of mining properties and $40 million of "restricted" Russian certificates of deposit. Now here is something that may sound familiar. Eagle Holdings, the company which bribed brokers at Cohig & Company to push its stock, also had claimed to have millions of dollars worth of Russian CDs on its books. The Eagle CDs turned out to be fakes, as did the ones claimed by Sky Scientific.
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Most reporting of fraudulent penny stock promotions deals with one case at a time, because news reporting deals with events as they happen. That doesn't mean that each case is an isolated or unusual event. Often the individuals involved in fraudulent stock promotions also turn up in other cases. Corrupt brokerage firms are often involved in more than one fraudulent scheme, and penny stock fraudsters frequently pop up in other schemes as well, until they end up being described as "recidivists," the SEC's scornful way of referring to repeat offenders. There are a lot of recidivists out there, many not the least intimidated by court injunctions, fines, or sanctions and some not even much deterred by prison sentences. It is important for small investors to be aware that a lot of these pros are on the job, that they sometimes try to hide behind the scenes as stock promoters, and that they have their own support group of accountants and attorneys, all on the look-out for new worthless stocks to tout to the unwary.
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(1)Carri Geer, 'Three accused of bribery in stock scheme trial," Las Vegas Review-Journal, October 27, 1999.
(2) All of these promoters have been fined, sued, censured, or convicted in other fraud cases. Between 1989 and 1992 Schlien was barred from association with broker-dealers and subject to a federal court injunction barring future securities laws violations, fined $25,000 in a Florida state securities case, much of these actions related to his alleged role in a fraud at Profile Invs. Corp.Jones was censured and fined in April 1989 by NASD for making unauthorized transactions in customer accounts, was made subject to restrictions on his business activities by the Florida Department of Banking and Finance in 1989, barred as a securities firm supervisor by SEC in 1993 and convicted on charges of conspiracy, securities fraud, and wire fraud in 1998 in one of the Las Vegas Teletek cases (US v Cozzolino). Georgeson was censured in September 1989 by the NASD and was subject to a permanent injunction against securities law violations by SEC. Levine was a defendant in two criminal cases resulting from the 2002 penny stock investigation in South Florida called "Operation Bermuda Short."
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