SEC names former Vancouver broker in fraud suit
2008-05-23 20:49 ET - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
Also Street Wire (U-GDVE) Global Development & Environmental Resources
by Mike Caswell
The U.S. Securities and Exchange Commission has filed civil fraud charges against former Vancouver broker Darko Mrakuzic for the alleged pump-and-dump of Global Development & Environmental Resources Inc., a pink sheets listing. The SEC claims that he made $1.2-million while misleading news releases boosted the company to $5.15. (All figures are in U.S. dollars.)
The charges were filed on Thursday, May 22, in U.S. District Court for the Middle District of Florida. In addition to Mr. Mrakuzic, the SEC names as defendants Michigan resident Anthony Cimini Sr., California securities lawyer Carmine Bua, Las Vegas residents Philip Pritchard and Pietro Cimino, and Florida resident Dante Panella.
Mr. Pritchard and Mr. Cimino allegedly touted Global Development through false and misleading news releases as a provider of environmental remediation services. On Aug. 23, 2005, the SEC suspended the company, and it is now a thin trader.
According to the complaint, Mr. Mrakuzic financed Global's acquisition of a Florida public shell in July, 2005. He allegedly received unrestricted shares through his private B.C. company, Quantumvest Holdings Ltd., and sold them during the promotional campaign.
BCSC records show that Mr. Mrakuzic was a broker at Wolverton Securities Ltd. from April 16, 1990, to Feb. 16, 1994, and at Pacific International Securities Inc. from Feb. 1, 1995, to Feb. 11, 2000.
The Global Development pump-and-dump
The alleged scheme began in 2005, when Global Development was facing a cash crisis. The company, which was formed in 2003 as an environmental clean-up business, was seeking private financing, but its accounts receivable were not sufficient to secure any.
As a result, Mr. Mrakuzic located a public shell it could merge with, Old Mission Assessment Corp. To pay for the shell, Mr. Mrakuzic's Quantumvest and three unnamed foreign entities deposited $195,000 into a designated escrow account held by a Miami lawyer.
One of the SEC's allegations is that the defendants created a fraudulent promissory note so they could get unrestricted shares of the public shell. The note was backdated to allow it to be convertible into unrestricted shares. "It was crucial to the scheme ... [to] backdate it at least two years so Bua [the company's lawyer] could later author his attorney opinion letter claiming the note satisfied a two-year holding period," the complaint reads.
On June 30, 2005, Mr. Bua assigned the note to parties designated by Mr. Mrakuzic, the SEC claims. They included his Quantumvest Holdings company, a private Swiss bank and a Panamanian brokerage firm. These were the same offshore entities that originally paid for the purchase of Old Mission.
According to the SEC the note should have raised red flags with Mr. Bua. It was purportedly signed by Mr. Cimini in December, 2002, but he did not become an officer of Old Mission until May, 2003. Mr. Bua also possessed documents showing that Old Mission had been administratively dissolved when Mr. Cimini purportedly executed the note.
On June 30, 2005, Old Mission rolled back 1:5 and changed its name to Global Development as part of a reverse takeover. Three weeks later, on July 25, Mr. Bua authorized Global's transfer agent to issue approximately 2.7 million unrestricted shares to Mr. Mrakuzic's assignees. He did so "Despite a multitude of red flags pointing to a fraudulent scheme to evade the registration requirements of the federal securities laws," the SEC says.
Global Development began publicly trading under the symbol GDVE on July 28, 2005.
Prior to its trading debut, Mr. Panella had been touting the company through a newsletter called The Grip. He allegedly told The Grip's author that the company would be issuing a series of news releases, and that it had $67-million in booked sales.
Once the company started trading, Mr. Pritchard and Mr. Cimino issued a series of positive news releases. One, dated Aug. 1, 2005, claimed that the company was negotiating $80-million in additional projects, and that defence contracting firm Halliburton had purchased the company's products. "Pritchard and Cimini, however, knew Halliburton had never been a client and knew the company had no support for its current project backlog or project negotiation claims," the complaint says.
Also on Aug. 1, 2005, The Grip published its first substantive article on Global. It repeated the claim that the company had booked sales of $67-million, and predicted an 18-month price of $20 for the stock.
"The investing public responded immediately to this false information as Global's share price increased more than 67 percent, with the stock closing at its daily high of $3.00," the complaint reads.
The SEC alleges that the company issued additional false news releases on Aug. 8 and Aug. 11, touting a non-existent real estate deal and a $5-million agreement with a private company.
Within three weeks, the company's price increased to $5.15 and its daily volume peaked at 900,000 shares.
Throughout the promotional campaign, Mr. Mrakuzic's Quantumvest sold the shares it acquired with the backdated note, the SEC says. It transferred half of them to Mr. Panella and sold the remaining shares through an unnamed Canadian brokerage for $1.2-million.
In addition to the pump-and-dump allegations, the SEC alleges that Mr. Pritchard and Mr. Cimino fraudulently raised $2.1-million in a private offering of Global shares. They said they would use investor money for salaries, equipment purchases and other operating costs.
Instead, they used the money to enrich themselves, the SEC alleges. They bought three residential properties, including a preconstruction condominium at the Palms Casino in Las Vegas. They also transferred $1-million to themselves and used Global money to pay for Mercedes vehicles.
The SEC is seeking relief on five counts, including fraud, sale of unregistered securities, and aiding and abetting violations of the Securities and Exchange Act. It is asking for disgorgement of profits, appropriate civil penalties and orders banning the defendants from participating in penny stock offerings.
In announcing the charges Friday, the SEC said it had settled with Mr. Bua. Without admitting any wrongdoing, he agreed to a permanent ban from penny stock offerings and to disgorgement and civil penalties to be determined by the court.
The other five defendants have not yet responded to the allegations.
The SEC acknowledged the assistance of the B.C. Securities Commission.
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IDA fines Darko Stjepan Mrakuzic $30,000, orders close supervision
February 3, 2004 (Vancouver, BC) – The Pacific District Council of the Investment Dealers Association of Canada has imposed disciplinary penalties on Darko Stjepan Mrakuzic, at the relevant times a registered representative with Pacific International Securities Inc., a Member of the Association.
On January 27, 2004, the District Council reviewed and accepted a settlement agreement negotiated between Mr. Mrakuzic and the Association. Under the settlement agreement, Mr. Mrakuzic admitted that, contrary to By-law 29.1, he:
• Effected 30 undeclared short sales in a client’s account contrary to the B.C. Securities Act and to Pacific’s instructions;
• Failed to make Pacific aware of his involvement in a joint venture;
• Made false or misleading statements to Pacific about share acquisitions made by him and his family members;
and • Facilitated a trade through his father’s account for a client to circumvent a debt owed to Pacific by the client.
Mr. Mrakuzic is fined $30,000, and is required to successfully rewrite the Conduct and Practices Handbook course exam and be subject to 12 months’ close supervision as conditions upon reapproval in any registered capacity. Mr. Mrakuzic also received a prohibition against receiving reapproval in any registered capacity for one year, that period having run from March 2000 to February 2001. In addition, Mr. Mrakuzic is required to pay $2,500 in costs.
For a complete summary of facts, please see IDA Bulletin 3244 at www.ida.ca.
ida.ca
Posted by halcrow @ 2008-05-23 21:57
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