SEC target Brown reaches deal with prosecutors
2010-02-05 14:26 ET - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
Also Street Wire (U-AAGH) Asia Global Holdings Corp
Also Street Wire (U-GHTI) GH3 International Inc
by Mike Caswell
Matthew Brown, operator of the penny stock website Investors Hub, has reached a deal with Delaware prosecutors in his criminal market manipulation case. He previously pleaded not guilty to the charges, but the judge has now scheduled a change of plea hearing for Feb. 17, 2010. In a scheduling order dated Feb. 3, 2010, the judge noted that Mr. Brown has some sort of deal with prosecutors, but he did not provide any details. These will likely be released after Mr. Brown changes his plea.
Police arrested Mr. Brown and six others on May 26, 2009, after a two-year investigation into the manipulation of pink sheets companies. Prosecutors claimed that the men manipulated four stocks, including Ontario-based Playstar Corp., which purported to be developing a proprietary text message system for cellphones.
Mr. Brown pleaded not guilty to the charges on June 24, 2009, and is free on a $50,000 bond. (All figures are in U.S. dollars.) He faced a maximum of 40 years in jail if found guilty.
Brown's indictment
Prosecutors unsealed an eight-count criminal fraud indictment against Mr. Brown on May 21, 2009, in the District of Delaware. The document briefly described the pump-and-dumps of two stocks, GH3 International Inc. and Asia Global Holdings Corp. According to the indictment, Mr. Brown and the others misused Regulation D offerings to obtain hundreds of millions of shares of GH3, while the company issued misleading news releases touting revenues from an anti-aging product. Regulation D normally provides an exemption for shares issued in a private placement to an accredited investor.
The indictment described the GH3 manipulation in broad terms, stating that Mr. Brown and the others conspired to artificially inflate the market for the company. In what details it did provide, it stated that Mr. Brown arranged to transfer hundreds of thousands of dollars in proceeds from the scheme. In one transfer, he paid a driver $10,000 to take $146,000 in cash from California to Delaware. The indictment also listed wire transfers and cash withdrawals totalling $693,000 as proceeds from GH3 share sales.
The indictment provided a similar level of detail with the Asia Global pump-and-dump. Prosecutors said that Mr. Brown received several instant messages about the timing of a planned promotion of Asia Global, which purported to have the rights to the show "Who Wants to be a Millionaire" in China. The indictment quoted several of the messages, including one dated Nov. 1, 2006, which stated, "u have all the prs [press releases] right, except the first one, which im going to work on tomorrow for sure, we need a plan on line up of events and i need to see the damn prs to see which rumor to spread and how to start the damn thing ... ." Another, dated Sept. 1, 2006, stated that the company should "do [a] bigger S-8, 25 [million] shares instead of 15 and we'll sell it all extra 10 [million] ... ."
Prosecutors also described how Mr. Brown and others directed the buying and selling of 24 million shares of the company during a two-week period in February, 2007. (Trading records show that the stock traded between five and seven cents, and that it had average daily volume of 12.1 million shares between those dates. It last traded for 0.22 of a penny.)
In addition to the market manipulation allegations, prosecutors claimed that Mr. Brown helped set up an offshore bank account for one of his co-conspirators, Pawel Dynkowski, that would be safe from the U.S. Securities and Exchange Commission. The purpose of the account was to help Mr. Dynkowski hide the proceeds of the Asia Global market manipulation. According to the indictment, the men travelled to Costa Rica on Oct. 21, 2006, and opened the account. In a subsequent instant message, Mr. Dynkowski said his "set up is now 100% sec safe."
Mr. Brown's co-conspirators, who were separately indicted, are Joseph Mangiapane, 43, of California; Pawel Dynkowski, 24, of Delaware; Marc Riviello, 50, of California; Jacob Canceli, 50, of California; Gerard D'Amaro, 38, of Florida; and Angelo "Bill" Panetta, 48, of California. All of the men have pleaded not guilty to the charges, and await trial, except Mr. Dynkowski, who has not yet entered a plea.
In addition to the criminal charges, the men face a parallel civil suit launched by the SEC on May 21, 2009. In that case, the SEC claims that the men made $6.2-million pumping and dumping Playstar, GH3 International, Asia Global and Xtreme Motorsports of California Inc.
The regulator belatedly halted GH3 on Dec. 24, 2009, stating that publicly available information about the stock was questionable. |
