Victoria man made $11.6m in stock manipulation, SEC alleges
Colin Heatherington and associates pumped junior firms' shares, then sold them at artificially inflated prices, commission claims
By David Baines, Vancouver Sun February 26, 2011
vancouversun.com
The U.S. Securities and Exchange Commission has alleged that Victoria resident Colin Heatherington made $11.6 million and two coconspirators generated another $52.2 million in a massive international stock fraud.
In a complaint filed in U.S. District Court in California, the SEC alleged that, from September 2005 to September 2007, Heatherington and two associates acquired shares of six junior companies, manipulated their share prices upward, then caused a hedge fund company to buy those shares at artificially inflated prices.
The SEC alleges the trades were conducted through Hunter World Markets Inc., a registered broker-dealer based in Beverly Hills.
The firm is owned by Todd Ficeto of Malibu, Calif., and Florian Homm of Majorca, Spain, who have regulatory histories in the United States and Germany, respectively.
Homm was also the cofounder and principal investment adviser for Absolute Capital Management Holdings Ltd., a London-based hedge fund management company. It managed eight equity hedge funds and purportedly had $2.1 billon in assets under management.
Heatherington worked as a trader for the hedge fund management company. The SEC says he worked in Spain during the relevant period.
The SEC alleges that Homm, Ficeto and Heatherington -directly or through companies they controlled -bought shares of six companies whose shares traded on the OTC Bulletin Board and Pink Sheets in the United States.
Then Homm -assisted by Ficeto and Heatherington -used the hedge funds' money to artificially inflate the price of those shares. This enabled Absolute Capital Management to materially overstate their funds' performance, a fraudulent practice known as "portfolio pumping."
It also enabled them to sell their shares to the funds at artificially inflated prices and collectively make "at least $63.7 million in illicit proceeds."
Of course, these sorts of schemes invariably collapse. The SEC said Homm abruptly resigned on Sept. 18, 2007, the same day Absolute Capital Management's new chief executive officer was to meet with Homm to discuss increased oversight of his investment decisions.
The Absolute funds and their investors were left holding between $440 million and $530 million in "illiquid positions," most on account of the stocks in question, the SEC said.
Heatherington is not known to me. I was unable to find out anything about him by press time, other than he lives in Victoria.
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A Vancouver bank inadvertently played a key moneylaundering role in an alleged penny stock manipulation ring based in Costa Rica, according to another complaint filed by the SEC.
The SEC says the ring was headed by Jonathan Curshen, 46, founder of Red Sea Management Ltd., a Costa Rican firm that specialized in incorporating offshore companies, asset protection and offshore investments.
One of Red Sea's affiliated companies was Sentry Global Securities, a broker-dealer licensed in St. Kitts and Nevis. Its head stock trader was David Ricci, 39, a former Vancouver resident who previously worked as a broker at Pacific International Securities.
According to the SEC complaint, filed in U.S. District Court in Florida, Sentry Global opened an account at HSBC Bank in Vancouver in August 2006.
Then from November 2006 to September 2007, Red Sea wired $90.8 million into the account and $91.5 million out of the account, to accounts around the world.
"On information and belief, most of this money consisted of trading proceeds from pumpand-dump schemes perpetrated by Red Sea on behalf of its clients," the SEC alleges.
The SEC also alleges that, to effect its pump-and-dump schemes, Red Sea operated 54 brokerage accounts in the names of 20 nominee shell corporations at 26 brokerage firms in the U.S. and Canada.
Although not specified in the complaint, I have it on good authority that many of these accounts were opened at Vancouver brokerage firms.
There is no suggestion in the complaint that HSBC was aware of the illicit financial dealings. Similarly, the brokerage firms were not accused of any wrongdoing, but in my view, the brokerage firms must have known they were dealing in the shares of extremely dubious companies.
One of those companies, CO2 Tech Ltd., forms the core of the SEC complaint. According to the SEC, it was a "sham company" whose shares traded on the lowly Pink Sheets in the U.S.
CO2 Tech's promoters were Ariav "Eric" Weinbaum of Boca Raton, Fla., and Yitzchak Zigdon of Tel Aviv, Israel.
The SEC alleges they arranged for New York lawyer Michael Krome to issue a fraudulent opinion letter to get their shares free trading, then hired Red Sea "to sell massive quantities of CO2 Tech stock to the investing public through its web of nominee brokerage accounts."
Zigdon, meanwhile, disseminated false and misleading information about the company in press releases and on its website, and hired another Florida promoter, Robert Weidenbaum, to redistribute this false information through the usual Internet tout services, the SEC alleged.
Weidenbaum also enlisted a group of promoters to execute illegal "matched orders" with Red Sea's nominee brokerage accounts to increase the price of the stock. Then Ricci and another trader at Sentry Global, Ronny Salazar, began selling out the stock, enabling the conspirators to make more than $7 million in illicit profits, the SEC claimed.
It's an oh-so-familiar pattern, not only in terms of the mechanics of the alleged pumpand-dump scheme, but the fact that Vancouver financial institutions and brokerage firms were used as conduits for it.
dbaines@vancouversun.com
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