Background
As the Court is aware, the Indictment alleges a stock “pump-and-dump” scheme whereby the Defendants – the former officers of a publicly-traded penny stock company – conspired to artificially pump the price of ths stock by making false public statements.
The Defendants then profited or sought to profit by (a) having numerous immediate family members (including wives, children, sibling, and at least one parent) open stock brokerage accounts, (b) transferring millions of shares to those family members, (c)having the family members immediately start selling shares, and (d) in the cases of Defendants Stanley and Horton, having the selling family members kick cash proceeds back.
In the case of Defendant Harris, the kickbacks did not occur, because the family members’ stock brokerage firm (Merrill Lynch) suspended the trading and froze the accounts while the stock sales were in progress. The United States has identified the Defendants’ trading family members as unindicted co-conspirators in this case.
The Defendants are aware that the potential witnesses in this case include the stock brokers with whom the family members interacted to open trading accounts and to trade the stock, including two individuals at Merrill Lynch who testified years ago in the civil SEC case. The Defendants have not raised any motions-in-limine to exclude the admission of the family members’ statements to these brokers or other witnesses. Nevertheless, the United States believes it is prudent to outline for the Court in this bench memorandum some of the statements that the United States intends to elicit and to explain how those statements are admissible as co-conspirator statements under Fed.R.Evid. 801(d)(2), in case the Defendants lodge an objection during trial.
In sum, the United States will offer testimony from one or two Merrill Lynch employees that Defendant Harris’s mother, brother, and wife opened brokerage accounts in Rome, Georgia, on October 3-4, 2006; received 350,000, 250,000, and 1 million shares of Conversion Solution stock one day after opening their accounts; and immediately expressed a desire to sell all or substantial numbers of shares because they explained that Defendant Harris advised them to sell at this price. Mr. Harris’s wife expressed particular urgency in desiring to sell. Merrill Lynch began processing the trades but very quickly became suspicious and suspended the accounts in part because the Defendant’s wife was not forthcoming about her relationship with the Defendant. When that occurred, the evidence will show that Defendant Harris himself took the lead in personally disputing this with Merrill Lynch, calling several employees numerous times, and among other things demanding that Merrill release the shares so that the shares could be traded through another brokerage.
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