"The company's lawyer, Carmine Bua (who was also a defendant), wrote a legal opinion letter that allowed the shares to be converted. In doing so he ignored a "multitude of red flags pointing to a fraudulent scheme to evade the registration requirements," the complaint stated."
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SEC fines Global Development men $2.6-million (U.S.)
2012-05-16 14:09 ET - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
Also Street Wire (U-GDVE) Global Development and Environmental Resource
by Mike Caswell
The U.S. Securities and Exchange Commission has secured a $2.6-million civil disgorgement order against Philip Pritchard and Pietro Cimino, two of the defendants in the Vancouver-linked pump-and-dump of Global Development and Environmental Resources Inc. (All figures are in U.S. dollars.) The SEC claimed that the men issued a series of positive news releases, including one in which the company falsely claimed to have $80-million in contracts. The releases came while one of their co-accused, former Vancouver broker Darko Mrakuzic, secretly dumped $6.5-million worth of stock.
The penalties against the men are contained in a judgment entered on April 23, 2012, in Tampa. Both men settled the case in September, 2008, agreeing to pay fines that the judge would determine. Neither admitted any wrongdoing.
In determining the penalties, Judge James Whittemore said the conduct of the pair was "egregious, premeditated, and risked causing substantial losses to investors." Their violations "involved fraud, deceit, and deliberate or reckless disregard of a regulatory requirement," the judge wrote. He held the men jointly liable for $2.1-million in disgorgement, plus $523,000 in interest. On top of that, each must pay a $130,000 civil penalty. The men both previously agreed to permanent penny stock bans as part of their settlements.
The charges against the men stem from a scheme to promote Global Development with misleading news and tout sheets. According to the SEC, they claimed that the company had secured Halliburton as a customer when it had no such arrangement. At the same time a newsletter writer predicted the stock would hit $20. As the stock rose, Mr. Mrakuzic and another of the defendants, Dante Panella, dumped 2.7 million shares.
The highest penalty in the case went to Mr. Mrakuzic, who was ordered to pay $9-million. Unlike the others, he contested the allegations. After a five-day trial in March, 2010, a jury found him liable for the pump-and-dump. The judge later ordered him to disgorge $6.5-million in ill-gotten gains, plus $2.3-million in interest, and to pay a $230,000 fine.
SEC's complaint
The charges against the men are contained in a civil complaint that the SEC filed on May 22, 2008, in the Middle District of Florida. The complaint identified Mr. Pritchard and Mr. Cimino as Las Vegas residents who served as the chairman and president of Global Development. Mr. Mrakuzic was identified as a Canadian shareholder of the company. The SEC described how the men manipulated Global Development, a pink sheets listing, to $5.15 from $1.79 between July and August, 2005.
The scheme began in June, 2005, when a private company that Mr. Mrakuzic controlled received 2.7 million free-trading shares of Global Development by converting a backdated note. The company's lawyer, Carmine Bua (who was also a defendant), wrote a legal opinion letter that allowed the shares to be converted. In doing so he ignored a "multitude of red flags pointing to a fraudulent scheme to evade the registration requirements," the complaint stated.
Once the shares were issued, Global Development started issuing news that, according to the SEC, was completely untrue. In an Aug. 1, 2005, release, the company said it had obtained environmental contracts worth $80-million, and that defence contracting firm Halliburton was a customer. "Pritchard and Cimino, 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 read. At the same time a newsletter called The Grip touted the company as having $67-million in projects, and predicted an 18-month price of $20 for the stock.
Within three weeks, the stock went to $5.15, and its daily volume peaked at 900,000 shares. At the same time the company issued other news about a non-existent real estate deal. As the stock went up, Mr. Mrakuzic and Mr. Panella dumped 2.7 million shares, the SEC claimed.
In addition to the pump-and-dump allegations, the complaint described a separate scheme in which Mr. Pritchard and Mr. Cimino misappropriated investor money. The SEC said that Global Development raised $2.1-million in July, 2005, partly based on the same false claims that the company was making in the stock promotion. Mr. Pritchard and Mr. Cimino then used this money for their own purposes, buying a preconstruction condominium at the Palms Casino in Las Vegas and $1-million worth of Mercedes vehicles, among other things.
The SEC sought penny stock bans, disgorgement of profits and appropriate civil penalties. In filing the case, the SEC acknowledged the assistance of the B.C. Securities Commission.
With the judgment against Mr. Pritchard and Mr. Cimino, the case is now complete. The SEC previously secured $457,000 in penalties for Mr. Panella and $43,000 for Mr. Bua. Both settled the case out of court, without admitting any wrongdoing.
IDA in the matter of Mrakuzic
From 1990 to 2000 Mr. Mrakuzic served as a broker in Vancouver, at Wolverton Securities Ltd. and later at Pacific International Securities Inc. Four years after he left PI, he agreed to pay $30,000 (Canadian) to settle an administrative action launched by the Investment Dealers Association. According to the IDA, he had helped a client circumvent a $61,000 (Canadian) debt with the firm.
He has not worked as a broker since.
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