SEC target Brown pleads not guilty
2009-07-02 14:29 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 pleaded not guilty to criminal securities fraud charges. He appeared before Judge Leonard Stark in the District of Delaware on June 24, 2009, to enter his plea. Mr. Brown, 26, was one of seven men arrested on May 21, 2009, after a two-year investigation into the alleged market manipulation of four pink sheets companies. The companies the men allegedly manipulated included Playstar Corp., an Ontario listing that purported to be developing a proprietary text message system for cellphones.
With his not guilty plea, Mr. Brown will remain free on a $50,000 bond which his father, Thomas Brown of Tallahassee, Fla., signed as surety. Should Matthew Brown be found guilty, he faces a maximum of 40 years in jail. (All figures are in U.S. dollars.)
Brown's indictment
The seven men were all separately indicted in Delaware. In Mr. Brown's indictment, which was unsealed on May 21, 2009, prosecutors charged him with eight counts of fraud, mostly related to the alleged pump-and-dumps of GH3 International Inc. and Asia Global Holdings Corp. in 2006 and 2007. With GH3, prosecutors claimed that Mr. Brown and others pumped the company with misleading news releases, prearranged trades and messages in on-line message boards. The company purported to be in the business of offering anti-aging treatments.
The indictment did not indicate exactly what Mr. Brown's role was in the alleged GH3 pump-and-dump. In broad terms, it stated that he and others conspired to artificially inflate the market for the company. As part of the conspiracy, they issued hundreds of millions of non-registered shares into the marketplace through the the misuse of Regulation D offerings, prosecutors claimed. Regulation D is normally used to provide an exemption for shares issued in a private placement to an accredited investor.
In what particulars it did provide, the indictment listed the dates on which Mr. Brown communicated with others about the stock by instant message. Some communications were about messages posted in the Investor Hub message boards, while others were about the company's press releases. Prosecutors noted that the company issued news releases on Dec. 7 and Dec. 8, 2006, claiming that its revenues for 2005 and 2006 exceeded $2.1-million and $3-million.
Also on Dec. 7, 2006, Mr. Brown allegedly received an instant message directing him to have the company issue a news release stating that GH3 had ordered a non-objecting beneficial owners lists from its transfer agent. The purpose of the news release was to explain short positions in GH3, prosecutors claimed. He caused the company issued the news the next day, on Dec. 8, the indictment stated.
While the indictment provided few details on how Mr. Brown participated in the alleged GH3 pump-and-dump, it did state that he was the intended recipient of some of the proceeds. The indictment claimed that one of his co-conspirators, identified only as M.R. (likely Mark Riviello, a California man separately indicted for the scheme), received $220,000 in cash in January, 2007, a portion of which was intended for Mr. Brown. It also stated that Mr. Brown paid another man $10,000 to drive $146,000 in cash proceeds from the GH3 deal from California to Delaware.
As with the GH3 allegations, prosecutors gave few details of Mr. Brown's participation in the alleged Asia Global pump-and-dump. The company purported to have the rights to the show "Who Wants to be a Millionaire" in China. In what information prosecutors provided, they claimed that Mr. Brown received several instant message communications about how the pump-and-dump should work. One, dated Nov. 1, 2006, allegedly 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] ...," the indictment reads.
In addition to the message claims, the indictment stated that Mr. Brown and others directed the buying and selling of 24 million shares of Asia Global between Feb. 1 and Feb. 13, 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 0.26 of a penny.)
Mr. Brown's co-conspirators, who were separately indicted, were Pawel Dynkowski, 24, of Delaware; Joseph Mangiapane, 43, of California; Marc Riviello, 50, of California; Jacob Canceli, 50, of California; Gerard D'Amaro, 38, of Florida; and Angelo "Bill" Panetta, 48, of California. Mr. Riviello, Mr. Canceli, Mr. D'Amaro and Mr. Panetta previously pled not guilty to the charges, while Mr. Pawel and Mr. Mangiapane have not yet entered a plea. The case was investigated by the Department of Homeland Security, the Internal Revenue Service and the Delaware State Police.
The SEC filed a parallel civil suit against the seven men plus another individual, Adam Rosengard of New Jersey, on May 21, 2009. |
