SEC charges Curshen, Ricci for global warming promotion
2011-02-21 19:42 ET - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
Also Street Wire (U-CTTD) CO2 Tech Ltd
by Mike Caswell
The U.S. Securities and Exchange Commission has launched a pump-and-dump case against former Pacific International Securities Inc. broker David Ricci and six others, including recidivist securities violator Jonathan Curshen. The SEC claims that the men manipulated CO2 Tech Ltd., a pink sheets company that purportedly developed pollution control products, and that they dumped $7-million worth of stock. (All figures are in U.S. dollars.)
The scheme was run through a Costa Rican entity called Red Sea Management Ltd., which operates dozens of nominee brokerage accounts in the U.S. and Canada, according to the SEC. Although the present case is for the CO2 promotion, the regulator says that Red Sea has run multiple pump-and-dumps through a labyrinth of nominees. In 2006 and 2007, it transferred $91.5-million from a bank account at HSBC Bank in Vancouver, most of which represented proceeds from these schemes, the SEC claims.
In addition to the SEC case, Mr. Ricci, Mr. Curshen and others are facing related criminal charges of conspiracy, wire fraud and mail fraud, which the Department of Justice announced on Friday. The criminal charges carry maximum sentences of between five and 20 years.
SEC's complaint
The SEC filed the CO2 complaint on Feb. 18, 2011, in the Southern District of Florida. In it, the regulator describes Mr. Ricci, 39, as a Canadian citizen who lives in San Jose, Costa Rica. He was the head trader for Sentry Global Securities Ltd., a Costa Rican brokerage affiliated with Red Sea.
Also a defendant is Mr. Curshen, 46. According to the SEC, he founded Red Sea in 1998 and has used it to launder millions of dollars in illegal trading proceeds for overseas clients. (In 2003, the SEC sued him for the pump-and-dump of another company, Freedom Golf Inc., and eventually won a permanent penny stock ban. He also pleaded guilty in June, 2009, to criminal charges he faced for trying to bribe an undercover FBI agent to buy shares of a Washington State company, Industrial Biotechnology Corp. He is free on bond awaiting sentencing.)
The complaint describes Red Sea as a business that caters to those looking to run a pump-and-dump. Its services include market manipulation, money laundering, incorporating shell companies and establishing virtual offices. Red Sea has set up a labyrinth of nominee brokerage and bank accounts to help in these schemes. In October, 2006, it operated 54 brokerage accounts in the U.S. and Canada in the names of 20 nominees, the SEC claims.
According to the complaint, Red Sea carried out the CO2 manipulation on behalf of two Israeli men, Ariav Weinbaum and Yitzchak Zigdon, who are also defendants in both the SEC case and the criminal case. The company claimed that it manufactured and sold anti-global warming products, and that it was in discussions with Boeing, among other things.
One of Red Sea's requirements for a market manipulation was that its clients control all of the free-trading stock of a company, the complaint states. In the case of CO2, Mr. Weinbaum and Mr. Zigdon held 22.5 million shares of CO2 through a nominee, which represented the company's entire public float. They received the stock as part of a purported debenture conversion, in which a New York lawyer, Michael Krome, wrote a fraudulent opinion letter that turned the stock into free-trading shares. The SEC says Mr. Krome, who is also a defendant, should have known that the debenture was simply a pretext for issuing free-trading shares, as the debt did not appear on CO2's balance sheet.
Starting on Jan. 29, 2007, CO2 issued several news releases which, according to the SEC, falsely described the company's operations. Among other things, they stated that CO2 had experts who had been working for over a decade developing pollution control technology. The company claimed to have an office in London and a manufacturing operation in Israel with 10 employees. The SEC says that the London office was nothing more than a mail drop, and Israeli authorities were not able to find the manufacturing operation.
The company also claimed, in a Jan. 30, 2007, news release, that Boeing had taken an interest in one of its products. CO2 said the product would significantly contribute to the "aviation industry's need to reduce ecological contamination." The release further stated that the company would exhibit a product as early as the second quarter of 2007. The SEC says the news release was plainly false, as there had been no arrangement or even any communication with Boeing prior to the release. The only communication was a cease-and-desist order Boeing sent to CO2 one week after the news release.
Around the time that the news releases were going out, CO2 paid for a series of spam e-mails and fax blasts. One read, "IF BOEING LIKES CTTD SO WILL YOU!" Others contained similar misleading statements, according to the complaint.
As the spam and news releases were disseminated, Mr. Curshen and Mr. Ricci were manipulating CO2 with matched orders, the SEC says. On the day of the Boeing news release, they executed several wash trades early in the day at increasing prices. As buyers began entering the market, Mr. Curshen and Mr. Ricci started dumping shares, generating $5.5-million in profits, the complaint states. The stock went from 91 cents to $1.65 that day on volume of 12.2 million shares. (It was last at 0.85 cent.)
In total, Red Sea obtained over $7-million in profits for Mr. Weinbaum and Mr. Zigdon, which it wired to bank accounts in Israel and Switzerland, the SEC says.
The final two defendants in the case are Ronny Salazar, a Costa Rican who helped Mr. Ricci with the trading, and Robert Weidenbaum, a Florida stock promoter who helped arrange the spam e-mails and faxes. The SEC is asking for disgorgement of ill-gotten gains, appropriate civil penalties and penny stock bans against all seven defendants.
In filing the case, the SEC acknowledged the assistance of the B.C. Securities Commission, the Costa Rican Police, the Israel Securities Authority, the United Kingdom Financial Services Authority and the City of London Police.
According to Canadian Securities Administrators records, Mr. Ricci worked at PI for five years and he left the firm on Nov. 17, 1999.
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