SEC targets Weidenbaum, Krome agree to bans
2011-11-04 13:49 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
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Michael Krome and Robert Weidenbaum, two defendants in the U.S. Securities and Exchange Commission's case for the CO2 Tech Ltd. market manipulation, have settled the charges. Each man has agreed to a permanent penny stock ban and to an injunction barring future violations. Neither admitted to any wrongdoing.
The SEC claimed that the men were part of a 2007 scheme to boost CO2 Tech with false claims about pollution control products, including one in which Boeing had purportedly taken an interest. Others charged in the case include recidivist securities violator Jonathan Curshen and former Pacific International Securities Inc. broker David Ricci.
According to the SEC, Mr. Weidenbaum's role was to enlist a group of promoters who executed matched orders to "jump-start" the stock. Mr. Krome, for his part, wrote a fraudulent opinion letter that allowed other defendants to control 22.5 million tradable shares, many of which they sold during the promotion, the regulator claimed. The settlements with the two men are contained in proposed judgments filed on Tuesday, Nov. 1, in Florida. The SEC did not request any monetary penalties, anticipating that the men will face restitution orders in a parallel criminal case.
SEC's CO2 Tech complaint
The SEC launched the case on Feb. 18, 2011, when it filed a civil complaint in the Southern District of Florida against Mr. Krome, Mr. Weidenbaum, Mr. Ricci, Mr. Curshen and others. It described how Mr. Curshen, through a Costa Rican entity he controlled called Red Sea Management Ltd., was hired by two Israeli men to promote CO2 Tech. The deal called for him to sell massive quantities of the company's shares through nominee accounts.
According to the SEC, Mr. Krome aided in the initial stages of the scheme, buying a shell that became CO2 Tech and carrying out a 1:2,000 rollback with the company. He then helped it issue 22.5 million shares purportedly to settle a $200,000 debenture. (All figures are in U.S. dollars.) According to the SEC, the debenture was a pretext to issue millions of shares to the company's undisclosed promoters and was obviously fraudulent. Among other problems, it was signed on behalf of CO2 Tech by a person who did not become chairman of the company until four months after the date of the debenture.
Around the same time, two Israeli men, Ariav Weinbaum and Yitzchak Zigdon (who are also defendants), hired Red Sea and Mr. Curshen to promote CO2 Tech and to sell the shares Mr. Krome had issued. Red Sea's services, as described by the SEC, included market manipulation, money laundering, incorporating shell companies and establishing virtual offices. It controlled a web of brokerage and bank accounts to help it with these activities, the SEC claimed.
The actual promotion began on Jan. 29, 2007, when CO2 Tech issued a misleading news release about a pollution control product that it said it had been working on for over a decade. The company claimed to have a manufacturing operation in Israel and an office in London. In reality, the London office was a mail drop and Israeli authorities could not find its manufacturing operation, the complaint stated.
The next day, the company issued another release in which it claimed that Boeing had taken an interest in its products. That arrangement was fiction, as the company had no communication with Boeing prior to the news, the SEC said. After the release, Boeing sent a cease-and-desist letter to CO2 Tech.
As the news and related spam were going out, Mr. Curshen and Mr. Ricci carried out a series of wash trades to start the trading, the complaint stated. They executed the trades with the assistance of Mr. Weidenbaum, who recruited three stock promoters to provide buy-side support to the promotion. His group, which controlled accounts in the names of family members and friends, entered orders that matched selling done by Red Sea.
The combination of misleading news and manipulative trades sent the stock from 91 cents to $1.65 on the day of the Boeing release. (It was most recently at 0.3 cent.) Volume went from 729,100 shares to 12.2 million.
According to the SEC, Red Sea obtained illegal profits of $7-million for Mr. Weinbaum and Mr. Zigdon, which it wired to accounts in Israel and Switzerland.
The complaint sought disgorgement of ill-gotten gains, appropriate civil penalties and penny stock bans. 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.
Criminal charges
In addition to the SEC case, many of the defendants are facing related criminal charges in Miami. Mr. Weidenbaum faces seven counts of fraud, while Mr. Krome faces four counts of fraud, two counts of securities registration violations and two counts of obstruction of justice for misleading the SEC. Both have pleaded not guilty, although one of the terms of Mr. Weidenbaum's SEC settlement is that he will plead guilty by Dec. 31, 2011.
Mr. Curshen is also a criminal defendant. Prosecutors claim that he fraudulently promoted several stocks, including CO2 Tech, and funnelled $91.5-million through an account at HSBC Bank in Vancouver which mostly represented proceeds from the pump-and-dumps. Mr. Curshen pleaded not guilty on March 15, and the judge released him on a $250,000 appearance bond. (He has since been jailed after a New York judge sentenced him to 16 months in an unrelated case. He tried to bribe an undercover FBI agent who was posing as a person with access to corrupt brokers.)
Also charged criminally were the two Israeli defendants, Mr. Weinbaum and Mr. Zigdon, who have not yet been arrested. Both men have responded to the SEC case, and generally deny any wrongdoing.
Mr. Ricci, who now lives in Costa Rica, was not named in the criminal case. He settled the SEC suit the day it was filed, agreeing to a penny stock ban and to an injunction preventing future violations. He did not admit to any wrongdoing. He worked at PI for five years, leaving the firm on Nov. 17, 1999.
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