Former CEO Gets Over 11 Years for ‘Massive’ Market Manipulation

AJ Discala was convicted of orchestrating pump and dump schemes through two reverse mergers.

The former CEO of OmniView Capital Advisors LLC was sentenced to more than 11 years in prison for masterminding a multimillion dollar market manipulation scheme. Abraxas “AJ” Discala was convicted of two counts of securities and wire fraud conspiracy, two counts of securities fraud, and four counts of wire fraud.

“Discala conspired to manipulate trading activity in penny stocks in furtherance of a scheme to defraud the securities market and investing public of millions of dollars,” Breon Peace, US attorney for the Eastern District of New York, said in a statement.

Discala purported to raise capital for startup private companies and offered to take them public through reverse mergers with public shell companies in exchange for control of a large portion of the free trading or unrestricted stock. Discala and his co-conspirators then artificially inflated the stock through manipulative trading and promotional campaigns, creating large profits for themselves, according to the Department of Justice (DOJ).

The DOJ said Discala and his co-conspirator enacted a reverse merger of privately held CodeSmart with a public shell company. However, after he gained control of CodeSmart’s unrestricted shares, Discala and his co-conspirators fraudulently inflated CodeSmart’s share price and trading volume on two occasions and then sold the unrestricted CodeSmart stock at a profit. CodeSmart CEO Ira Shapiro, who was named as one of Discala’s several co-conspirators, issued numerous press releases with false information to help boost CodeSmart’s stock price.

Discala and his co-conspirators profited by selling CodeSmart stock, which had been issued to them for pennies, to clients and customers of investment adviser Matthew Bell and registered broker Craig Josephberg. The CodeSmart shares were often sold to Bell’s clients and Josephberg’s customers without their clients’ and customers’ knowledge and consent. Additionally, Bell and Josephberg sold CodeSmart shares in their personal trading accounts while simultaneously buying CodeSmart stock in their clients’ and customers’ accounts.

CodeSmart’s market capitalization at its highest closing price was more than $86.3 million. At the same time, CodeSmart filed an amended Form 10-K with the US Securities and Exchange Commission (SEC), in which it listed only $6,000 in total assets, $7,600 in revenue, and a net loss of $103,141. In less than six months, the stock’s share price plummeted to $0.66 from a peak of $6.94, and another six months later the stock closed at $0.01 per share.

Discala and his co-conspirators made more than $6 million in illicit trading profits from the CodeSmart scheme and caused more than $12 million in losses to approximately 800 CodeSmart investors who purchased the publicly traded stock.

They also pulled the same scheme when they took a privately held company called Cubed Inc. public through an asset purchase agreement with a public shell company. After gaining control of all of Cubed’s unrestricted shares, Discala and his co-defendants created trading volume in the stock and were able to successfully control the price and volume of Cubed’s stock.

Cubed Inc. reached its highest closing price of $6.75 per share, which gave it a market capitalization of approximately $200 million. The company previously filed a Form 10-Q with the SEC that reported less than $1,500 in cash holdings, zero revenue, negative stockholders’ equity, a net loss of $15,000, and accrued professional fees of over $130,000. Cubed also raised more than $2 million in a private offering of stock to investors who were deceived by how Cubed stock was performing in the market.

In addition to being sentenced to 138 months’ imprisonment, Discala was ordered to pay nearly $2.5 million in forfeiture. The amount of restitution will be determined by at a later date.

Related Stories:

SEC, DOJ Charge Hedge Fund Trader in Alleged Front-Running Scheme

Adviser Gets 5 Years in Prison for Embezzlement, Murder Threat

Cryptocurrency Trader ‘Coin Signals’ Pleads Guilty to Commodities Fraud

Tags: , , , , , , ,

«