The Securities and Exchange Commission today announced it has identified three additional individuals to charge in a penny stock manipulation case the agency filed last year against alleged corrupt brokers and others.
The SEC filed a request in federal court in Brooklyn to lift the stay in its civil action for the purposes of filing an amended complaint alleging that two additional brokers, Michael Morris and Ronald Heineman, facilitated the scheme through their brokerage firm while a third man, attorney Darren Ofsink, profited illegally by selling unregistered shares for which no registration exemption applied.
“Brokers serve important gatekeeping functions in our markets and deterring market manipulation is among their critical responsibilities,” said Joseph G. Sansone, Co-Chief of the SEC Enforcement Division’s Market Abuse Unit. “We allege that Morris and Heineman didn’t just fail to deter the stock fraud being perpetrated at their brokerage firm, they actively participated in it.”
In a parallel action, the U.S. Attorney’s Office for the Eastern District of New York today announced criminal charges against Morris and Ofsink.
According to the SEC’s amended complaint:
- Abraxas “A.J.” Discala and Marc E. Wexler engaged in a scheme to inflate the price of CodeSmart Holdings stock in mid-2013 in collusion with brokers Matthew A. Bell and Craig L. Josephberg. The plan was to profit at the expense of Bell’s clients and Josephberg’s customers as the price of the stock fell.
- Morris and Heineman, the owners of Halcyon Cabot Partners where Josephberg worked, participated in the fraudulent scheme by facilitating the improper conduct by Discala and Josephberg.
- In late August 2013, Morris and Heineman secretly agreed to purchase CodeSmart shares at pre-set prices in a way that permitted Discala to liquidate his CodeSmart positions at artificially inflated prices.
- Ofsink, who helped execute CodeSmart’s reverse merger into a public shell company, profited by illegally selling unregistered CodeSmart securities without a registration exemption.
The SEC’s amended complaint charges Morris with violations of the antifraud provisions and securities registration provisions of the federal securities laws. Heineman is charged with violations of the antifraud provisions and Ofsink is charged with violating the securities registration provisions. The amended complaint seeks a final judgment ordering them to disgorge ill-gotten gains plus prejudgment interest, imposing financial penalties, and permanently enjoining them from future violations of the federal securities laws.
The SEC also suspended trading in CodeSmart stock today because the company has not filed any periodic reports since last year and suspicious market activity has taken place. The SEC has instituted public administrative proceedings against CodeSmart to determine whether it should suspend or revoke the registration of its securities.
The SEC’s continuing investigation is being conducted by Charles D. Riely of the Market Abuse Unit in New York and Sheldon L. Pollock, Diego D. Brucculeri, and Jordan W. Baker of the New York Regional Office. The litigation will be led by Michael D. Birnbaum. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of New York, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority.