Nine Individuals, Including Five Registered Brokers, Indicted For Orchestrating A $131 Million Market Manipulation Scheme
Tuesday, May 3, 2016
Defendants Allegedly Profited by Selling to Investors Worthless Stock of a Company That Purported to be a Worldwide Distributor and Provider of LED Lighting Products and Solutions
BROOKLYN, N.Y. – A five-count indictment was unsealed this morning in federal court in Brooklyn, New York, against nine defendants, Jared Mitchell, the Managing Partner of Mitchell & Sullivan Capital LLC; Richard Brown, a registered broker; Christopher Castaldo, the Chief Executive Officer of Stock Traders Press Inc. and the President of Wall Street Buy Sell Hold Inc.; Gerald Cocuzzo, also known as “Gerry,” a registered broker; Naveed Khan, also known as “Nick,” a registered broker; Herschel Knippa III, also known as “Tres,” the owner and Head Trader at Kenai Capital Management LLC; Maroof Miyana, a registered broker; Pranav Patel, a registered broker; and Louis Petrossi, the founder and Chief Executive Officer of the Wealth Research Institute. The charges include securities fraud, conspiracy to commit securities fraud, wire fraud, money laundering and making a false statement to law enforcement officials in connection with the fraudulent market manipulation of ForceField Energy Inc. (ForceField), a publicly-traded company listed on the NASDAQ under the ticker symbol “FNRG.”
Mitchell, Brown, Castaldo and Khan will be arraigned later today before Magistrate Judge Vera M. Scanlon, at the United States Courthouse, 225 Cadman Plaza East, Brooklyn, New York. Cocuzzo and Miyana’s initial appearance for removal proceedings to the Eastern District of New York is scheduled for this afternoon at the United States Courthouse, 701 Clematis Street, West Palm Beach, Florida. Patel’s initial appearance for removal proceedings to the Eastern District of New York is scheduled for this afternoon at the United States Courthouse, 299 East Broward Boulevard, Fort Lauderdale, Florida. Knippa’s initial appearance for removal proceedings to the Eastern District of New York is scheduled for this afternoon at the United States Courthouse, 1100 Commerce Street, Dallas, Texas. Petrossi’s initial appearance for removal proceedings to the Eastern District of New York is scheduled for this afternoon at the United States Courthouse, 400 South Virginia Street, Reno, Nevada.
The indictment was announced by Robert L. Capers, United States Attorney for the Eastern District of New York, and Diego Rodriguez, Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI).
“As alleged, the defendants and their network of registered brokers and stock promoters designed an elaborate but fraudulent scheme built on lies, kickbacks and manipulated trading activity to defraud the securities markets, the investing public and their clients. They took a company with essentially no business operations and little revenue and deceived the market and their clients into believing it was worth hundreds of millions of dollars through a dizzying round of unauthorized trades and deceptive promotions. In the end, the deceived investors were left holding the empty bag,” stated United States Attorney Capers. “Today’s nine arrests, across four states, reflect the scope of this fraud and our commitment to aggressively locate and bring to justice those who view the financial markets as a platform to fraudulently enrich themselves.” Mr. Capers expressed his appreciation to the FBI, the agency that led the investigation, and the United States Securities and Exchange Commission, New York Regional Office, for their significant cooperation and assistance in the investigation.
“As alleged, each of the defendants played a role in their scheme to defraud investors of ForceField Energy by using their positions as a stock promoter, brokers, or investor relations to push stock. The scheme ended up costing investors approximately $131 million in losses. The FBI will continue to work with our partners in an effort at ensuring that our financial markets are legal, fair, and equitable,” stated FBI Assistant Director-in-Charge Rodriguez.
As alleged in the indictment and other court filings, between December 2009 and April 2015, the defendants, together with others, engaged in a scheme to defraud investors in ForceField, a purported worldwide distributor and provider of LED lighting products and solutions, by artificially controlling the price and volume of traded shares of ForceField through, among other means: (1) using nominees to purchase and sell ForceField stock without disclosing this information to investors and potential investors; (2) orchestrating the trading of ForceField stock to create the appearance of genuine trading volume and interest in the stock; and (3) concealing payments to stock promoters and broker dealers who promoted and sold ForceField stock to investors and potential investors while claiming to be independent of the company. The defendants’ fraudulent scheme caused a loss of approximately $131 million to the investing public.
The Corrupt Brokers
In October 2014, a ForceField executive hired Mitchell to distribute kickbacks to a network of allegedly corrupt registered broker dealers, including Brown, Cocuzzo, Khan, Miyana, and Patel, in exchange for purchasing ForceField stock in their clients’ brokerage accounts. Using offshore entities and bank accounts, ForceField paid Mitchell a ten-percent commission, or kickback, for purchases of ForceField stock generated by the corrupt brokers. Mitchell then shared the ten-percent commission with those who had stuffed their clients’ brokerage accounts with ForceField stock. Mitchell, the corrupt brokers and ForceField did not disclose to the brokers’ clients the ten-percent kickbacks the brokers were receiving for purchasing ForceField stock.
Mitchell and the corrupt brokers concealed their participation in the fraudulent scheme by using prepaid, disposable cellular telephones and encrypted, content-expiring messaging applications to communicate with each other. Mitchell, who boasted that he was the “brown bag man,” also attempted to conceal his payment of commissions to the corrupt brokers by withdrawing large sums of money from his bank account and paying the brokers in cash.
Between October 2014 and April 2015 alone, Mitchell and the corrupt brokers conned the brokers’ clients into purchasing more than 425,000 shares of ForceField at a cost of more than $3 million.
The Corrupt Promoters
Throughout its existence, ForceField conducted a series of private placements that raised more than $19.7 million from investors. Unbeknownst to the investing public, a ForceField executive was paying ten-percent kickbacks to a group of allegedly corrupt stock promoters, including Castaldo, Knippa, and Petrossi, to promote ForceField and induce investors to purchase ForceField stock on public exchanges or enter into private stock purchase agreements with the company. The corrupt promoters induced many of these unwitting investors to invest in ForceField at investor conferences or, in Knippa’s case, by touting ForceField during television appearances.
For example, when Knippa appeared on “Varney & Co.,” a financial news show on the Fox Business channel, the host of the show asked Knippa whether he had a stock recommendation. In response, Knippa recommended ForceField, and spoke about the company’s business model. Varney asked Knippa whether he owned ForceField stock, and Knippa responded, “You bet I do. I put my money where my mouth is.” Contrary to his assertion, Knippa did not, at the time, own ForceField stock. Additionally, during this appearance, Knippa failed to disclose that he was being paid kickbacks to promote ForceField.
During the course of this fraudulent scheme, the corrupt promoters duped more than 100 investors into purchasing more than $6.2 million in ForceField stock.
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The wire fraud conspiracy with which all defendants are charged carries a maximum potential penalty of 20 years in prison and a $250,000 fine, or twice the gain or loss from the offense. The securities fraud conspiracy count with which all defendants are charged carries a maximum potential penalty of five years in prison and a $250,000 fine, or twice the gain or loss from the offense. The money laundering conspiracy count with which all defendants are charged carries a maximum potential penalty of 20 years in prison and a $500,000 fine, or twice the value of the funds involved in the illegal transfers. The substantive securities fraud count with which all defendants are charged carries a maximum potential penalty of 20 years in prison and a $5 million fine, or twice the gain or loss from the offense. The false statement count with which Mitchell is charged carries a maximum potential penalty of 5 years in prison and a $250,000 fine.
The government’s case is being prosecuted by the Office’s Business and Securities Fraud Section. Assistant United States Attorneys Jacquelyn Kasulis and Christopher Nasson are in charge of the prosecution.
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The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state, and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions, and other organizations. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visit ww.StopFraud.gov.
New York, New York
Huntington, New York
Glen Head, New York
Delray Beach, Florida
Staten Island, New York
HERSCHEL KNIPPA III
Boca Raton, Florida
EDNY Docket No. 16-CR-234 (NGG)
 The charges announced today are merely allegations, and the defendants are presumed innocent unless and until proven guilty.
Department of Justice
U.S. Attorney’s Office
Eastern District of New York
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