BOSTON - September 14, 2015 - The chairman of a Boston-based biomedical company was arrested this morning on charges arising out of his participation in a scheme to defraud the market for the publicly traded stock of the company.
Edward Withrow, III, 51, of Malibu, Calif., was charged in U.S. District Court in Boston with one count of conspiracy, one count of securities fraud, two counts of wire fraud, and two counts of making false statements. Withrow’s co-conspirator, Marco Babini, 54, was charged with one count of conspiracy, one count of securities fraud, and two counts of wire fraud. Babini, who is believed to reside in Vancouver, Canada, remains at large.
In a parallel action, the Securities and Exchange Commission (SEC) announced securities fraud charges today against Withrow, Babini, and a third individual, Samuel Brown, in connection with the scheme. In addition, the SEC charged Withrow with failing to disclose his stock holdings in accordance with federal rules and regulations.
According to the indictment, in November 2012, Withrow became the chairman of Endeavor Power Corporation (Endeavor), a Boston-based biomedical company focused on infectious diseases, and became a significant owner of Endeavor’s stock. Around that time, Withrow, Babini and at least one other individual, allegedly orchestrated a promotional campaign and engaged in manipulative trading designed to inflate investor interest in Endeavor’s publicly traded stock. At that time, Withrow and Babini concealed their significant control over Endeavor’s publicly traded stock from potential investors. In March 2013, the SEC suspended trading in the securities of Endeavor, which stopped the scheme in progress. Thereafter, when Withrow was questioned under oath by SEC attorneys about the Endeavor scheme, he lied about his and others’ involvement.
The charges follow a multi-year investigation focusing on preventing fraud in the microcap stock markets. Microcap companies are small publicly traded companies whose stock often trades at pennies per share. Fraud in the microcap markets is of increasing concern to regulators as such markets have proven to be fertile grounds for fraud and abuse. This is, in part, because accurate information about microcap stocks may be difficult for the average investor to find, since many microcap companies do not file financial reports with the SEC.
Today’s charges follow a series of cases filed by the SEC and the U.S. Attorney for the District of Massachusetts in which more than 20 individuals have been criminally charged and convicted for using kickbacks and other schemes to trigger investment in, or manipulate the stock of, thinly-traded stocks.
The charge of conspiracy and securities fraud provides a sentence of no greater than 25 years in prison, three years of supervised release, and a fine of $250,000, or twice the gross gain or loss. The charge of wire fraud provides a sentence of no greater than 20 years in prison, three years of supervised release, and a fine of $250,000, or twice the gross gain or loss. The charge of making false statements provides a sentence of no greater than five years in prison, three years of supervised release, and a fine of $250,000, or twice the gross gain or loss. Actual sentences for federal crimes are typically less than the maximum penalties. Sentences are imposed by a federal district court judge based upon the U.S. Sentencing Guidelines and other statutory factors.
U.S. Attorney Ortiz and Acting SAC Bonavolonta made the announcement today. The criminal case is being prosecuted by Assistant U.S. Attorney Eric Christofferson of Ortiz’s Economic Crimes Unit and SEC Attorney Eric A. Forni, who was appointed as a Special Assistant U.S. Attorney.
The details contained in the indictment are allegations. The defendants are presumed to be innocent unless and until proven guilty beyond a reasonable doubt in a court of law.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. For more information about the task force visit: www.stopfraud.gov.
U.S. Attorney’s Office
District of Massachusetts
This content has been reproduced from its original source.