Matthew Brown, operator of the penny stock website Investors Hub, has been sentenced to four years in jail for securities fraud and money laundering. He received the sentence on Wednesday, May 18, in an appearance before Delaware Judge Sue Robinson. His arrest followed an investigation into the manipulation of four pink sheets listings, including Ontario-based Playstar Corp.
Mr. Brown, 27, had faced a maximum of 50 years in jail and fines of over $1-million. (All figures are in U.S. dollars.) He accepted a plea agreement in February, 2010, in which the government agreed to recommend a reduced sentence, provided he accepted full responsibility for his actions.
Prior to his sentencing, Mr. Brown had been free on a $50,000 appearance bond. Once he completes his four-year jail term, he will serve three years of probation, during which he must not participate in penny stock offerings. He must also forfeit $4.78-million, the estimated proceeds from his crime. Full details of his sentence were not publicized, as prosecutors filed his sentencing memorandum under seal.
Brown's indictment
Prosecutors initially indicted Mr. Brown on May 21, 2009, in the District of Delaware, identifying him as a resident of Aliso Viejo, Calif. They claimed that he and others dumped hundreds of millions of shares during illegal market manipulations, mostly during 2006. The men boosted the stocks through prearranged trades, postings on Investors Hub and misleading news releases.
One of the stocks that Mr. Brown pleaded guilty to manipulating was GH3 International Inc., a company that touted an anti-aging treatment. In 2006, he and others received hundreds of millions of GH3 shares through improper Rule 504 offerings, prosecutors said. Then, in December of that year, they carried out a series of prearranged trades that were timed to coincide with misleading news releases. The releases claimed that the company had revenue of $2.1-million and $3-million in 2005 and 2006, and that its revenue would exceed $6-million in 2007.
The stock, which hardly traded before that month, went from 0.06 cent to 1.8 cents, before quickly falling back to 0.01 cent. Its daily volume was at nearly 300 million shares during the promotion. (The U.S. Securities and Exchange Commission belatedly halted the company on Dec. 24, 2009, stating that publicly available information was questionable.)
The other manipulation that Mr. Brown pleaded guilty to was that of Asia Global Holdings Inc., a company that purportedly had the rights to the show "Who Wants to be a Millionaire" in China. Similar to the GH3 manipulation, the Asia Global one was preceded by Mr. Brown and the others issuing millions of shares to non-qualified investors. They once again co-ordinated manipulative trades to coincide with misleading news releases, prosecutors claimed.
The evidence presented in the indictment included a series of messages that Mr. Brown received through his America Online instant message program about the timing of the company's news. One, dated Nov. 1, 2006, stated, "u have all the prs [press releases] right, except the first one, which im going to work on tomorrow for sure, we need a plan on line up of events and i need to see the damn prs to see which rumor to spread and how to start the damn thing ... ." Another, dated Aug. 14, 2006, stated, "I got the entire world on aagh, lol, willys room, panettas room, ihub."
During the promotion, Mr. Brown and others directed the buying and selling of 26.2 million Asia Global shares, prosecutors said. The stock, which had a 41-cent high in 2006, was last at 0.19 cent.
Mr. Brown also pleaded guilty to charges that stemmed from helping one of his co-conspirators, Polish citizen Pawel Dynkowski, set up an offshore bank account to hold money from the Asia Global pump-and-dump. According to the indictment, the men travelled to Costa Rica in October, 2006, to open the account. Upon their return, Mr. Dynkowski sent a message to Mr. Brown that his "set up is now 100% sec safe."
While the indictment did not state exactly how much money Mr. Brown and the others made, it did describe an unusual interstate money transfer. According to prosecutors, Mr. Brown paid a driver $10,000 to to take $146,000 in cash from California to Delaware. The indictment did not state the name of the recipient, but documents filed in a related asset forfeiture case identified that person as Mr. Dynkowski.
(According to the asset forfeiture complaint, a police officer in Texas intercepted the money when he stopped a rented car driven by a 25-year-old Florida man. When the officer discovered the cash, the driver said he was transporting it for a high school friend, Mr. Brown. At the request of police, the driver delivered the money to Mr. Dynkowski. Police then searched Mr. Dynkowski's residence and discovered evidence of the market manipulations.)
While the case against Mr. Brown is now concluded, the charges against some of his co-conspirators remain outstanding. These include Mr. Dynkowski, who has not yet been arrested and is listed as a fugitive. Two others, Marc Riviello and Jacob Canceli, both from California, have pleaded guilty but have not yet been sentenced. Another defendant, Florida resident Gerard D'Amaro, 39, received three years in jail and was ordered to forfeit $1.49-million.
SEC case
In addition to the criminal case, the men are facing a parallel civil suit from the SEC. That case, filed on May 21, 2009, alleges that the men made $6.2-million pumping and dumping Playstar, GH3 International, Asia Global and Xtreme Motorsports of California Inc. It has been mostly inactive awaiting completion of the criminal cases.
Mr. Brown, 27, had faced a maximum of 50 years in jail and fines of over $1-million. (All figures are in U.S. dollars.) He accepted a plea agreement in February, 2010, in which the government agreed to recommend a reduced sentence, provided he accepted full responsibility for his actions.
Prior to his sentencing, Mr. Brown had been free on a $50,000 appearance bond. Once he completes his four-year jail term, he will serve three years of probation, during which he must not participate in penny stock offerings. He must also forfeit $4.78-million, the estimated proceeds from his crime. Full details of his sentence were not publicized, as prosecutors filed his sentencing memorandum under seal.
Brown's indictment
Prosecutors initially indicted Mr. Brown on May 21, 2009, in the District of Delaware, identifying him as a resident of Aliso Viejo, Calif. They claimed that he and others dumped hundreds of millions of shares during illegal market manipulations, mostly during 2006. The men boosted the stocks through prearranged trades, postings on Investors Hub and misleading news releases.
One of the stocks that Mr. Brown pleaded guilty to manipulating was GH3 International Inc., a company that touted an anti-aging treatment. In 2006, he and others received hundreds of millions of GH3 shares through improper Rule 504 offerings, prosecutors said. Then, in December of that year, they carried out a series of prearranged trades that were timed to coincide with misleading news releases. The releases claimed that the company had revenue of $2.1-million and $3-million in 2005 and 2006, and that its revenue would exceed $6-million in 2007.
The stock, which hardly traded before that month, went from 0.06 cent to 1.8 cents, before quickly falling back to 0.01 cent. Its daily volume was at nearly 300 million shares during the promotion. (The U.S. Securities and Exchange Commission belatedly halted the company on Dec. 24, 2009, stating that publicly available information was questionable.)
The other manipulation that Mr. Brown pleaded guilty to was that of Asia Global Holdings Inc., a company that purportedly had the rights to the show "Who Wants to be a Millionaire" in China. Similar to the GH3 manipulation, the Asia Global one was preceded by Mr. Brown and the others issuing millions of shares to non-qualified investors. They once again co-ordinated manipulative trades to coincide with misleading news releases, prosecutors claimed.
The evidence presented in the indictment included a series of messages that Mr. Brown received through his America Online instant message program about the timing of the company's news. One, dated Nov. 1, 2006, stated, "u have all the prs [press releases] right, except the first one, which im going to work on tomorrow for sure, we need a plan on line up of events and i need to see the damn prs to see which rumor to spread and how to start the damn thing ... ." Another, dated Aug. 14, 2006, stated, "I got the entire world on aagh, lol, willys room, panettas room, ihub."
During the promotion, Mr. Brown and others directed the buying and selling of 26.2 million Asia Global shares, prosecutors said. The stock, which had a 41-cent high in 2006, was last at 0.19 cent.
Mr. Brown also pleaded guilty to charges that stemmed from helping one of his co-conspirators, Polish citizen Pawel Dynkowski, set up an offshore bank account to hold money from the Asia Global pump-and-dump. According to the indictment, the men travelled to Costa Rica in October, 2006, to open the account. Upon their return, Mr. Dynkowski sent a message to Mr. Brown that his "set up is now 100% sec safe."
While the indictment did not state exactly how much money Mr. Brown and the others made, it did describe an unusual interstate money transfer. According to prosecutors, Mr. Brown paid a driver $10,000 to to take $146,000 in cash from California to Delaware. The indictment did not state the name of the recipient, but documents filed in a related asset forfeiture case identified that person as Mr. Dynkowski.
(According to the asset forfeiture complaint, a police officer in Texas intercepted the money when he stopped a rented car driven by a 25-year-old Florida man. When the officer discovered the cash, the driver said he was transporting it for a high school friend, Mr. Brown. At the request of police, the driver delivered the money to Mr. Dynkowski. Police then searched Mr. Dynkowski's residence and discovered evidence of the market manipulations.)
While the case against Mr. Brown is now concluded, the charges against some of his co-conspirators remain outstanding. These include Mr. Dynkowski, who has not yet been arrested and is listed as a fugitive. Two others, Marc Riviello and Jacob Canceli, both from California, have pleaded guilty but have not yet been sentenced. Another defendant, Florida resident Gerard D'Amaro, 39, received three years in jail and was ordered to forfeit $1.49-million.
SEC case
In addition to the criminal case, the men are facing a parallel civil suit from the SEC. That case, filed on May 21, 2009, alleges that the men made $6.2-million pumping and dumping Playstar, GH3 International, Asia Global and Xtreme Motorsports of California Inc. It has been mostly inactive awaiting completion of the criminal cases.
