Former Chief Executive Officer of Small Cap Company Convicted in Market Manipulation Scheme
Following three weeks of trial, a federal jury in Brooklyn yesterday returned guilty verdicts against Kamal Z. Abdallah, the former chief executive officer at Universal Property Development and Acquisition Corp. (UPDV), on charges of securities fraud, wire fraud, and conspiracy to commit securities and wire fraud. These charges arose out of his participation in a scheme to artificially inflate UPDV’s stock price. When sentenced by United States District Judge Joseph F. Bianco on June 17, 2011, Abdallah faces a maximum sentence of 25 years’ imprisonment on the most serious charge.
The guilty verdicts were announced by Loretta E. Lynch, United States Attorney for the Eastern District of New York.
The government’s proof at trial established that the defendant served as UPDV’s chief executive officer from 2005 to 2008. During that time, he obtained hundreds of millions of shares of UPDV stock, some of which he received at no cost as part of his compensation. Shortly before Abdallah left UPDV, the company defaulted on over $14 million in loans, and one of its subsidiaries bounced approximately $2.5 million in checks to its suppliers. Neither the defendant nor anyone else at UPDV disclosed these financial problems to UPDV’s shareholders or the investing public.
Beginning in June 2009, the defendant orchestrated a scheme to unload as many of his UPDV shares as possible before the company went out of business. Due to a lack of demand for UPDV’s stock, the defendant paid cash kickbacks to a co-conspirator in exchange for the co-conspirator’s creating false demand for UPDV’s stock, which, in turn, increased UPDV’s share price and allowed the defendant and another conspirator to sell tens of millions of UPDV shares at artificially high prices. The defendant’s co-conspirator created the false demand by fraudulently inducing several stock brokerage houses to purchase a total of more than 200 million shares of UPDV. The co-conspirator telephoned each of these brokerage houses, falsely identified himself as a representative of an actual client of the broker, and placed orders to buy large blocks of UPDV common stock. After the brokerage houses purchased the stock, the co-conspirator ceased contact with the brokerage houses and failed to pay for the shares he had caused the brokerage houses to purchase.
The false demand enabled the defendant and another conspirator to sell over 70 million UPDV shares for approximately $300,000. In exchange for the creation of the false demand, the defendant paid his co-conspirator approximately $40,000 in secret kickbacks from his UPDV sale proceeds.
Ms. Lynch extended her grateful appreciation to the Federal Bureau of Investigation in New York, the agency responsible for leading the government’s criminal investigation, and thanked the United States Securities and Exchange Commission for its assistance.
The government’s case was prosecuted by Assistant United States Attorneys Scott Klugman and David Woll.
Name: KAMAL Z. ABDALLAH
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