Manhattan U.S. Attorney And FBI Assistant Director-In-Charge Announce Charges Against Seven Individuals For Conspiring To Commit Securities Fraud And Extortion
Defendants’ “Pump and Dump” Scheme Targeted “Penny” Stocks
Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of charges against ALEXANDER GOLDSHMIDT, ALEX PUZAITZER, MICHAEL VAX, PAUL ORENA, YITZ GROSSMAN, EFIM AKSANOV, and STEVE KOIFMAN for their roles in a conspiracy to commit securities fraud and the extortion of a co-conspirator whom they believed owed them money and stock related to the scheme. Together, the defendants worked to fraudulently inflate the prices and trading volumes of publicly traded stock of small companies, also known as “penny stocks,” and then to sell shares of the stock at the fraudulently inflated prices to the investing public for a profit. GOLDSHMIDT, PUZAITZER, VAX, ORENA and GROSSMAN were arrested this morning in connection with today’s charges and were presented in Manhattan federal court before Magistrate Judge Kevin Nathaniel Fox this afternoon. EFIM AKSANOV and STEVE KOIFMAN were arrested in Florida and presented in federal court in the Southern District of Florida.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, these defendants preyed on unsuspecting investors by manipulating the share price of a publicly traded stock in a classic ‘pump and dump’ scheme that they thought would reap big dividends. But when their pot of gold failed to materialize, they allegedly turned on a co-conspirator with threats and extortion, showing that their greed was strong enough to make them turn to violence.”
FBI Assistant Director-in-Charge George Venizelos said: “Pump and dump schemes depend on unwitting investors who are deceived by grossly inflated claims about the stocks they are induced to buy. One group of victims in this case was those defrauded investors. But this was not white collar crime in the traditional sense. Another victim was the co-conspirator who, as alleged, was repeatedly threatened by the defendants with grievous harm to him and his family.”
The following allegations are based on the Complaint unsealed today in Manhattan federal court:
From 2012 through March 27, 2013, GOLDSHMIDT, PUZAITZER, VAX, ORENA, GROSSMAN, AKSANOV, and KOIFMAN conspired to commit securities fraud. As part of their “pump and dump” scheme, various defendants acquired control of a large block of shares of Face Up Entertainment Group, Inc. (“FUEG”), and then inflated the stock price and trading volume of FUEG before selling, or “dumping,” those shares at inflated prices to unsuspecting traders for a profit. FUEG was a publicly traded company that was purportedly involved in the reality gaming social network market with its principal place of business located in Valley Stream, New York. As captured through judicially authorized wiretap interceptions, the defendants coordinated control over a significant portion of FUEG shares and then promoted the stock through the dissemination of false press releases sent over the Internet. In addition, the defendants coordinated trading of FUEG shares to create the impression of increased trading volume to make FUEG appear to be an attractive purchase for unsuspecting investors. However, the defendants were unable to reap a profit from trading FUEG stock timed to the promotions, and their scheme ultimately failed.
As a result of the failed promotion of FUEG stock, GOLDSHMIDT, PUZAITZER, VAX, ORENA, GROSSMAN, AKSANOV, and KOIFMAN conspired to extort one of their co-conspirators, referred to as “CC-1” in the Complaint. In the summer of 2012, AKSANOV, KOIFMAN, GOLDSHMIDT and PUZAITZER met with CC-1 in New York, New York, and demanded that CC-1 pay them $350,000 and return shares of FUEG, or AKSANOV would “put slugs into” CC-1’s chest. In several subsequent telephone calls and meetings, various defendants continued to demand that CC-1 repay them for their stake in the failed FUEG scheme, or they would harm CC-1. During a meeting on or about March 5, 2013, GOLDSHMIDT, PUZAITZER, ORENA and VAX met with CC-1 at a hotel in New York City and further threatened CC-1 and CC-1’s family if CC-1 did not comply with their demands.
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GOLDSHMIDT, PUZAITZER, VAX, ORENA, GROSSMAN, AKSANOV, and KOIFMAN are each charged with one count of conspiracy to commit securities fraud, which carries a maximum penalty of five years in prison, and one count of conspiracy to commit extortion, which carries a maximum penalty of 20 years in prison.
Mr. Bharara praised the efforts of the FBI’s Eurasian Organized Crime Squad and thanked the FBI for its work on the case. Mr. Bharara also thanked the Securities and Exchange Commission for its assistance on the case.
The case is being prosecuted by the Office’s Organized Crime Unit. Assistant U.S. Attorneys Jennifer E. Burns and Jason A. Masimore are in charge of the prosecution.
The charges contained in the Complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.