Two Long Island Men Sentenced to 6 Years in Prison for Participating in Investment Fraud Schemes
John H. Durham, United States Attorney for the District of Connecticut, announced that two Long Island residents were sentenced today by U.S. District Judge Jeffrey A. Meyer in New Haven for their roles in two separate investment fraud schemes. THOMAS HEAPHY, Jr., 43, of East Moriches, N.Y, and BRIAN FERRAIOLI, 41, of Sayville, N.Y., were each sentenced to 72 months of imprisonment, followed by three years of supervised release.
According to court documents and statements made in court, for several years, Heaphy, Ferraioli and others defrauded investors through a stock “pump and dump” scheme. As part of the scheme, Heaphy, Ferraioli and their co-conspirators induced investors to purchase securities by making false and misleading representations in calls, emails and press releases concerning the securities and the issuing companies, thereby causing the price of those securities to become falsely inflated. The issuing companies were essentially shell companies with virtually no legitimate business activities. Heaphy and Ferraioli’s numerous misrepresentations induced investors to purchase securities, thus causing the share price of the securities to become artificially inflated. Certain co-conspirators then sold their own preexisting positions in the securities at a profit. They then allowed he price of the securities to fall, leaving investors with worthless and unsalable stock. As a result, victim investors lost millions of dollars.
Heaphy and Ferraioli received approximately 25 percent of all money that they induced individuals to invest, and gained approximately $719,000 and $1.25 million, respectively, from the scheme. They disguised the income by having the funds flow through the trust accounts of various attorneys, including Corey Brinson in Connecticut, into bank accounts in the name of various shell entities under their control, and failed to pay federal income taxes on most of the income.
In the summer of 2016, after Heaphy and Ferraioli learned that they were under federal investigation for their roles in the stock pump and dump scheme, they became involved in the promotion and sale of securities of Waters Club Worldwide, Inc. and Waters Club Holdings, Inc. (collectively, “Waters Club”), which provided yacht charter services to customers. From approximately August 2016 to February 2017, Heaphy and Ferraioli solicited prospective investors to purchase shares of Waters Club stock purportedly in advance of an initial public offering (“IPO”).
Heaphy and Ferraioli represented that Waters Club intended to form a membership-based “time share” club with a fleet of yachts that members jointly owned and could use for yachting vacations. They stated that investors’ money would be used to develop the business and fund the operations of Waters Club, and that Heaphy and Ferraioli were being compensated with stock for recruiting investors. In truth, Heaphy and Ferraioli received approximately half of all the money they induced investors in Waters Club to invest. Due in part to the payments to Heaphy and Ferraioli, Waters Club lacked the capital to develop its membership-based club, Waters Club did not pursue an IPO, and the shares purchased by investors were unsalable.
Heaphy and Ferraioli recruited at least 12 investors to pay a total of at least $1,289,500 for shares of Waters Club stock. One of the victims of the Waters Club scheme was a Connecticut resident who paid $475,000 to Waters Club. Heaphy’s total gain from the scheme was $307,658 and Ferraioli’s total gain was $297,546.
At least six Waters Club victim-investors have also been identified as victims of the earlier stock pump and dump scheme.
Heaphy and Ferraioli each pleaded guilty to one count of conspiracy to commit mail and wire fraud and one count of tax evasion related to the stock pump and dump scheme, and one count of conspiracy to commit mail and wire fraud related to the Waters Club investment scheme.
Judge Meyer ordered Heaphy to pay total restitution of $6,738,539, and Ferraioli to pay total restitution of $6,896,927. The restitution orders include restitution owed to victims of the schemes, and to the Internal Revenue Service.
Judge Meyer ordered Heaphy and Ferraioli, who are released on bonds, to report to prison on July 9.
On January 20, 2017, Brinson, of Hartford, pleaded guilty to one count of engaging in a monetary transaction in property derived from specified unlawful activity. On April 13, 2017, he was sentenced to 36 months of imprisonment.
This investigation has been conducted by the Federal Bureau of Investigation, Internal Revenue Service – Criminal Investigation Division and U.S. Postal Inspection Service, with assistance from the Connecticut Department of Banking and the Hartford and Stamford Police Departments. This case is being prosecuted by Assistant U.S. Attorney Avi M. Perry.