Former Finance Executive Sentenced to 138 Months in Prison for Orchestrating Massive Market Manipulation Scheme
Earlier today, in federal court in Brooklyn, Abraxas J. Discala, also known as “AJ Discala,” the former Chief Executive Officer of OmniView Capital Advisors LLC (“OmniView”), was sentenced by United States District Judge Eric N. Vitaliano to 138 months’ imprisonment for orchestrating a multi-million dollar market manipulation scheme. The Court also ordered Discala to pay $2,484,873 in forfeiture. The amount of restitution will be determined by the Court at a later date. Discala was convicted by a federal jury in May 2018 following a five-week trial of two counts of securities and wire fraud conspiracy, two counts of securities fraud, and four counts of wire fraud relating to his manipulation of stocks of multiple microcap or “penny” stocks, including the stock of CodeSmart Holding, Inc. (“CodeSmart”), Cubed, Inc. (“Cubed”), and others, (collectively the “Manipulated Public Companies”).
Breon Peace, United States Attorney for the Eastern District of New York, and Michael J. Driscoll, Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI), announced the sentence.
“Discala conspired to manipulate trading activity in penny stocks in furtherance of a scheme to defraud the securities market and investing public of millions of dollars,” stated United States Attorney Peace. “With today’s sentence, Discala has been held accountable for his crimes and the harm he caused to investors.” Mr. Peace thanked the Federal Bureau of Investigation, New York Field Office, and the United States Securities and Exchange Commission, New York Regional Office, for their invaluable efforts in the case.
Discala purported to raise capital for start-up private companies and offered to take them public through reverse mergers with public shell companies in exchange for obtaining control of a large portion of the free trading or unrestricted stock. Discala and his co-conspirators, including co-defendants Ira Shapiro, Marc Wexler, Matthew Bell, Craig Josephberg, Victor Azrak, Darren Goodrich, Darren Ofsink and Michael Morris, then artificially inflated the stock through manipulative trading and promotional campaigns, generating large profits for themselves at the expense of unwitting investors.
As part of the fraud, Discala orchestrated a scheme to manipulate the stock price of CodeSmart and Cubed, two of the Manipulated Public Companies.
The CodeSmart Scheme
In early May 2013, Discala and his co-conspirators, including attorney Ofsink, engineered a reverse merger of CodeSmart, a private company, with a shell public company. After gaining control of CodeSmart’s unrestricted shares, Discala and his co-conspirators fraudulently inflated CodeSmart’s share price and trading volume on two occasions and then sold the unrestricted CodeSmart stock at a profit when the share price reached desirable levels. Shapiro, the Chief Executive Officer of CodeSmart, issued numerous press releases with false information to facilitate inflating CodeSmart’s stock price.
Discala and his co-conspirators, including Wexler, profited by selling CodeSmart stock, issued to them for pennies, to clients and customers of Bell, an investment advisor, and Josephberg, a registered broker. On some occasions, the CodeSmart shares were sold to Bell’s clients and Josephberg’s customers without their clients’ and customers’ knowledge and consent. Additionally, Bell and Josephberg sold CodeSmart shares in their personal trading accounts at the same time that they purchased CodeSmart stock in their clients’ and customers’ accounts.
Discala, Wexler, Bell, Josephberg, Ofsink and Morris made more than $6 million in illicit trading profits from the CodeSmart scheme, and the co-conspirators caused more than $12 million in losses to approximately 800 CodeSmart investors who purchased the publicly traded stock.
The Cubed Scheme
In March 2014, Discala and his co-conspirators took Cubed public through an asset purchase agreement by a shell public company. After gaining control of all of Cubed’s unrestricted shares, between April 22, 2014 and April 30, 2014, Discala and his co-defendants, including Wexler, Bell, Josephberg, Goodrich and Azrak, concocted trading volume in the stock and were able to successfully control the price and volume of Cubed’s stock. On June 23, 2014, Cubed reached its highest closing price of $6.75 per share, resulting in a market capitalization of approximately $200 million. Investors who bought publicly traded Cubed stock lost over $400,000. In addition, Cubed was able to raise over $2 million in a private offering of stock to investors who were deceived by how Cubed stock was performing in the market. Discala and Wexler also made over $1 million worth of illegal private sales of Cubed stock to over three dozen investors. Discala and his co-conspirators caused more than $4 million in total losses to approximately 100 Cubed investors.
Goodrich, a broker who participated in the scheme to manipulate the stock of Cubed, was previously sentenced to 41-months after pleading guilty to securities fraud conspiracy. Shapiro, Wexler, Bell, Josephberg, Azrak, Ofsink and Morris also pleaded guilty and are awaiting sentencing.
The government’s case is being handled by the Office’s Business and Securities Fraud Section. Assistant United States Attorneys Shannon C. Jones and Patrick T. Hein are in charge of the prosecution. Assistant United States Attorney Claire Kedeshian of the Office’s Asset Recovery Section is handling forfeiture matters.
ABRAXAS J. DISCALA (also known as “AJ Discala”)
E.D.N.Y. Docket No. 14-CR-399 (S-1)(ENV)