Former Registered Broker Sentenced to 41 Months in Prison for Stock Fraud
Defendant Used Status as a Market Maker and Broker to Help Manipulate Multiple Penny Stocks in Two Separate Conspiracies
Earlier today, in federal court in Brooklyn, Darren Goodrich, a former registered broker at a brokerage firm in El Segundo, California, was sentenced by United States District Judge Eric N. Vitaliano to 41 months’ imprisonment for one count of conspiracy to commit securities fraud for Goodrich’s participation in the manipulation of the price and trading volume of the stock of Cubed, Inc. (“Cubed”), which traded under the ticker symbol CRPT. In a second stock fraud case that originated in the District of New Jersey, Judge Vitaliano sentenced Goodrich to 41 months’ imprisonment for one count of conspiracy to commit securities fraud for Goodrich’s participation in the manipulation of the price and trading volume of the following stocks: NXT Nutritional Holdings, Inc., which traded under the ticker symbol NXTH; Bioneutral Group, Inc., which traded under the ticker symbol BONU; Clear-Lite Holdings, Inc., which traded under the ticker symbol CLRH; and Mesa Energy Holdings, Inc., which traded under the ticker symbol MSEH (collectively, the “Target Companies”). Goodrich pleaded guilty to the Cubed case in June 2016 and the Target Companies case in January 2017. The sentences for both cases will run concurrently.
Richard P. Donoghue, United States Attorney for the Eastern District of New York, and William F. Sweeney, Jr., Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI), announced the sentences.
“Goodrich has been held responsible for participating in schemes designed to dupe investors into believing that companies with little in the way of assets were worth hundreds of millions of dollars,” stated United States Attorney Donoghue. “Today’s sentence sends a powerful message that this Office, together with our law enforcement partners, will hold licensed securities professionals accountable when they abuse their positions to facilitate the commission of crimes.” Mr. Donoghue expressed his appreciation to the U.S. Attorney’s Office for the District of New Jersey, which charged Goodrich in the Target Companies scheme, and the Securities and Exchange Commission (“SEC”), New York Regional Office, for its assistance in both of these cases.
“Goodrich used his status as a step stool to help him achieve his objectives in this sly scheme, in which he manipulated various securities for an illegal million-dollar profit,” stated FBI Assistant Director-in-Charge Sweeney. “By this activity, schemers like Goodrich continuously tarnish the reputation of trust and professionalism held to countless brokerage firms. In an effort to maintain this reputation, the FBI will be thorough in investigating and extracting the bad seeds of the financial industry.”
The Cubed Scheme
Between March 2014 and July 2014, Goodrich and his co-conspirators, including Abraxas J. Discala, who was recently convicted at trial, engaged in a scheme to defraud investors and potential investors in Cubed, by artificially controlling the price and trading volume of shares in the company through fraudulent concealment of the co-conspirators’ ownership interests and engineering price movements and trading volume in the stock. In March 2014, Goodrich’s co-conspirators took Cubed public through an asset purchase agreement, similar in effect to a reverse merger. Between April 22, 2014 and July 17, 2014, Goodrich and his co-conspirators placed coordinated purchases and bids to purchase the stock to deceive investors into believing that there was more market demand for the stock at certain prices than actually existed.
Goodrich and his co-conspirators also used an escrow arrangement that initially controlled all the free-trading stock to successfully control the price and trading volume of Cubed 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. Previously, on April 21, 2014, Cubed had filed with the SEC a Form 10-Q and reported less than $1,500 in cash, zero revenue, negative stockholders’ equity, a net loss of $15,000 and accrued professional fees of $131,824. The SEC halted trading in Cubed on July 17, 2014.
The Target Companies Scheme
From 2008 through 2010, Goodrich, working with co-conspirators Nathan Montgomery and Samuel DelPresto, who both pleaded guilty in the District of New Jersey to conspiring to commit securities fraud, participated in a pump and dump scheme. As part of the scheme, the defendants obtained control over large blocks of the free-trading shares of the Target Companies, “pumped” the price of those shares by engaging in manipulative trading of the stock and circulated promotional materials encouraging others to purchase the stock. Thereafter, the defendants “dumped”, or sold, large volumes of the stock to victim investors. The Target Companies’ stock price then dropped, resulting in substantial losses to the victims. The scheme generated approximately $33 million in illicit trading proceeds for Montgomery and DelPresto. Goodrich received approximately $1.5 million in gross trading commissions.
The government’s case is being handled by the Office’s Business and Securities Fraud Section. Assistant United States Attorneys Shannon C. Jones, Patrick T. Hein and Mark E. Bini are in charge of the prosecution, with assistance provided by Assistant United States Attorney Claire Kedeshian of the Office’s Civil Division, which is responsible for the forfeiture of assets. Assistant United States Attorney Nicholas P. Grippo investigated and charged Goodrich in the District of New Jersey in the Target Companies Scheme, prior to the transfer of the case to the Eastern District of New York for Goodrich’s guilty plea and sentencing.
Manhattan Beach, California
E.D.N.Y. Docket No. 14-CR-399 (ENV)
E.D.N.Y. Docket No. 16-CR-630 (ENV)
D.N.J. Docket No. 16-CR-544 (JLL)