Founder and Majority Owner of Cryptocurrency Exchange Pleads Guilty to Unlicensed Money Transmitting
Earlier today, in federal court in Brooklyn, Michael Morris, a registered broker and managing director of Halcyon Cabot Partners, Ltd. (“Halcyon”), pleaded guilty to one count of conspiracy to commit securities fraud for his participation in an $86 million market manipulation scheme involving the publicly traded company CodeSmart Holdings, Inc. (“CodeSmart”), which traded under the ticker symbol ITEN. The proceeding was before United States District Judge Eric N. Vitaliano.
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 guilty plea.
In early May 2013, Morris’s co-conspirators engineered a reverse merger of CodeSmart, a private company, with a public shell company. After gaining control of CodeSmart’s three million purportedly unrestricted shares, Morris and his co-conspirators fraudulently inflated CodeSmart’s share price and trading volume, and then sold their shares at a profit when the price reached desirable levels—a scheme commonly referred to as a “pump and dump.” The first pump and dump occurred between approximately May 13, 2013 and August 21, 2013. During this period, Morris’s co-conspirators manipulated CodeSmart’s stock price by raising it from $1.77 to a high of $6.94, before causing it to drop to $2.19. The second pump and dump occurred between approximately August 21, 2013 and September 20, 2013. During this period, Morris and his co-conspirators manipulated CodeSmart’s stock price by raising it from $2.19 to a high of $4.60, before causing it to drop to $2.13.
On July 12, 2013, when CodeSmart’s inflated share price was at its highest, CodeSmart’s market capitalization was $86,347,800. However, that same day, CodeSmart filed with the U.S. Securities and Exchange Commission an amended Form 10-K, in which it listed only $6,000 in total assets, $7,600 in revenue, and a net loss of $103,141. By December 30, 2013, CodeSmart’s stock was trading at merely $0.66 per share and, on July 9, 2014, its stock closed at $0.01 per share.
When sentenced, Morris faces a maximum of five years in prison.
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 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.
Residence: Merrick, New York
E.D.N.Y. Docket No. 14-CR-399 (S-2) (ENV)
United States Attorney’s Office