U.S. Law Enforcement Disrupts Networks Used to Transfer Fraud Proceeds, Taking Over 4,000 Actions in Fifth Campaign
Eight people were sentenced to prison this month for their roles in a penny-stock fraud that resulted in a $39 million loss to investors, said Carole S. Rendon, U.S. Attorney for the Northern District of Ohio, and Stephen D. Anthony, Special Agent in Charge of the FBI’s Cleveland Office.
Zirk de Maison, of Redlands, California, was sentenced to more than 12 years in prison and ordered to pay $39.1 million in restitution.
Stephen Wilshinsky, of Woodland Hills, California, was sentenced to nearly three years in prison and $4.2 million in restitution.
Talman Harris, of Monroe, Connecticut, after a jury convicted him on all counts following a three-week trial, was sentenced to more than five years in prison and $843,423 in restitution.
Gregory Goldstein, of Stevenson Ranch, California, was sentenced to nearly three years in prison and $6.3 million in restitution.
Jack Tagliafero, of Glen Cove, New York, was sentenced to more than five years in prison and more than $5 million in restitution.
Victor Alfaya, of Port Washington, New York, was sentenced to nearly two years in prison and $3.6 million in restitution.
Kieran Kuhn, of Port Washington, New York, was sentenced to nearly four years in prison and $5.6 million in restitution.
William Scholander, of Queens, New York, was sentenced to nearly two years in prison and $843,423 in restitution.
Two additional co-conspirators have their sentencings scheduled for February and July 2017.
de Maison and the other defendants conspired to defraud investors and potential investors in several public issuers, including Kensington Leasing, Ltd., Lenco Mobile, Casablanca Mining, Ltd., Lustros, Inc., and Gepco Ltd., (the manipulated companies), by issuing millions of shares to themselves at little or no cost and then artificially controlling the price and volume of traded shares by, among other means, paying undisclosed commissions to brokers, former brokers, and boiler-room operators and promoters, for soliciting investors to make investments in, and fraudulently concealing the ownership interests of, the manipulated companies, according to court documents.
Little or no portion of the investments went to fund the operations of the manipulated companies. Rather, de Maison and the co-conspirators used most of the investments to enrich themselves, according to court documents.
For each of the manipulated companies, de Maison and other co-conspirators controlled a substantial number of outstanding shares through their personal companies, co-conspirators, and associates over which they had influence and control.
Many of the defendants were brokers and former brokers who abused their client relationships to solicit and induce investors to purchase de Maison’s stock in the manipulated companies at what they knew to be artificially inflated values. In exchange, de Maison paid the brokers and former brokers enormous, illegal kickbacks, often as large as 50% of the investment, which were never disclosed to the client-investors.
Other defendants either owned or worked in what were commonly referred to as boiler rooms. For instance, Kuhn owned and operated a boiler room called Small Cap Resources in New York City, where he employed promoters to cold call and solicit potential investors to purchase shares of the manipulated companies. de Maison and others dictated what stocks Kuhn and others pushed. The cold calls to potential investors typically coincided with favorable press releases or other information that de Maison caused to be released, according to court documents.
Kuhn and others touted the manipulated companies using high-pressure sales tactics and misrepresentations about the value of the companies and their stock. The boiler room promoters did not disclose that de Maison and other co-conspirators paid them commissions on the sale of the stock to the investors, either on the open market or through private placements, according to court documents.
de Maison and his co-conspirators caused more than $54 million to be invested in the purchase of stock in the manipulated companies and caused a loss to investors in the amount of approximately $39 million from the scheme. de Maison profited through the fraudulent scheme relating to the companies’ stocks. He received and embezzled approximately $39 million in investor monies, according to court documents.
The case was prosecuted by Assistant U.S. Attorneys Christos N. Georgalis, Paul M. Flannery, and Adam Hollingsworth after an investigation by agents of the Federal Bureau of Investigation.