Nevada Stock Promoter Admits Role In $33 Million Microcap Stock Manipulation Scheme
NEWARK, N.J. – A Henderson, Nevada, man today admitted his role in a stock market manipulation scheme that artificially inflated the stock price of four publicly traded companies through manipulative trading and other fraudulent means, U.S. Attorney Paul J. Fishman announced.
Nathan Montgomery, 35, pleaded guilty today before U.S. District Judge Jose Linares in Newark federal court to an information charging him with conspiracy to commit securities fraud.
According to the documents filed in this case and statements made in court:
From 2008 through 2010, Montgomery, a penny stock promoter, participated in an extensive “pump-and-dump” scheme in which he and others fraudulently inflated the prices of certain shares in order to sell them later at artificially inflated prices. The scheme involved four public companies: BioNeutral Group Inc. (BONU), NXT Nutritionals Holdings Inc. (NXTH), Mesa Energy Holdings Inc. (MSEH), and Clear-Lite Holdings Inc. (CLRH) (collectively, the “Target Companies”).
As part of the scheme, Montgomery and others first obtained control over large blocks of the free trading shares of the Target Companies. Next, Montgomery and others “pumped” the price of those shares by, among other things, engaging in manipulative trading of the stocks of the Target Companies and disseminating promotional materials encouraging others to purchase them. After pumping the stocks, Montgomery and the other conspirators “dumped” them by selling large volumes of the Target Companies’ stock to victim investors. The target companies’ stock price would then drop, resulting in losses to the victims.
In order to fraudulently inflate the price and volume of the Target Companies’ stocks, Montgomery paid cash kickbacks to Donald Toomer, an investment advisor in Las Vegas, so that Toomer would purchase the Target Companies’ stock on behalf of his clients. The purpose of those purchases was to, among other things, create the false appearance of market interest and demand in the stock; build trading volume that would be attractive to potential investors who would later receive promotional materials about the stock; and generate income to fund the promotional campaigns, including email blasts and newsletters, that occurred in the later phases of the scheme. Additionally, Montgomery and other conspirators engaged in coordinated trading of the Target Companies’ stock using various brokerage accounts that they owned or controlled, including the accounts of friends, family and other third parties.
The scheme collectively generated approximately $33 million in illicit trading proceeds, of which Montgomery received approximately $20 million.
The conspiracy charge to which Montgomery pleaded guilty carries a maximum potential penalty of five years in prison and a $250,000 fine, or twice the gain or loss from the offense. Sentencing is scheduled for Dec. 20, 2016.
On Dec. 15, 2015, Samuel DelPresto of Holmdel, New Jersey, pleaded guilty to one count of conspiracy to commit securities fraud for his role in the scheme. On Dec. 21, 2015, a federal grand jury returned a five-count indictment against Toomer charging him with conspiracy to commit securities fraud and investment adviser fraud and several counts of securities fraud and investment adviser fraud. That matter is currently pending before Judge Linares. A trial date has not yet been set.
U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Timothy Gallagher in Newark, for the investigation leading to Montgomery’s guilty plea. He also thanked the U.S. Securities and Exchange Commission’s New York Regional Office, under the direction of Andrew Calamari, for its assistance in this matter.
The government is represented by Assistant U.S. Attorney Nicholas P. Grippo of the U.S. Attorney’s Office Economic Crimes Unit.
Defense Counsel: Mark Bailus Esq., Las Vegas, Nevada, Marvin G. Pickholz Esq., New York, William B. Pollard III Esq., New York