New York Securities Lawyer And Owner Of Registered Broker-Dealer Sentenced To 18 Months In Prison For Orchestrating Microcap Stock Manipulation Scheme
Two Canadian Men Also Charged for Roles in Scheme, One of Whom Has Pleaded Guilty
NEWARK, N.J. – A New York corporate and securities lawyer was sentenced today to 18 months in prison for orchestrating a stock market manipulation scheme designed to artificially inflate the stock price of two publicly traded companies through manipulative trading and other fraudulent means, U.S. Attorney Paul J. Fishman announced.
Adam S. Gottbetter, 46, of New York and Boca Raton, Florida, pleaded guilty on Sept. 3, 2014, before U.S. District Judge Jose L. Linares to conspiracy to commit securities and mail fraud. Judge Linares imposed the sentence today in Newark federal court.
Two other men, Kenneth David Stevenson, 55, and Mitchell G. Adam, 47, both of Vancouver, Canada, have also been charged for their roles in the scheme. Stevenson pleaded guilty before Judge Linares on Dec. 9, 2013, to conspiracy to commit securities and mail fraud. He is scheduled to be sentenced on May 28, 2015 at 10 a.m. Adam was charged by criminal complaint on May 15, 2015, with conspiracy to commit securities, mail and wire fraud. He was arrested on May 20, 2015, at the Houston George Bush Intercontinental Airport in Texas.
According to the documents filed in these cases and statements made in court:
Gottbetter was a licensed attorney and the managing partner of Gottbetter & Partners LLC, a New York-based securities and corporate law firm, which he founded. Gottbetter marketed himself as an expert in taking private companies public through a reverse merger process, which he referred to as an “Alternative Public Offering,” or his trademarked “Gottbetter Public Offering.” Gottbetter owned Gottbetter Capital Markets LLC, a registered broker-dealer, and Gottbetter Capital Group Inc., a firm which provided a variety of corporate transactional services to its clients.
Between June 2012 and November 2013, Gottbetter directed a scheme to manipulate the price and trading volume of Dynastar Holdings Inc. (DYNA), a social media company headquartered in Louisville, Kentucky, and HBP Energy Corp. (HBPE), a developmental stage company based in Houston, Texas, to create the false appearance of market interest in, and to artificially inflate the value of, both securities. Gottbetter conspired with others to manipulate the price and volume of these securities to, among other things, make the companies more attractive to potential investors in various private offerings that Gottbetter would broker and which would generate substantial fees and other illicit gains to Gottbetter, his law firm and his broker-dealer, and to sell the stocks at the fraudulently inflated prices to the investing public for a profit.
Gottbetter and his conspirators obtained and concealed control of a significant portion of free-trading shares of DYNA and HBPE stock, agreed to fraudulently inflate the price and trading volume of the stocks through a variety of means – including disseminating false or misleading promotional materials to the investing public and engaging in manipulative trading of the stocks to create the appearance of market interest – and planned to sell the stocks at the fraudulently inflated prices or use the fraudulently inflated value of the companies to solicit private investments, thereby profiting at the expense of the investing public.
To assist in manipulating the stock of DNYA and HBPE, Gottbetter recruited a stock promoter and trader who owned a broker-dealer in New York and who claimed to have experience in various manipulative and fraudulent trading strategies. Unbeknownst to Gottbetter, however, this individual (“the CW”) was cooperating with law enforcement. During the DYNA manipulation, Gottbetter instructed the CW to create “volume” in DYNA’s stock so that the stock would eventually trade “on its own.” Gottbetter agreed that the CW would trade DYNA stock among various accounts that the CW controlled to “build a chart” for DYNA stock – in other words, to create the fake appearance of legitimate trading activity, which would be touted as “market” activity to unsuspecting investors in a later promotional mailer. Gottbetter reviewed a draft of a promotion that the CW created in connection with the DNYA scheme. The mailer contained numerous materially false and misleading statements and material omissions. During a meeting with the CW, Gottbetter was offered a copy of the mailer, but refused to keep it, stating that he “never saw it.”
Later in the scheme, the CW informed Gottbetter that the CW had developed an algorithmic trading system, or black box, for the purpose of manipulating the price of stocks. The CW controlled 32 online brokerage accounts that were opened in the names of foreign nominees, and that a computer program that the CW created and controlled could trade between those accounts to create the appearance of massive volume in any stock. Gottbetter directed the CW to use the black box in connection with the DYNA scheme
In July 2013, before Gottbetter and the CW had launched the DYNA promotional campaign and completed the manipulative trading of DYNA’s stock, Gottbetter recruited the CW to participate with him, Stevenson and Adam in another, more profitable and elaborate market manipulation scheme involving HBPE. Like DYNA, Gottbetter and others conspired to manipulate the price and volume of HBPE’s stock through a variety of fraudulent means, including manipulative trading through the CW’s black box. Gottbetter, Stevenson and Adam also planned an elaborate promotional campaign that would take place after HBPE’s stock was manipulated to a certain level, including international “call rooms,” listing HBPE’s stock on foreign exchanges, a “road show” and other activities. Law enforcement intervened before the HBPE promotion could take place.
Nonetheless, Gottbetter, Stevenson and Adam expected to realize significant profits by selling HBPE stock at fraudulently inflated prices. Gottbetter also anticipated generating substantial fees to his law firm and broker-dealer in connection with financing deals that he would close for HBPE after the stock price had been artificially inflated to certain levels. In one consensually recorded conversation with the CW, Gottbetter commented that the only other way to make as much money as he and his conspirators expected to make manipulating HBPE’s stock would be by “robbing a bank.”
In addition to the prison term, Judge Linares sentenced Gottbetter to one year of supervised release, fined him $60,000 and ordered him to forfeit $344,967. Gottbetter also forfeited $4,595,333 to the U.S. Securities and Exchange Commission.
The conspiracy counts with which Adam and Stevenson are charged each carry a maximum potential penalty of five years in prison and a $250,000 fine, or twice the gain or loss from the offense.
U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Richard M. Frankel in Newark, for the investigation leading to today’s sentence and the related charges against Stevenson and Adam. He also thanked the U.S. Securities and Exchange Commission’s New York Regional Office under the direction of Andrew Calamari.
The government is represented by Gurbir S. Grewal, Chief of the U.S. Attorney’s Office Economic Crimes Unit and Assistant U.S. Attorney Nicholas P. Grippo of the Economic Crimes Unit.
The charges and allegations contained in the complaint against Adam are merely accusations, and he is presumed innocent unless and until proven guilty.