Investment Adviser And Broker Sentenced For Securities Fraud Scheme
Geoffrey S. Berman, the United States Attorney for the Southern District of New York, announced that CHRISTOPHER CERVINO, a/k/a “Smitty,” was sentenced to one year and one day in prison, and SHEIK F. KHAN, a/k/a “Abida Khan,” was sentenced to 53 months in prison for their roles in a securities fraud scheme involving the shares of a publicly traded company called VGTel, Inc. (“VGTL”). CERVINO and KHAN were convicted after a three-week jury trial before U.S. District Judge Andrew L. Carter, who imposed yesterday’s sentence.
Manhattan U.S. Attorney Geoffrey S. Berman said: “Securities broker Christopher Cervino and investment adviser Sheik Khan created a massive web of lies to defraud investors of millions of dollars. They manipulated the market, and their clients’ trust, to ensure they made money. Thankfully their days of deceptive trading and investing are over, and they will spend time in prison for their crimes.”
According to the Indictment other filings in Manhattan federal court, evidence at trial, and statements made in court proceedings:
The securities fraud scheme was conceived and led by Edward Durante, a recidivist securities fraud defendant, who pled guilty in August 2016 to various crimes related to the scheme, including conspiracy, securities fraud, money laundering, and perjury. As part of the scheme, Durante, CERVINO, KHAN, and others conspired to control and manipulate the public stock of VGTL in order to artificially inflate the stock price and trading volume so as to profit from sales of VGTL stock and to further induce investments in private shares of VGTL.
Durante, through entities he controlled, held a majority of the publicly traded stock of VGTL. Durante recruited CERVINO, a broker, to open brokerage accounts associated with Durante-controlled entities and investors who were clients of KHAN, an investment adviser. Many of KHAN’s clients had no idea that KHAN and Durante had opened accounts on their behalf with CERVINO. KHAN, along with Durante, then induced her clients to purchase VGTL stock through CERVINO – sometimes without the clients’ knowledge or permission – while Durante and CERVINO ensured that many of these purchases were matched with sales of VGTL stock by Durante-controlled accounts. The reality of these transactions was that Durante and his co-conspirators were effectively taking both sides of a single transaction in VGTL stock in order to artificially control VGTL’s stock price. The defendants’ efforts to artificially inflate the market for VGTL increased the stock price from approximately $.25 per share to as much as $1.90 during the course of the scheme, and dramatically inflated the trading volume, which increased the defendants’ abilities to raise private investments in VGTL and to unload Durante-controlled shares at artificially high prices at the expense of victim investors. To compensate CERVINO for his efforts to control and manipulate the market in VGTL, Durante made at least two cash payments to CERVINO totaling $35,000, in addition to the substantial commissions CERVINO received for executing trades in VGTL. For her part, KHAN received more than $400,000 from Durante, including more than $100,000 in payments for liquidating her clients’ investments in safe annuities so that the money could then be invested into VGTL. In total, CERVINO purchased more than $3.5 million of VGTL shares in client accounts controlled by KHAN and/or Durante. The VGTL shares were ultimately worthless and clients lost the entirety of their investments.
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In addition to the prison term, CHRISTOPHER CERVINO, 45, was sentenced to three years of supervised release and ordered to forfeit $35,000.
In addition to the prison term, SHEIK F. KHAN, 54, was sentenced to three years of supervised release and ordered to forfeit $290,787.
Restitution for both defendants will be determined at a later date.
Mr. Berman praised the work of the Federal Bureau of Investigation and the U.S. Postal Inspection Service, and thanked the Securities and Exchange Commission for its assistance.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Andrea M. Griswold and Rebecca Mermelstein are in charge of the prosecution.