An irreverent Wall Street Blog
Undercover FBI Pennystock Sting
September 9, 2015At times, Wall Street can be a treacherous place. Normally, we'd be talking about the challenges facing investors; today, however, we're talking about the dangers with which the bad guys have to deal. Obviously, we ain't gonna be shedding a lot of tears here. In fact, you may even come away with a smile and a fist pump when you read about a recent case in which a defendant unknowingly dealt with an FBI undercover agent and a cooperating witness. That click you just heard was someone stepping on a hidden landmine.
Case In Point On February 27, 2014, the U.S. Attorney's Office for the District of Massachusetts announced that seven defendants had been charged as a result of a Federal Bureau of Investigation sting involving kickbacks in the microcap stock sector. "FBI Undercover Operation Nets Seven Defendants In Securities Kickback Scheme" (Press Release, U.S. Department of Justice, February 27, 2014). Among those named as defendants was Gerard Haryman, 70, Lake Worth, Fla., a consultant for and an investor in the publicly-traded pennystock A Clean Slate Inc., which purportedly purportedly provided financial services and specialized in debt relief and financial recovery services. Although A Clean Slate's securities had been registered with the SEC, on April 13, 2012, the company terminating its securities registration pursuant to a filing of a Form 15-12G . The company's securities were publicly quoted on the OTC Link under the symbol "DRWN," and subsequently contained a warning that the company may not be making material information publicly available.SIDE BAR: http://www.otcmarkets.com/stock/DRWN/quoteFive Counts On March 21, 2014, Haryman was charged in an Information with two counts each of mail fraud and wire fraud and one count of conspiracy to commit securities fraud. If convicted, Haryman faced up to 20 years in prison plus three years of supervised release, and $250,000 on each count. U.S. v. Haryman (Information, D. Mass., 14-CR-10077-RGS, March 21, 2014).I'll Be Watching You
As set forth in the Information, Haryman was undone by an undercover FBI agent, who pretended to represent a major investment fund (which was wholly fictitious). To make matters worse, Haryman was also dealing with a pennystock promoter and funding finder who became an unnamed cooperating witness. The cooperating witness arranged for Haryman and A Clean Slate's President/CEO to meet with the undercover FBI agent. Gee, how thoughtful! Sometime around September 28, 2011, the meeting (which was recorded) occurred and a discussion transpired during which it was proposed that the fund representative (the FBI undercover agent) would arranged for an investment in A Clean Slate in exchange for a 50% kickback. Haryman and the CEO agreed to a kickback proposal that called for payoffs to be sent to several companies under the fund representative's control pursuant to sham consulting agreements - the contemplated consulting services would never be provided but simply served as the cover for the kickbacks.
16 Will Get Ya 8; 32 Will Get Ya
16 By October 5, 2011, $16,000 had been wired from the
fictitious fund to A Clean Slate's bank account as
the first tranche of funding. In response to the investment, Haryman and the
CEO allegedly wired $8,000 to a corporate bank account of one of the fund
representative's nominee companies. The Information details
another $32,000 investment, further wires pursuant to the kickback scheme,
issuance of stock certificates, and the generation of knowingly bogus
consulting services invoices. Pleading
Out On May 2, 2014, Haryman pleaded guilty to all
counts.
Every move you make
Every vow you break
Every smile you fake
Every claim you stake
I'll be watching you
Okay, sure, for all the earnest enforcement, Haryman only got sentenced to one lousy day in jail and forced to pay a relatively puny five-figures but can you imagine how his legal fees added up! Oh, and don't forget that the he was barred by the SEC. Yeah, I see your point, not a big bang necessarily for the enforcement buck but, hey, at least it's something.
SIDE BAR: For more background on Haryman, READ: "EXCLUSIVE - Palm Beach Businessman Gerard Haryman Sentenced to One Day in Prison, Three Years Probation in Fraud!" (Gossip Extra, November 13, 2014).