Thursday, September 6, 2007
The SEC announced a settled civil action against two Arizona-based scammers alleging their participation in an elaborate market manipulation scheme that involved unlawfully taking public seven microcap companies, inflating their share prices, and dumping millions of shares into the public market. The defendants, Mesa, Ariz.-based recidivist Michael Saquella (a.k.a., Michael Paloma), 47, and Scottsdale, Ariz.-based trader Lawrence Kaplan, 63, agreed to be permanently enjoined, barred from future penny stock deals, and to disgorge nearly $3 million in ill-gotten gains. In a related criminal action, the U.S. Department of Justice announced today that Paloma and Kaplan have pleaded guilty in federal court in Alexandria, Virginia for their participation in stock manipulation schemes. On August 20, 2007, Paloma pleaded guilty to a criminal information charging him with one count of conspiracy to commit securities fraud and one count of electronic mail fraud. On July 25, 2007, Kaplan pleaded guilty to a criminal information charging him with one count of conspiracy to commit securities fraud. Each of these charges carries a maximum sentence of five years in prison. The written plea agreements and supporting documentation for both defendants were unsealed yesterday.
The Commission's complaint alleges that, over the past four years, Paloma repeatedly passed himself off to principals of private, cash-strapped companies as a legitimate financier, persuading company principals to issue to Paloma-affiliated entities large controlling blocks of stock. Paloma then obtained bogus opinions of counsel that permitted transfer agents to issue share certificates to his entities free of legends restricting resale. The Commission further alleges that, once his entities acquired the "free-trading" shares, Paloma then coordinated manipulative public trading — carried out, in part, by Kaplan — which artificially inflated the value of each issuer's stock. With the appearance of an active trading market established, Paloma coordinated the dissemination of millions of false and/or misleading blast fax and spam e-mails touting the companies' shares. Ultimately, Paloma and Kaplan dumped stock of the microcap issuers into the public market at the artificially inflated prices, realizing profits of $2,155,000 and $677,000, respectively. After Paloma and Kaplan liquidated their holdings of each company's stock, they ceased trading and the market for the shares collapsed.