Federal authorities arrested 14 people on Wednesday, including one Venice resident, for allegedly manipulating stock prices and causing more than 20,000 investors to lose more than $30 million.
Ari Kaplan, 40, of Venice, along with his uncle Sherman Mazur, 63, of Westwood, controlled a company called London Finance Group and were charged with fraudulently inflating stock prices and then selling shares at those exaggerated prices to the general public, netting a substantial profit.
The defendants are serial market manipulators that executed several deceptive deals per year, each generating several millions of dollars, according to court documents. They often worked in conjunction with company management and CEOs and targeted several industries including the pharmaceutical, green tech, oil and gas development and e-commerce.
“There's nothing in there, there’s nothing to the company. It’s monkey business,” one CEO was heard saying on a typical deal during a wiretapped call.
The FBI and IRS intercepted more than 60,000 phone calls and 24,000 text messages in their investigation.
The arrests made Wednesday were part of two indictments issued by the Justice Department that identify two large-scale schemes, alleging that once defendants gained control of majority stock in a company, they transferred their shares to offshore accounts.
Money laundered offshore was used to promote the stock with misleading press releases and marketing campaigns, according to the Justice Department.
The first indictment, named after Mazur, accuses nine of the 14 defendants on 32-counts of committing securities and wire fraud.
Although the Justice Department says Kaplan and Mazur were involved in several fraudulent transactions, the injunction focuses on two specific deals – one with GenMed, that claimed to develop, manufacture and distribute generic pharmaceuticals, and one with Biostem, that ostensibly, developed and licensed regenerative stem cell treatments, including hair regrowth technology.
Yolanda Barrera, Kaplan's attorney, was not immediately available for comment.
The Justice Department alleges that members of the Mazur scheme profited at least $13 million in illegal funds when they sold their shares of manipulated companies which includes at least $2.1 million from GenMed stock transactions and $500,000 from Biostem.
“The defendants’ alleged combination of celebrities, press releases, gimmicks and lies was similar to a how a magician deceives unsuspecting believers into an illusion,” said Bill Lewis, assistant director in charge of the FBI’s Los Angeles Field Office. “While operating the schemes alleged in the indictments, the defendants kept their audience captive until stock prices peaked, while investor money vanished into defendants bank accounts.”
The second, 37-count indictment, charges 11 defendants, some of whom are also included in the Mazur charge, with stock manipulation.
The ring was allegedly headed by Regis Possino, 65, of Pacific Palisades, who was a former Los Angeles County deputy district attorney, and Grover Henry Colin Nix IV.
Possino and the other conspirators netted at least $18 million from selling their shares of manipulated companies, according to the Justice Department.
Some of the companies involved were Sport Endurance, that claimed to develop, manufacture and distribute energy drinks and nutritional supplements and Empire Post Media, a company that supposedly provided media services such as post-production for films and television programs.
“This case has dismantled a far-reaching stock market manipulation scheme run with ruthless efficiency and operated with one goal in mind – to steal money from the investing public,” said U.S. Attorney André Birotte Jr. “This type of predatory behavior cheats the average investor, erodes overall confidence in the markets, and has a devastating impact on companies and their employees.”
Mazur and Possino pleaded not guilty to the charges and are currently being held without bail. They are scheduled for trial on April 9 in federal court in Los Angeles. Each of the defendants could face maximum penalties of at least 100 years if convicted and some of the defendants, including Mazur, Possino and Nix could face life in prison.