PHILADELPHIA (CN) – An FBI sting netted four men – including a Pennsylvania attorney and two suspended securities traders – who manipulated the stock price of two publicly traded companies through bribes, kickbacks and misinformation, the SEC claims in Federal Court.
The SEC claims the four defendants ran “an illegal scheme to manipulate the stocks of two publicly traded companies, Exit Only Inc. (‘EXTO’) and CX2 Technologies (‘CXTO’), from at least January 2008 through March 2008.” Exit Only and the four men are named as defendants.
Defendant Mark Johnson, 41, of Baltimore, was fired as a broker-dealer in 1994 and the National Association of Securities Dealers, now known as the Financial Industry Regulatory Authority, or FINRA, “suspended his securities licenses for failing to respond to its inquiry into his conduct,” the complaint states.
Marc Manoff, 47, of Wayne, Pa., was a solo practitioner of more than 20 years standing, and was also a principal of nonparty Marck Capital Partners, the SEC says.
Also sued were the father and son team of Leonard and Kyle Gotshalk.
Leonard, 61, of Ashland, Ore., was permanently enjoined from committing securities fraud in 1995, “for participating in the dissemination of false and misleading press releases and other information about a company for which he served as an officer,” according to the complaint.
Kyle Gotshalk, 36, of Canyon Country, Calif., was president and CEO of EXTO.
The SEC says the men repeatedly discussed their fraudulent intentions and actions with undercover FBI agents and paid thousands of dollars in kickbacks into an account the FBI controlled in Philadelphia.
The SEC says the men’s scheme began in January 2008, when Johnson and Manoff met with an undercover agent who offered to introduce them to a third party who would pay dishonest brokers to make unauthorized stock purchase through customers’ accounts in exchange for 15 percent kickbacks on each transaction,
At a subsequent meeting, Johnson and Manoff proposed a multi-tiered program for manipulating the stock, the complaint states.
During the discussion, Johnson said he had been involved in other illegal stock manipulations, and that typically, he manipulated stock prices by issuing press releases, sending out promotional mailers, and by recruiting corrupt investor relations firms to tout the stocks, the SEC says.
Johnson also said that to “get volume” in a stock one had to “create the news” and have “someone who sounds intelligent answering investor calls,” the complaint states.
The scheme was to buy stock in $10,000 increments every other day for 12 to 15 days, then repeat the cycle and build on it for 6 months, according to the complaint. Through the undercover operation, the FBI claims it bought more than 500,000 shares of Exit Only stock, and 39,000 share of CX2 technologies stock. The conspirators paid kickbacks on the first series of stock purchases, but not the second, the complaint states.
The SEC wants the men to disgorge their ill-gotten gains and pay civil penalties. And it wants them permanently enjoined from engaging in securities trading.