DALLAS (CN) – Three stock promoters defrauded investors of millions of dollars in a pump-and-dump stock scheme, federal prosecutors said. Ryan Reynolds, 39, of Dallas, Timothy Barham Jr., 43, of Henderson, Tenn., and Nathan Montgomery, 30, of Henderson, Nev., face criminal charges.
Each man was charged with conspiracy to commit securities fraud, wire fraud and mail fraud, in a superseding indictment in Miami Federal Court.
Reynolds, who was in custody on civil charges, made his initial appearance this week in Dallas., Barham was arrested in Henderson, Tenn., and Montgomery was arrested in Las Vegas.
The superseding indictment also charges six others who were indicted in February 2010 for their roles in the alleged fraud: Jonathan Randall Curshen of Sarasota, Fla., Michael Simon Krome of Long Island, N.Y., Ronald Salazar Morales of Costa Rica, Robert Lloyd Weidenbaum of Miami, and Eric Ariav Weinbaum and Izhack Zigdon, both of Israel.
According to the indictment, Curshen was the principal behind Red Sea Management and Sentry Global Securities, both of San Jose, Costa Rica, which provided offshore accounts and facilitated trading in penny stocks.
Prosecutors say Weinbaum and Zigdon took control of the outstanding shares of a company called CO2 Tech by retaining Krome, a securities attorney. Krome allegedly evaded federal securities registration requirements to provide them with millions of unregistered and “free-trading” shares of CO2 Tech that they could not have legally obtained.
Prosecutors say the shares were sold to the public by Weinbaum, Zigdon, Curshen and Salazar, a Sentry Global stock trader, through Sentry Global’s stock trading floor, and that the defendants concealed the true financial condition and operations of the company by evading the registration requirements.
Weinbaum and Zigdon allegedly paid $1 million to participate in sham stock trades of CO2 Tech to make it appear there were genuine investors in the market.
“Coordinated trades were often made between the co-conspirators in conjunction with the issuance of false and misleading press releases that were designed to make CO2 Tech appear that it had significant business prospects,” the Justice Department said in a statement. “According to these press releases, CO2 Tech purported to have a business relationship with Boeing to reduce polluting gases emitted from airplanes … these relationships never existed.”
After fraudulently pumping the shares, the defendants sold them for large profits in the over-the-counter market through listings on Pink Sheets, prosecutors said, adding that the shares were often virtually worthless.
Curshen and Salazar also are accused of conspiracy to commit money laundering. Curshen, through Red Sea and Sentry Global, allegedly established domestic and offshore bank accounts through which the proceeds of stock manipulation schemes flowed.
In addition to conspiracy, the superseding indictment charges Krome with securities violation, obstruction of justice and wire fraud.
Weinbaum and Zigdon face three counts of wire fraud.
Curshen and Salazar each are charged with two counts of mail fraud; Weidenbaum and Weinbaum each are charged with one count of mail fraud.
The government seeks forfeiture of $7 million.
All defendants face the prospect of stiff fines and long prison terms.