TRENTON, N.J. (CN) - A New Jersey penny stock investor pleaded guilty for his role in a pump-and-dump scheme involving four struggling microcap companies in which he netted roughly $13 million in ill-gotten gains.
From 2008 to 2010, investor Samuel DelPresto used reverse mergers to gain control of private companies, then boosted those companies' stock via sham brokerage accounts and online marketing before dumping the shares, according to a civil complaint filed in Federal Court by the U.S. Securities and Exchange Commission. A criminal charge was also levied against DelPresto.
According to court documents, DelPresto targeted four companies: BioNeutral Group, NXT Nutritionals Holdings, Mesa Energy Holdings, and Clear-Lite Holdings.
He used multiple brokerage accounts, promotional campaigns, and online newsletters to create the illusion of interest in the companies' newly public stock. When stock prices reached "sufficiently high levels," DelPresto would dump the stock, leaving the companies in the lurch, the SEC states.
DelPresto's alleged accomplice in the scheme was an unnamed broker in Las Vegas. The broker, not yet named as a defendant in the suit, allegedly recruited friends and family to open additional brokerage accounts.
They then traded the companies' shares to further inflate the stock price, the SEC claims. The broker received "hundreds of thousands of dollars" in kickbacks by DelPresto, according to the lawsuit.
The key part of DelPresto's scheme, the SEC states, was the use of reverse mergers, which was DelPresto's forte in the financial world. In a reverse merger, a private company typically sets up an inexpensive public shell company, issues shares via a bank, and then purchases those shares in order to become public.
The method is typically less expensive than an initial public offering, which requires extensive SEC registration before stock is offered to the public.
In one example, DelPresto allegedly purchased BioNeutral's stock via a shell company he owned called BONU Control Group, then hired internet marketers to boost interest in the stock and ordered his broker to trade it before later dumping it at an inflated price.
On the first day of trading, the unnamed broker was the sole trader in BioNeutral stock, the complaint states.
The BONU scheme came to a crashing halt in 2009 when, the SEC alleges, one of the company's managers and a fellow shareholder began dumping shares on the open market, resulting in a share price plummet.
Despite the setback, DelPresto made nearly $750,000 in profit from that deal alone, according to the government.
DelPresto's actions "enticed unwitting investors to pay inflated prices for four companies secretly controlled by DelPresto and others, and then left the investors holding the bag when the manipulative activity ceased the stock price dropped," SEC Regional Director Andrew Calamari said in a statement.
DelPresto's venture capital firm MLF Group, which is also a named defendant, was formed in 2007.
Its website states that the firm "is prepared to help companies in the private sector work through the maze of regulatory and financial pitfalls en route to becoming the public company they envision." MLF's website says the company has nearly $100 million in equity financing.
Calls to the phone number listed on MLF's website went directly to voicemail. An email to the company was not immediately answered.
DelPresto pleaded guilty on Tuesday to conspiracy to commit securities fraud, according to the Federal Bureau of Investigation. He faces as many as five years in prison and a $250,000 civil monetary fine for the criminal charge.
The SEC states its investigation into the fraud is ongoing. Sentencing for DelPresto's criminal fraud charge is scheduled for April 6, 2016.