Wednesday, August 29, 2012
Saturday, August 11, 2012
PENNY STOCK BAN FOR INVESTORS HUB'S MATT BROWN
SEC secures ban for former Investors Hub operator
2012-07-26 14:10 ET - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
Also Street Wire (U-AAGH) Asia Global Holdings Corp
Also Street Wire (U-GHTI) GH3 International Inc
Also Street Wire (U-PLYCF) Playstar Corp
by Mike Caswell
The U.S. Securities and Exchange Commission has secured a permanent penny stock ban against former Investors Hub operator Matthew Brown for his role in a $6.2-million market manipulation scheme. (All figures are in U.S. dollars.) The ban, announced Wednesday, July 25, settles civil fraud charges Mr. Brown faced for the 2006 pump-and-dump of Asia Global Holdings Inc. It comes as he is serving a four-year jail term for related criminal charges.
The SEC claimed that Mr. Brown was part of a "ring of serial penny stock manipulators" that operated at least partly through Investors Hub in 2006 and 2007. His co-accused included fugitive Polish citizen Pawel Dynkowski, who manipulated Ontario pink sheets listing Playstar Corp. and other companies, according to the SEC. Mr. Dynkowski was indicted in 2009 for the scheme, but U.S. authorities have yet to arrest him.
Although Mr. Brown initially contested the criminal case, he eventually pleaded guilty to securities fraud and money laundering charges in February, 2010. The judge sentenced him to four years in jail and ordered him to forfeit $4.78-million (which Mr. Brown later called a "financial death sentence"). He is scheduled for release from a medium-security prison in Atlanta on Dec. 9, 2014.
The SEC's parallel civil case remained unresolved until this month, when Mr. Brown agreed to the penny stock ban and to an order barring future violations. He also agreed to a $110,826 financial penalty, which he can satisfy by paying that same amount toward the criminal forfeiture order.
SEC's complaint
The case against Mr. Brown and the others was contained in a civil fraud complaint that the SEC filed on May 21, 2009, in the District of Delaware. The regulator claimed that the men each manipulated one or more companies, which it listed as: Asia Global Holdings, Playstar, GH3 International Inc. and Xtreme Motorsports of California Inc.
The largest of the manipulations was that of Asia Global Holdings, a company that purportedly had the rights to the show "Who Wants to be a Millionaire" in China. According to the complaint, Mr. Brown and Mr. Dynkowski had significant roles in the scheme, carrying out wash trades that they timed to coincide with news releases they created for the company. Their efforts boosted the stock to 41 cents on Aug. 25, 2006, up from 11.5 cents just 13 trading days earlier. The company's volume jumped by millions of shares in the same period.
During the promotion, Mr. Dynkowski and Mr. Brown sold 54 million shares using nominee accounts they held at a California brokerage called AIS Financial Inc., the SEC said. The men had previously obtained the stock through an improper S-8 offering. According to the complaint the sales were facilitated by an AIS employee, Mark Riviello. (Mr. Riviello also pleaded guilty to criminal charges stemming from the scheme, and recently completed an eight-month sentence.) In all, the men received $4-million from the Asia Global manipulation, which they divided amongst themselves and others.
As the Asia Global promotion was occurring, Mr. Dynkowski embarked on another similar scheme with Playstar, the SEC claimed. In October, 2006, he carried out wash trades of the company that accounted for millions of shares in volume. At the same time, he had Playstar's chief executive officer, Gerard D'Amaro, issue several misleading news releases touting the stock. Playstar went to 12 cents on Nov. 9, 2006, up from half a penny before the promotion began. According to the complaint, Mr. Dynkowski and Mr. D'Amaro dumped 39.6 million shares, grossing $1.18-million. (Mr. D'Amaro also pleaded guilty to criminal charges, and received three years in jail.)
The other two pump-and-dumps described in the complaint, those of GH3 International and Xtreme Motorsports, followed similar patterns.
The SEC sought injunctions preventing future violations of the U.S. Securities Act, appropriate civil penalties and disgorgement of profits.
Much of the evidence in the case arose after police intercepted a large interstate money transfer, in which Mr. Brown had paid a driver to take $146,00 in cash from California to Delaware. Documents in a related asset forfeiture action stated that the driver, who knew Mr. Brown from high school, was to deliver the cash to Mr. Dynkowski. The delivery went awry when a Texas police officer stopped the car and discovered the cash. Instead of immediately detaining the driver, police had him deliver the money to Mr. Dynkowski's home in Delaware, which they then searched and discovered evidence of the market manipulations.
Although police questioned Mr. Dynkowski at the time, they did not hold him, and his whereabouts are now unknown. He lived in Delaware during the manipulations, but he is a citizen of Poland. The SEC has since added more charges against him, naming him in its case for the $11-million pump-and-dump of Rudy Nutrition in 2008.
Friday, August 10, 2012
THE CLUELESS SEC
The Clueless Securities and Exchange Commission
Ellen Ullman explains:
AS a former software engineer, I laughed when I read what the Securities and Exchange Commission might be considering in response to the debacle of Knight Capital’s runaway computerized stock trades: forcing companies to fully test their computer systems before deploying coding changes.
That policy may sound sensible, but if you know anything about computers, it is funny on several accounts.
First, it is impossible to fully test any computer system. To think otherwise is to misunderstand what constitutes such a system. It is not a single body of code created entirely by one company. Rather, it is a collection of “modules” plugged into one another. Software modules are purchased from multiple vendors; the programs are proprietary; a purchaser (like Knight Capital) cannot see this code. Each piece of hardware also has its own embedded, inaccessible programming. The resulting system is a tangle of black boxes wired together that communicate through dimly explained “interfaces.” A programmer on one side of an interface can only hope that the programmer on the other side has gotten it right.
Next, there is no such thing as a body of code without bugs. You can test assiduously: first the programmers test, then the quality-assurance engineers; finally you run the old and new systems in parallel to monitor results. But no matter. There is always one more bug. Society may want to put its trust in computers, but it should know the facts: a bug, fix it. Another bug, fix it. The “fix” itself may introduce a new bug. And so on.
So now consider that tangle of modules. The bug in one meets the bug in another, and that one in another ... and the possibility of system failure multiplies exponentially.
Another absurd thing is trying to define a coding change worth fully testing. A completely new system rollout would certainly qualify. How about installing an updated module from one of those software vendors? It depends on the perceived criticality of the component. How about that new network router and its embedded code? Rarely done. What about a tiny bug fix done by a responsible, hardworking programmer at Knight Capital? Good quality-assurance departments would test that. But individual programmers may see a particular change as insignificant. One time I fixed a function by changing “less than” to “less than or equal to.” That “fix” propagated through the system. And down the system came.
This is a pretty obvious case of how the SEC is clueless, but there are many other instances, especially where security regulations are on the books. In many, many cases, the SEC has no clue as to how sharp operators are using regulations to their advantage---and to the detriment of everyone else.
The SEC should be shut down and securities regulations should be thrown into the garbage dump. This would eliminate the moat that protects the big Wall Street firms from new competitors. Wall Street would be a much better, more honest and more interesting place, without the SEC. You would be able to actual pick between thousands of firms, as opposed to be railroaded into dealing with the crooks at Goldman Sachs, JPMorgan Chase and Citigroup.
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