Canadian Charged in Multi-Million Dollar International Stock Fraud Ring

2/12/2009 United States Department of Justice Press Release:

PHILADELPHIA – Acting United States Attorney Laurie Magid and Special Agent-in-Charge of the FBI Janice K. Fedarcyk today announced that a federal grand jury has returned an indictment1 charging George Georgiou with conspiracy, securities fraud, and wire fraud for his role in an international stock fraud conspiracy that resulted in more than $26 million in actual losses and hundreds of millions of dollars in intended losses. The indictment charges that Georgiou and his co-conspirators sought to manipulate the markets for four stocks publicly traded on the Pink OTC Markets Inc. (commonly known as the “Pink Sheets”), and the OTC bulletin board (“OTCBB”): Neutron Inc., Avicena Group, Inc., Hydrogen Hybrid Technologies Inc., and Northern Ethanol, Inc. Georgiou was a registered investment professional in Canada until 1995 when he was banned from acting as broker.

According to the indictment, Georgiou conspired with others in the United States, Canada, Turks and Caicos, and the Bahamas to manipulate the demand for, and prices of, the four companies’ stocks. Georgiou and his conspirators intended to profit from the scheme by (1) selling the stocks when they reached an artificially inflated price; and (2) using the artificially inflated values of the stock as collateral to obtain loans in brokerage accounts often referred to as “margin.”

“This fraud attacks the credibility of our financial markets at a time when individual investors have already suffered great losses and when legitimate small companies can ill afford yet another blow to their efforts to raise capital through stock offerings,” Magid said. “The crimes charged reached across America and into Canada and the Caribbean. This prosecution shows that we will not be deterred by international borders in our efforts to protect Americans, and the markets upon which they rely, from fraud.”

Georgiou and his co-conspirators owned significant amounts of the four companies’ stocks. They opened brokerage accounts in various locations including Canada, the Bahamas, and Turks and Caicos in various names which they then used to engage in manipulative trading in the stocks. By trading the stocks among and between the various accounts they controlled, they artificially inflated the prices of the stocks and falsely made it appear that there was an active market for the stocks. Georgiou and his co-conspirators sold their shares at inflated prices for a profit and also used the artificially inflated stocks as collateral to fraudulently obtain margin and other cash loans of at least $26 million from two Bahamian brokerage firms. When Georgiou caused trading losses in these accounts, the Bahamian brokerage firms were left with virtually worthless stocks as collateral. As a result, one of the firms was forced to liquidate its business.

“The defendant in this case engaged in an organized and on-going international scheme to manipulate and artificially inflate stock prices of publicly traded companies,” said Fedarcyk, “and in so doing defrauded all of the legitimate market investors who owned shares in these companies. The investment market, and the entire economy, suffers when individuals use deceitful means to unscrupulously cheat the system.”

Georgiou was arrested after allegedly agreeing to pay an undercover FBI agent a kickback to bribe brokers to purchase $10 million worth of Northern Ethanol stock in their clients’ accounts. The FBI agent was posing as a person who had access to a network of corrupt brokers whom the agent could bribe to buy stock as part of the scheme.

Georgiou is currently on house arrest in the United States pending trial.
George Georgiou Camp Bell Ville, Ontario, Canada 39

If convicted of all charges, Georgiou faces a statutory maximum of 165 years imprisonment and a $21.25 million fine. He also faces approximately 262-327 months under the advisory federal sentencing guidelines.

The case was investigated by the Federal Bureau of Investigation and the United States Securities and Exchange Commission. It is being prosecuted by Assistant United States Attorneys Derek A. Cohen and Louis D. Lappen.

Suite 1250, 615 Chestnut Street 215-861-8525
Philadelphia, PA 19106

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1/30/2009 S.E.C. Litigation Release:


Litigation Release No. 20875 / January 30, 2009



The Securities and Exchange Commission announced that on January 27, 2009, after a six-day bench trial, the Hon. Gerard E. Lynch of the U.S. District Court for the Southern District of New York issued an opinion and order that, among other things, held defendant James N. Stanard liable for securities fraud in the Commission’s civil enforcement action against him. Stanard is the former chief executive officer of reinsurer RenaissanceRe Holdings Ltd. (“RenRe”). The court also held Stanard liable for making false or misleading statements to auditors, providing false officer certifications, and violating and aiding and abetting violations of reporting, books-and-records, and internal controls provisions of the securities laws.

The Commission charged Stanard and the other defendants with fraud in connection with a sham transaction whose purpose and effect was to fraudulently defer more than $26 million of RenRe’s earnings from 2001 to later periods. With Stanard’s knowledge, RenRe fraudulently accounted for the sham transaction as “reinsurance,” when in fact, as Stanard knew, the transaction transferred no risk and could not properly be accounted for as reinsurance. As a result of RenRe’s fraudulent accounting treatment, RenRe materially understated income in 2001 and materially overstated income in 2002.

In the court’s January 27, 2009 opinion and order, Judge Lynch ruled in favor of the Commission on all of its claims, finding that Stanard “wanted to engage in a transaction that would have a particular balance sheet effect, without economic reality;” that “he knew the transaction was being structured in a way … that would obscure its significance from the auditors;” that he “knew the facts, and he knew the [applicable accounting] rule, and he knew that the facts did not square with the rule;” and that “[a]ccordingly, he acted with knowledge that RenRe’s earnings would be falsely stated.” The court further found that “Stanard damaged his credibility by claiming repeatedly at trial that this was intended as a reinsurance transaction, when in fact it was intended only to have an accounting effect, and not to constitute true insurance against risk.”

The court found that Stanard violated Section 17(a) of the Securities Act of 1933 (“Securities Act”), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2 and that Stanard aided and abetted violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13. The court permanently enjoined Stanard from violating or aiding and abetting violations of all these provisions of the securities laws and imposed a civil penalty of $100,000 but denied the Commission’s request for an officer and director bar. The court directed the Commission to submit an appropriate final judgment on or before February 17, 2009.

The Commission previously settled its claims against defendants Michael W. Cash and Martin J. Merritt and, in a related action, against RenRe.

For further information, see Litigation Release Nos. 19847 (Sept. 27, 2006), 19989 (Feb. 6, 2007), and 20360 (Nov. 8, 2007), and Administrative Proceeding No. 34-54661 (Oct. 27, 2006).

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SEC Charges Joseph S. Forte for Conducting Multi-Million Dollar Ponzi Scheme

January 8, 2009 S.E.C. Press Release:

Washington, D.C., Jan. 8, 2009 — The Securities and Exchange Commission has charged a Philadelphia-area investment fund manager and his firm for conducting a multi-million dollar Ponzi scheme, and has obtained an emergency court order freezing their assets.

Additional Materials

According to the SEC’s complaint, Joseph S. Forte of Broomall, Pa., fraudulently obtained an estimated $50 million from as many as 80 investors through the sale of securities in the form of limited partnership interests in his firm, Joseph Forte, L.P. The SEC alleges that Forte told investors that he would invest the funds in an account that would trade in securities futures contracts, including S&P 500 stock index futures. According to the complaint, despite the impressive and consistent returns he reported to investors, Forte consistently lost money in the limited trading that he did, withdrew millions of dollars in so-called fees for his personal use based on the falsely inflated value of Forte LP, and used investor funds to repay other investors.

“As alleged in our complaint, Forte engaged in lies, deception and rapacious behavior at the expense of innocent investors, many of whom considered themselves his friends and close acquaintances,” said Daniel M. Hawke, Director of the SEC’s Philadelphia Regional Office. “Using other people’s money, Forte promised and reported outrageous returns over more than a 10-year period, and because of his relationships with investors was able to lull them into trusting him with their funds.”

Judge Paul S. Diamond, U.S. District Judge for the Eastern District of Pennsylvania, issued an order on January 7 granting a preliminary injunction, freezing assets, compelling an accounting, and imposing other emergency relief. Without admitting or denying the allegations in the Commission’s complaint, Forte and Forte LP consented to the entry of the order.

The SEC�s complaint alleges that Forte has been conducting a Ponzi scheme since at least 1995. Forte, who has never been registered with the SEC in any capacity, has admitted that he misrepresented and falsified Forte LP’s trading performance from the very first quarter. From 1995 through Sept. 30, 2008, Forte and Forte LP reported to investors annual returns ranging from 18.52 percent to as high as 37.96 percent. However, from January 1998 through October 2008, the Forte LP trading account had net trading losses of approximately $3.3 million.

The SEC’s complaint further alleges that in addition to misrepresenting to investors that the trading was highly successful and making huge profits, Forte and Forte LP misrepresented the use of investor funds. Although Forte claimed that he raised approximately $50 million from investors for the purpose of participating in the trading program, Forte deposited only $25.8 million in the trading account between January 1998 and October 2008, and during that same time period withdrew $23.1 million. Forte claims that he took at least $10 to $12 million in so-called fees for his personal use based on the falsely inflated value of Forte LP. But Forte LP statements provided to investors reflect fees charged of $28.7 million between March 1995 and September 2008. He also claims he used approximately $15 to $20 million of investor funds to repay other investors — the hallmark of a Ponzi scheme. The SEC’s complaint alleges that Forte and Forte LP also lied to investors about the value of the partnership portfolio. For example, in September 2008, they reported to investors that the Forte LP portfolio had a value of more than $150 million. In fact, Forte LP’s trading account at that time had a balance of only $146,814.

The SEC’s complaint alleges violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition to the emergency relief, the Commission’s complaint seeks disgorgement of the defendants’ ill-gotten gains plus pre-judgment interest, financial penalties, and permanent injunctions barring future violations of the antifraud provisions of the federal securities laws.

The SEC’s investigation is continuing.

The SEC acknowledges the assistance of the Commodity Futures Trading Commission. The CFTC has filed a related action against Forte.

# # #

For more information, contact:

Daniel M. Hawke, Regional Director
Elaine C. Greenberg, Associate Regional Director
David S. Horowitz, Assistant Regional Director
SEC’s Philadelphia Regional Office

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