Microcap Fraud: An FBI Controlled Shell Company

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Five men came together to plan the manipulation of an over-the-counter traded shell. What they did not know was that the shell was controlled by the FBI. SEC v. Affa, Civil Action No. 1:14-cv-12959 (D. Mass. Filed July 11, 2014). The action names as defendants Michael Affa, Andrew Affa, Mitchell Brown, Christopher Putnam and Christoper Nix.

The scheme centers on trading in the shares of Amogear Inc. in the over-the-counter markets beginning in August 2012. Amogear is a shell which has no business operations. During the period it was controlled by a Confidential FBI Informant. At one point the CFO of the company was an undercover FBI agent.

Initially, Messrs. Nix and Putnam put together a scheme to manipulate the stock price and trading of Amogear. Mr. Nix owned a promotional firm called Global Marketing Media LLC and websites that touted and promoted penny stocks. Messrs. Nix and Putnam planned a promotional campaign for Amogear shares. The plan was to run a pump and dump scheme.

The scheme was joined by Mike and Andrew Affa who recruited Mr. Brown. They had discussions with the Confidential Informant in which they outlined a plan to tout the stock using a series of misrepresentations. They also planned to use pre-arranged trades by scheme participants to inflate its price.

Beginning in late January Mike Affa directed a trade to create the false appearance of a market for Amogear stock. Mike Affa placed the single trade in the stock on January 23, 2014. Later in the month Mr. Brown met with Andrew Affa and the Confidential Informant and discussed arranging trades between controlled accounts to increase the share price from the initial $0.10 trade placed by Mike Affa. The trades would be followed by a media campaign.

The defendants and the Confidential Informant agreed that the scheme would kick-off in early February 2014. On the kick-off date the websites controlled by Global Marketing Media released e-mail blasts which contained misrepresentations about the company. On the same date the Commission suspended trading in the shares of the company. The Commission’s complaint alleges violations of Exchange Act Section 10(b) and Securities Act Sections 17(a)(1) and (3). It is in litigation.

Parallel criminal charges were brought by the U.S. Attorney’s Office.

 

Topics:  FBI, Over-the-Counter Sales, SEC, Shell Corporations

Published In: Business Torts Updates, Criminal Law Updates, Finance & Banking Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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