Two plead guilty to $86 million pump and dump fraud schemeStaff Writer | | Wednesday October 18, 2017 5:05PM ET
CodeSmart Inflating share price
A Merrick man who founded a Manhattan-based company, along with the CEO of another company, pleaded guilty to participating in an $86 million market manipulation.
READ MOREDarren Ofsink, of Merrick, a Manhattan attorney and founder of Ofsink, a securities counsel firm, along with Ira Shapiro, the former CEO of CodeSmart Holdings, pleaded guilty to one count of conspiracy to commit securities fraud, according to the U.S. Justice Department. The scheme involved CodeSmart, a publicly traded company.
Officials say that in May 2013, Ofsink and Shapiro, of Congers, N.Y., along with co-conspirators, who have also been charged, devised a reverse merger of CodeSmart, a private company, with a public shell company.
After gaining control of CodeSmart’s 3 million allegedly unrestricted shares, the co-conspirators fraudulently inflated CodeSmart’s share price and trading volume two times, and then sold their shares at a profit when the price reached “desirable levels” — a scheme commonly referred to as a “pump and dump.”
The first pump and dump occurred between approximately May and August of 2013.
During this period, the co-conspirators manipulated CodeSmart’s stock price by raising it from $1.77 to a high of $6.94, before triggering a drop to $2.19.
The second pump and dump occurred between approximately August and September 2013.
During this time, the defendants and their co-conspirators manipulated CodeSmart’s stock price by raising it from $2.19 to a high of $4.60, before triggering a drop to $2.13.
CodeSmart’s market capitalization at its highest closing in July 12, 2013, was $86,347,800.
However, that same day, CodeSmart filed with the U.S. Securities and Exchange Commission an amended Form 10-K, in which it listed only $6,000 in total assets, $7,600 in revenue, and a net loss of $103,141.
By December 30, 2013, CodeSmart’s stock was trading at $0.66 per share, and on July 9, 2014, its stock closed at $0.01 per share.
Shapiro and Ofsink each face up to five years in prison, a fine and the forfeiture of criminal proceeds.
They will also be required to make full restitution to their victims. ■
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