Two Canadian Men Admit Roles in $17 Million Microcap Stock Manipulation Scheme
| U.S. Attorney’s OfficeMay 28, 2015 |
NEWARK, NJ—Two Canadian men have admitted their roles in a stock market scheme that artificially inflated the stock price of two publicly traded companies through manipulative trading and other fraudulent means, U.S. Attorney Paul J. Fishman announced.
Michael Taxon, 52, of Toronto, Ontario, Canada, and Itamar Cohen, 52, of Thornhill, Ontario, Canada, each pleaded guilty before U.S. District Judge Jose Linares to separate informations charging them with conspiracy to commit securities fraud. Taxon entered his plea today and Cohen entered his plea on May 27, 2015.
According to the documents filed in these cases and statements made in court:
From April 2007 through June 2008, Taxon, Cohen and others engaged in an extensive “pump-and-dump” stock manipulation scheme, fraudulently inflating the prices of shares of certain companies in order to later sell those shares at artificially higher prices. The scheme targeted two public companies: Raven Gold Corporation (RVNG) and Kentucky USA Energy Inc. (KYUS). Taxon, Cohen and their conspirators first obtained control over large blocks of the free trading shares of the target companies. They then “pumped” the price of those shares by engaging in manipulative trading of the stocks and disseminating misleading promotional materials touting the stocks and encouraging others to purchase them. After pumping the stocks, Taxon, Cohen or their conspirators “dumped” them, selling large volumes of the stocks to victim-investors. The target companies’ stock price would then drop, resulting in losses to the victims.
In April 2007, Taxon, Cohen and a conspirator (CC2) received large blocks of unrestricted RVNG shares and then engaged in a pattern of manipulative trading designed to create the false appearance of liquidity and market depth for RVNG. The manipulative trading included trades of RVNG stock in which CC2 or others acting in concert were on both the “buy” and “sell” side of the same trades. Throughout June 2007, CC2’s trading in various brokerage accounts that CC2, Taxon or Cohen controlled accounted for a substantial portion of RVNG’s daily trading volume. In addition to the manipulative trading, Taxon, Cohen and their conspirators created and disseminated to potential investors an eight-page, glossy promotional mailer that touted RVNG’s stock. The promotional mailer was materially false in numerous ways. It was misleadingly titled, “Stock Trend Report,” and claimed to be a July 2007 “Special Edition For Premium Members.” Stock Trend Report was a fictional name that was created specifically for the scheme. The manipulative conduct had a substantial impact on RVNG’s stock price, which went from a low of $.61 per share in the early phase of the scheme to a high of $1.73 per share at its peak.
Taxon and Cohen engaged in similar fraudulent conduct to artificially inflate the value of KYUS’s stock. In May 2008, Taxon assisted CC2 in manipulating KYUS’ stock by placing a number of manipulative trades using overseas trading accounts. Taxon placed and then canceled a series of successfully higher “buy” orders for KYUS stock at different brokers in order to maximize the false appearance of liquidity, depth and interest in the stock, and to “walk up” the price of KYUS stock. Toward the end of the KYUS manipulation, after the stock had been manipulated from a low price of approximately $.60 per share to a high of $3.97 per share at the peak of the promotion, CC2 and other conspirators “dumped” their shares at the artificially inflated prices to unsuspected victim-investors.
The stock manipulation scheme generated approximately $17.2 million in illegal proceeds, of which Taxon and Cohen received approximately $2.4 million.
The conspiracy counts to which Taxon and Cohen pleaded guilty each carry a maximum potential penalty of five years in prison and a $250,000 fine, or twice the gain or loss from the offense. Sentencing for both Taxon and Cohen is scheduled for Sept. 2, 2015.
U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Richard M. Frankel in Newark, for the investigation leading to Taxon’s and Cohen’s guilty pleas. He also thanked the U.S. Securities and Exchange Commission’s New York Regional Office, under the direction of Regional Director Andrew Calamari.
The government is represented by Gurbir S. Grewal, Chief of the U.S. Attorney’s Office Economic Crimes Unit, and Assistant U.S. Attorney Nicholas P. Grippo of the Economic Crimes Unit.
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