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Here are three examples of recent pump and dump schemes that highlight the frightening potential for fraudsters to harm investors and wreak havoc within the financial markets.
In 2013, in one of the largest international pump-and-dump schemes in history, Canadian fraudster Sandy Winick was accused of masterminding two schemes that robbed investors of approximately $140 million. Eight of Winick’s associates were also indicted.
Between 2008 and 2013, Winick and his associates gained controlling interests of stock in 11 worthless public companies with few assets or operations, and which were often effectively shell companies. Using burner phones and other hard to detect methods, they proceeded to then “pump up” the share prices of the companies’ stock through fraudulent sales campaigns, including fake press releases, false information posted on social media, announcements of nonexistent business ventures and mergers, and bribing stock promoters and brokers. Selling the stocks at pumped-up values, Winick and his associates defrauded investors in 35 countries of approximately $120 million through this scheme.
The fraudsters victimized buyers again by setting up “boiler room” style call centers, and selling them a promise to help recoup losses in exchange for a fee. This second scheme caused investors to lose an additional $20 million. Winick was sentenced to six and a half years in prison and ordered to pay $2.43 million in restitution and forfeit an additional $5 million.
In 2015, the SEC brought charges against Gregg Mulholland, the orchestrator of over 40 pump-and-dump schemes worth over a quarter billion dollars.
To facilitate the interrelated schemes, Mulholland controlled a group of individuals, known collectively as the Mulholland Group, who together with Mulholland created an elaborate structure of shell companies and offshore brokerages to conceal the Mulholland Group’s ownership interest in the stock of various public companies. They then engaged in over 40 pump and dump schemes, including manipulating the stock of Cynk Technology, a social media company with no revenue or assets, whose value rose to over $6 billion. These stock manipulation schemes generated over $250 million.
In 2017, Mulholland was sentenced to 12 years in prison and ordered to forfeit assets including his airplane, two properties, and securities in more than 25 bank and brokerage accounts. A judgment in the SEC’s civil case ordered him to disgorge approximately $24.7 million. One of his co-conspirators was sentenced to six years in prison and ordered to forfeit $1 million and interests in several entities. Six other defendants were indicted and, as of 2018, remain at large and are considered fugitives.
Between 2017 and 2018, US authorities charged several individuals in a wide-ranging pump and dump scheme that defrauded approximately 12,000 investors of $19 million. For approximately six years, Damien Delgado, Brain Ferraioli, Thomas Heaphy, William Lieberman, and Christian Meissenn lured investors to purchase securities by spreading false information through calls, emails, and press releases, and caused the price of those securities to become inflated. The co-conspirators also conducted coordinated trades of securities at predetermined prices, to artificially boost the trading volume and drive up the share price. After selling their own shares at a profit, the conspirators allowed the price of the securities to fall, leaving investors with worthless stock. Delgado was sentenced to seven years in prison. Ferraioli was sentenced to six years in prison and ordered to pay total restitution of $6.9 million. Heaphy was sentenced to six years and ordered to pay total restitution of $6.7 million. Lieberman was sentenced to seven years in prison and ordered to pay $5.3 million in restitution and $436,000 to the IRS. Meissen was sentenced to three months of imprisonment and ordered to pay restitution of $5.3 million to victims and $1.5 million to the IRS.
As part of the scheme, Lieberman also arranged for attorneys, Corey Brinson and Diane Dalmy, to sign false and misleading opinion letters designed to provide assurances to securities transfer agents and prospective investors. Brinson and Dalmy were sentenced to 3 years imprisonment for their roles.
Read about other types of market manipulation schemes.