U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20269 / September 6, 2007
SEC v. Michael Saquella, a.k.a. Michael Paloma, and Lawrence Kaplan, Civil Action No. 1:07CV895 (BRP) (E.D.Va.)
SEC Charges Repeat Fraudster, Penny Stock Trader, for Roles in Spam-Fueled Pump-and-Dump Schemes
The Securities and Exchange Commission ("Commission") today announced a settled civil action against Mesa, Arizona-based recidivist Michael Saquella, a.k.a., Michael Paloma, 47, and Scottsdale, Arizona-based trader Lawrence Kaplan, 63 (collectively, the "defendants"), alleging an elaborate market manipulation scheme that involved unlawfully taking public seven microcap companies, inflating their share prices, and dumping millions of shares into the public market. The defendants' sales netted them nearly $3 million in ill-gotten gains.
The Commission's complaint, filed in U.S. District Court for the Eastern District of Virginia, alleges that, over the past four years, Paloma repeatedly passed himself off to principals of private, cash-strapped companies as a legitimate financier, persuading company principals to issue to Paloma-affiliated entities large controlling blocks of stock, which were then resold in unlawful public offerings.
In each case, according to the complaint, Paloma would surreptitiously gain control of a company's shares by convincing management to issue large blocks of stock to one or more entities he controlled. These issuances, purportedly made under federal registration exemptions to "accredited investors," were part of a plan to circumvent the registration requirements of the federal securities laws. In furtherance of this plan, Paloma obtained bogus opinions of counsel that permitted transfer agents to issue share certificates to his entities free of legends restricting resale. In fact, the entities Paloma controlled were not bona fide accredited investors, but merely conduits through which he and Kaplan effected unregistered public distributions of stock.
The Commission further alleges that, once his entities acquired the "free-trading" shares, Paloma then coordinated manipulative public trading — carried out, in part, by Kaplan — which artificially inflated the value of each issuer's stock. With the appearance of an active trading market established, Paloma coordinated the dissemination of millions of false and/or misleading blast fax and spam e-mails touting the companies' shares. Ultimately, Paloma and Kaplan dumped stock of the microcap issuers into the public market at the artificially inflated prices, realizing profits of some $2,155,000 and $677,000, respectively.
After Paloma and Kaplan liquidated their holdings of each company's stock, they ceased trading in the stock and the market for the shares collapsed. The Commission alleges that Paloma and Kaplan carried out versions of this scheme using the shares of Courtside Products, Inc., Latin Heat Entertainment, Inc., Xtreme Technologies, Inc., PokerBook Gaming Corp., Commanche Properties, Inc., TKO Holdings Ltd. and Motion DNA Corp.
In a related criminal action, the U.S. Department of Justice announced today that Paloma and Kaplan have pleaded guilty in federal court in Alexandria, Virginia for their participation in stock manipulation schemes. On August 20, 2007, Paloma pleaded guilty to a criminal information charging him with one count of conspiracy to commit securities fraud and one count of electronic mail fraud. On July 25, 2007, Kaplan pleaded guilty to a criminal information charging him with one count of conspiracy to commit securities fraud. Each of these charges carries a maximum sentence of five years in prison. The written plea agreements and supporting documentation for both defendants were unsealed yesterday.
In the Commission's action, Paloma has consented to the entry of a final judgment (1) permanently enjoining him from violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; (2) imposing a penny stock bar against him; and (3) directing that he disgorge $2,155,034 in unlawful profits, plus prejudgment interest of $364,265. Kaplan has consented to the entry of a final judgment (1) permanently enjoining him from violating 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; (2) imposing a penny stock bar against him; and (3) directing that he disgorge $677,632 in unlawful profits, plus prejudgment interest of $121,127.
In August 2002, Paloma was ordered to pay disgorgement and a civil penalty, and was enjoined by the United States District Court for the District of Columbia from violating the registration and antifraud provisions of the federal securities laws in a Commission civil suit. The civil action alleged that he orchestrated a stock manipulation scheme involving false claims that Paloma-controlled Desert Winds Entertainment had signed a $25 million contract with Warner Bros. Television. SEC v. Michael Paloma, et al., Civ. Action No. 1:02CV00645 (D.D.C., final judgment entered against Paloma June 6, 2002).
The Commission acknowledges the assistance of the Federal Bureau of Investigation, the U.S. Attorney's Office for the Eastern District of Virginia, the United States Postal Inspection Service, and the NASD, now known as the Financial Industry Regulatory Authority.