SEC Halts Microcap Scheme in South Florida
The Securities and Exchange Commission today announced fraud charges and an asset freeze against the operators of a South Florida-based microcap scheme, including three boiler room brokers caught trying to conceal from investors that they have been barred from the industry.
The SEC alleges that investors were defrauded in cold calls placed to investors through a boiler room spearheaded by Dean A. Esposito of Boca Raton, Fla., Joseph DeVito of Brooklyn, N.Y., and Frederick Birks of Orlando, Fla. These brokers and their sales agents were hired by Joseph J. Azzata of Boca Raton, Fla., CEO of eCareer Holdings, Inc., to sell unregistered stock shares in the company. Investors were told their money would be used as working capital to develop eCareer’s online job staffing business, however about 30 percent of investor proceeds has been diverted to pay exorbitant fees to the brokers and sales agents. These payments were mischaracterized in eCareer’s corporate filings as dispensed to third parties for consulting and advisory services rather than to the sales agents. Company filings and offering materials also misrepresented that eCareer shares would be sold only to accredited investors when in reality stock has been pitched and sold to people not necessarily meeting that definition, including some non-accredited investors aged 85 to 98 years old.
According to the SEC’s complaint unsealed today in U.S. District Court for the Southern District of Florida, Esposito, DeVito, and Birks were subjects of a prior SEC enforcement action that resulted in them being barred from acting as a broker or dealer or participating in any offering of a penny stock. Therefore, they were prohibited from earning transaction-based compensation from the sale of eCareer’s stock. In an attempt to circumvent these prohibitions and disguise the true nature of their compensation, Esposito, DeVito, and Birks and their companies entered into agreements typically signed by Azzata that miscategorized their compensation as advisory fees and finder’s fees.
“We allege that senior citizens and other investors were falsely told that purchasing eCareer stock was a good, profitable investment,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “Concealed from these investors were the exorbitant fees being paid to sales agents as well as the disciplinary histories of Esposito, DeVito, and Birks.”
The SEC alleges that eCareer, Azzata, Esposito, DeVito, and Birks fraudulently raised more than $11 million in funds from more than 400 investors since August 2010. In addition to approximately $3.5 million paid out of investor funds in the form of undisclosed exorbitant fees, Azzata diverted $650,000 to pay expenses related to his motorsports hobby as well as other family expenditures such as private school tuition for his children and shopping bills for his wife. Corporate filings by eCareer falsely claimed that private offering funds were used for working capital purposes and concealed Azzata’s misappropriation of investor proceeds.
“Contrary to statements in sales pitches and eCareer’s corporate filings that the company would use proceeds to grow its business, we allege that Azzata and the barred brokers he hired to sell the stock lined their own pockets at the expense of investors,” said Glenn S. Gordon, Associate Director of the SEC’s Miami Regional Office.
The SEC’s complaint charges eCareer, Azzata, Esposito, DeVito and Birks with violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 along with Rule 10b-5. The SEC’s complaint also charges eCareer Holdings, Inc. for its violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13, and the complaint charges Azzata for aiding and abetting and control person liability for eCareer’s violations among other violations. The SEC seeks disgorgement of ill-gotten gains, prejudgment interest, and financial penalties among other relief for investors. The court has granted the SEC’s request for a temporary restraining order and temporary asset freeze, and temporarily barred Azzata from serving as an officer or director of eCareer Holdings and voting the company’s shares.
Azzata’s wife is named as a relief defendant in the SEC’s complaint for the purposes of recovering investor proceeds diverted to her personal accounts or expenditures.
The SEC also suspended trading in shares of eCareer Holdings due to questions that have arisen about the accuracy and adequacy of publicly disseminated information in its filings. More information about the trading suspension process is available in an SEC investor bulletin on the topic.
The SEC’s investigation, which is continuing, is being conducted by Linda S. Schmidt and Fernando Torres in the Miami Regional Office. The case is being supervised by Jason R. Berkowitz, and the SEC’s litigation is being led by Christopher E. Martin. The SEC appreciates the assistance of Florida’s Office of Financial Regulation.