SEC Charges Five Individuals in Microcap Fraud Scheme
Litigation Release No. 24516 / June 27, 2019
Securities and Exchange Commission v. Henry Sargent et al., No. 19-cv-11416 (D. Mass.)
The Securities and Exchange Commission today charged five individuals in a scheme that used nominee shareholders to fraudulently register the public sale of microcap company securities.
As alleged in the SEC's complaint, Henry Sargent, a Connecticut resident, created BMP Holdings Inc. and issued BMP shares to friends, family, and co-workers for the purpose of manufacturing shares to be sold later on public markets. To register the public sale of these shares, attorney Joseph Tomasek, a New Jersey resident, allegedly helped Sargent file BMP's Form S-1, which falsely stated that BMP shareholders had acquired their shares for investment purposes and that Sargent did not control the shares. New York residents Patrick Giordano, Frederick Mintz, and Alan Fraade then helped Sargent and Tomasek facilitate the merger of BMP into PixarBio Corporation, a private company that the SEC previously charged along with three other individuals. The defendants allegedly transferred the fraudulently registered BMP shares to Sargent, Giordano, and M. Jay Herod, a defendant in the PixarBio litigation. Sargent and Giordano allegedly made over $1 million from the sale of BMP to PixarBio, and the sale of the fraudulently registered shares into the public market.
The complaint, filed in the U.S. District Court for the District of Massachusetts, charges Sargent, Tomasek, Giordano, Mintz, and Fraade with violations of the anti-fraud provisions of 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 and the registration provisions of Sections 5(a) and 5(c) of the Securities Act. The complaint further charges Tomasek with aiding and abetting Sargent's violations of the antifraud provisions, and Giordano with aiding and abetting violations of the antifraud provisions by Mintz and Fraade. The SEC's complaint seeks permanent injunctions, disgorgement plus prejudgment interest, civil penalties, cancellation of Sargent's and Giordano's remaining PixarBio stock, and penny stock bars.
The SEC's case is being handled by Jonathan Allen, Sofia Hussain, Frank Huntington, and Amy Gwiazda of the Boston Regional Office, with assistance from Robert Nesbitt in the SEC's Washington, D.C. Office of Market Intelligence.