SEC Charges Former Public Company Chairman and Officers in Fraudulent SEC Filings and $8 Million Pump-And-Dump Scheme
Litigation Release No. 25610 / January 6, 2023
Securities and Exchange Commission v. Andrew DeFrancesco, Marlio Mauricio Diaz Cardona, Carlos Felipe Rezk, Nikola Faukovic, and Catherine DeFrancesco, No. 1:23-cv-00131 (S.D.N.Y., filed January 6, 2023)
The Securities and Exchange Commission today announced charges against five individuals for their roles in a fraudulent scheme to mislead investors about Cool Holdings, Inc., a publicly-traded company.
The SEC alleges that, from at least March 2018 through June 2019, Andrew DeFrancesco, the chairman of Cool Holdings' board, devised and implemented the scheme with Marlio Mauricio Diaz Cardona, Cool Holdings' chief executive officer; Carlos Felipe Rezk, Cool Holdings' chief marketing officer; and Nikola Faukovic, one of DeFrancesco's employees. According to the complaint, DeFrancesco, Diaz, and Rezk made false statements and omitted material information in Cool Holdings' filings with the Commission, including about a critical business relationship, in order to mask Cool Holdings' perilous financial condition and future prospects. The complaint further alleges that DeFrancesco, Diaz and Rezk arranged for the publication of a series of fraudulent promotional articles about Cool Holdings that DeFrancesco secretly funded. In addition, according to the complaint, with Faukovic's assistance, DeFrancesco secretly sold hundreds of thousands of Cool Holdings shares, which he held in the name of nominee entities, and ultimately sold over 1.6 million shares for proceeds of more than $8 million. Further, as alleged in the complaint, DeFrancesco, aided by Faukovic and his ex-wife Catherine DeFrancesco, also concealed his ownership of Cool Holdings shares, including by filing false beneficial ownership reports with the SEC.
The SEC's complaint charges Andrew DeFrancesco with violating the antifraud 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, the registration provisions of Sections 5(a) and (c) of the Securities Act, and the beneficial ownership disclosure provisions of Sections 13(d) and 16(a) of the Exchange Act and Rules 13d-1(a) and 16a-3 thereunder. The complaint also charges Diaz and Rezk with violating certain of the antifraud provisions, and, in the alternative, aiding and abetting certain of DeFrancesco's violations; charges Faukovic with aiding and abetting certain of DeFrancesco's violations; and Catherine DeFrancesco with violating beneficial ownership disclosure provisions of Section 13(d) of the Exchange Act and Rule 13d-1(a) thereunder. The complaint seeks injunctive relief and civil penalties against all defendants, disgorgement and prejudgment interest thereon from Andrew DeFrancesco, Diaz, Rezk, and Faukovic, and officer-and-director bars against Andrew DeFrancesco, Diaz, and Rezk.
The SEC's investigation was conducted by Katherine Bromberg and Danielle Srour of the Division of Enforcement's Retail Strategy Task Force (RSTF), and Melissa Coppola, and was supervised by Michael D. Paley, Hane L. Kim, Chief of the RSTF, and Thomas P. Smith, Jr. The litigation will be conducted by Ms. Bromberg, Ms. Srour, and Pascale Guerrier.