The Securities and Exchange Commission today charged two men behind a scheme that defrauded investors in YaFarm Technologies Inc., a company that purported to provide stem cell therapy.
 
The SEC’s complaint filed in federal court in Boston charged Frank Morelli III, of Florence, Colorado, and Louis Buonocore, of Woburn, Massachusetts, for their roles in the alleged scheme.  In a parallel case, the U.S. Attorney’s Office for the District of Massachusetts today filed a criminal information against Buonocore.  

According to the SEC’s complaint, Morelli and Buonocore concealed their ownership of virtually all of YaFarm’s stock, secretly controlled its operations, and paid stock promoters in 2013 to tout it as a legitimate company with growing operations.  The SEC also alleges that the two caused YaFarm to issue materially false and misleading information about business developments that did not exist, including a March 2013 press release announcing a purported partnership with the Integrative Stem Cell Institute.    

YaFarm’s stock price and trading volume increased as a result of the promotion campaign and Morelli and Buonocore profited from the gains, selling the YaFarm stock they controlled for more than $1.2 million, the SEC alleged in its complaint.

“The charges here outline a scheme by corporate insiders to defraud investors by disguising their role in the company, disguising their control of the company’s shares, and misleading the public about the company’s operations,” said Paul G. Levenson, Director of the SEC’s Boston Regional Office.  “We will continue to work aggressively with our law enforcement partners to detect and punish such frauds, even when elaborate arrangements are used to conceal and disguise the insiders’ involvement.”

The SEC’s complaint charges Morelli and Buonocore with violating antifraud provisions of the federal securities laws and related rules.  Morelli and Buonocore agreed to partial settlements in which they will be permanently enjoined from engaging in further violations of the federal securities laws, prohibited from certain stock promotional activity, barred from serving as officers and directors of publicly traded companies and barred from participating in a penny stock offering.  The partial settlements are subject to court approval.  The SEC also is seeking return of allegedly ill-gotten gains plus interest and penalties, which will be litigated. 
 
The SEC’s investigation was conducted by Eric A. Forni and Mark Albers of the SEC’s Boston Regional Office and supervised by Michele T. Perillo.  The SEC’s litigation will be led by Mr. Forni and Martin F. Healey.  SEC attorney Andrew J. Palid has been appointed a Special Assistant U.S. Attorney in the parallel criminal case.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Massachusetts, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority.