SEC Press press_release 8 KB 4,961 chars

Press Release: SEC Charges Two With Securities Fraud in $4.4 Million Market Manipulation and Kickback Case

Release: 2007-197
Caption: Securities and Exchange Commission v. Cheryl Scarboro, et al.

summary

Paul Harary and Douglas Zemsky orchestrated a $4.4 million market manipulation scheme using shell companies SSLX and AFHJ, artificially inflating stock prices via matched orders and paying $1M+ in kickbacks to a Florida broker, leaving customers with $3.8M in losses, after which Harary pleaded guilty to criminal conspiracy and both settled SEC charges with $4.1M in disgorgement and permanent trading bans.

paragraph

Paul Harary and Douglas Zemsky were charged by the SEC with securities fraud for manipulating the market of two over-the-counter shell companies, Secure Solutions Holdings (SSLX) and American Financial Holdings (AFHJ), using pre-arranged matched orders to inflate stock prices. Harary controlled the supply of unrestricted shares, generated over $4.4 million in illicit proceeds, and paid more than $1 million in kickbacks to an unnamed Florida stockbroker who fraudulently sold the worthless shares to customers, causing approximately $3.8 million in losses. In a parallel criminal case, Harary pleaded guilty to conspiracy to commit mail and wire fraud, while both he and Zemsky settled the SEC’s civil action without admitting guilt, agreeing to permanent injunctions, penny stock bars, an officer/director bar for Zemsky, and disgorgement of $4 million and $97,000 respectively.

narrative

Paul Harary and Douglas Zemsky were charged by the SEC with orchestrating a $4.4 million market manipulation and kickback scheme involving two over-the-counter shell companies, Secure Solutions Holdings (SSLX) and American Financial Holdings (AFHJ), which were quoted on the Pink Sheets. Zemsky identified and acquired the shell companies and coordinated the initial artificial trading, while Harary controlled the supply of unrestricted shares and used pre-arranged matched orders to inflate stock prices. A Florida-based stockbroker, not named in the documents, fraudulently induced brokerage customers to purchase these worthless shares, resulting in approximately $3.8 million in losses to investors, while Harary reaped over $4.4 million in proceeds and distributed more than $1 million in kickbacks via cash and checks. The scheme was uncovered after the SEC suspended trading in SSLX in July 2005 due to misleading press releases about the company’s management and corporate status. In a parallel criminal case, Harary pleaded guilty to conspiracy to commit mail and wire fraud in the U.S. District Court for the District of Columbia. Without admitting or denying the allegations, both Harary and Zemsky settled the SEC’s civil case, agreeing to permanent injunctions against future securities law violations, penny stock bars, an officer and director bar for Zemsky, and disgorgement of $4 million and $97,000 respectively, plus prejudgment interest. The SEC credited its investigation to collaboration with the U.S. Attorney’s Office, FBI, Postal Inspection Service, FINRA, and the British Columbia Securities Commission.

Enriched metadata

Scheme: market-manipulation (100%)
Court: District of Columbia
Outcome: pleaded
Disgorgement: $97,000
Victim loss: $4,400,000

Classified market-manipulation(confidence 100%). EDGAR detection: forms SC 13D/G/13F· recall 53% / precision 9%. detection rule →

Extracted insights

Dollar amounts 6

$4.40M $4.4 Million $1M–$10M
$4.40M $4.4 million $1M–$10M
$4.00M $4 million $1M–$10M
$3.80M $3.8 million $1M–$10M
$1.00M $1 million $1M–$10M
$97K $97,000 $10K–$100K

Entities 11

person cheryl scarboro
person complex fraud
scheme_term conspiracy to commit mail and wire fraud
scheme_term discovery of multi-million dollar market manipulation and kickback scheme
person florida stockbroker
scheme_term harary pleaded guilty to conspiracy to commit mail and wire fraud
scheme_term more than $1 million in kickbacks through a series of cash handoffs and checks
person settled enforcement action
person shell companies
person trading suspension
person unrestricted shares

Triples 25

Securities and Exchange Commission Filed Settled Enforcement Action
Securities and Exchange Commission Started Trading Suspension
Trading Suspension Led To Discovery Of Multi-Million Dollar Market Manipulation And Kickback Scheme
Securities and Exchange Commission Unraveled Complex Fraud
Securities and Exchange Commission Brought Perpetrators To Justice
Cheryl Scarboro Added Allegations Of Losses Of $3.8 Million
Harary Acquired Control Of Two Shell Companies
Harary Created Artificial Market For Companies' Common Stock
Zemsky Identified And Purchased Shell Companies
Zemsky Coordinated Matched Orders To Start Trading At Pre-Arranged, Artificial Price
Florida Stockbroker Created Demand For Stock In The Two Firms
Harary Controlled Supply Of Unrestricted Shares
Harary Sold Unrestricted Shares
Harary Made More Than $4.4 Million In Proceeds On Sales Of These Stocks
Harary Provided More Than $1 Million In Kickbacks Through A Series Of Cash Handoffs And Checks
Customers Of The Florida Stockbroker Were Left With Worthless Shares Of The Shell Companies
Customers Of The Florida Stockbroker Lost Approximately $3.8 Million
U.S. Attorney For The District Of Columbia Announced Harary Pleaded Guilty To Conspiracy To Commit Mail And Wire Fraud
Harary Pleaded Guilty To Conspiracy To Commit Mail And Wire Fraud
Harary And Zemsky Consented To Entry Of Final Judgments Permanently Enjoining Each From Violating The Antifraud And Securities Registration Provisions Of The Federal Securities Laws
Harary And Zemsky Imposed Penny Stock Bars Against Each
Zemsky Imposed Officer And Director Bar
Harary Directed To Pay Approximately $4 Million In Disgorgement And Prejudgment Interest
Zemsky Directed To Pay Approximately $97,000 In Disgorgement And Prejudgment Interest
Commission Issued Order Suspending Trading In SSLX Common Stock For Ten Days

View original SEC press releasesec.gov

Extracted body text (4,961c)

SEC Charges Two With Securities Fraud in $4.4 Million Market Manipulation and Kickback Case Guilty Plea Entered in Parallel Criminal Case FOR IMMEDIATE RELEASE 2007-197 Washington, D.C., Sept. 24, 2007 - The Securities and Exchange Commission today filed a settled enforcement action against Florida residents Paul Harary and Douglas Zemsky for their involvement in an alleged $4.4 million market manipulation and kickback scheme that defrauded customers of a Boca Raton brokerage firm. "The Commission's action started with a trading suspension in an over-the-counter stock because of concerns about representations made in the company's press releases," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "The trading suspension led to the discovery of a multi-million dollar market manipulation and kickback scheme, which caused great harm to a number of brokerage customers, as alleged in the Commission's Complaint. By following the loose threads in the trading suspension, the SEC and other law enforcement agencies were able to unravel a complex fraud. Today's action brings two of its perpetrators to justice and demonstrates the Commission's continuing commitment to rooting out fraud in the over-the-counter market." Cheryl Scarboro, Associate Director of the SEC's Division of Enforcement, added, "The allegations, which include losses of $3.8 million when brokerage customers were left with worthless shell-company shares, illustrate the real harm that results from schemes to manipulate the market." The SEC's complaint alleges that in 2004 and 2005: Harary, 43, and a Florida stockbroker defrauded the stockbroker's customers by acquiring control of two shell companies, creating an artificial market for those companies' common stock, and manipulating the price of that stock using pre-arranged matched orders. Another perpetrator, Zemsky, 44, identified and purchased the shell companies and coordinated matched orders to start the trading in one of them at a pre-arranged, artificial price. The Florida stockbroker created the demand for the stock in the two firms by purchasing it for his firm's customers, while Harary controlled the supply of the unrestricted shares and sold them. Other investors, who purchased shares of one of the shell companies on the open market but who were not customers of the brokerage firm, also lost money because Harary manipulated the share price of that company's stock. Harary made more than $4.4 million in proceeds on his sales of these stocks and then provided the Florida stockbroker more than $1 million in kickbacks through a series of cash handoffs and checks. The customers of the Florida stockbroker were left with worthless shares of the shell companies and lost approximately $3.8 million. According to the SEC's complaint, the two shell companies were Secure Solutions Holdings, Inc. (SSLX) and American Financial Holdings, Inc. (AFHJ). Each traded on the over-the-counter market and was quoted on the Pink Sheets. The U.S. Attorney for the District of Columbia announced that Harary pleaded guilty to conspiracy to commit mail and wire fraud in a parallel criminal action brought in the United States District Court for the District of Columbia. See United States v. Harary, Crim. No. 07-Cr.-209 (EGS) (D.D.C.). Without admitting or denying the allegations in the complaint, Harary and Zemsky consented to the entry of final judgments: (1) permanently enjoining each from violating the antifraud and securities registration provisions of the federal securities laws; (2) imposing penny stock bars against each; (3) imposing an officer and director bar against Zemsky; and (4) directing Harary to pay approximately $4 million and Zemsky to pay approximately $97,000 in disgorgement and prejudgment interest. Previously, on July 15, 2005, the Commission issued an Order suspending trading in SSLX common stock for ten days because of questions about the accuracy of representations in SSLX's press releases concerning, among other things, the identity of the management and directors of the company and the status of its corporate organization. See Securities Exchange Act of 1934 Release No. 52037 (July 15, 2005). The Commission acknowledges the assistance of the U.S. Attorney's Office for the District of Columbia, the Federal Bureau of Investigation, the United States Postal Inspection Service, NASD (now known as the Financial Industry Regulatory Authority), and the British Columbia Securities Commission. The Commission's investigation in this matter is ongoing. The Commission has published guidance for investors concerning investments in microcap stocks: http://www.sec.gov/investor/pubs/microcapstock.htm. # # # For more information, contact: C. Joshua Felker Assistant Director SEC Division of Enforcement 202-551-4960 Additional materials: Litigation Release No. 20293 http://www.sec.gov/news/press/2007/2007-197.htm Home | Previous Page Modified: 09/24/2007

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