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UPDATE: Feds Move Forward With Stock Spam Cases
Written: September 7, 2011

Some three years ago, on January 3, 2008, a federal grand jury in Detroit unsealed a 41-count indictment charging 11 defendants with an international fraud scheme involving the illegal use of bulk commercial e-mailing.

Stock Spammers Sentenced in Criminal Cases

Those of us who get such unwanted email know it by the term of “spam.” It is not a term of endearment.

Many of the spam e-mails sent by the defendants promoted thinly traded “pink sheet” stocks for U.S. companies owned and controlled by individuals in Hong Kong and China. The spam e-mails contained materially false and misleading information or omissions and were created and sent using software programs that made it difficult to trace them back to the conspirators. The conspirators also engaged in money laundering involving millions of dollars generated by their manipulative stock trading.

Among the charges in the 2008 case were conspiracy, fraud in connection with electronic mail, computer fraud, mail fraud, wire fraud, and money laundering.

Defendants

  • Alan M. Ralsky, 52, of West Bloomfield, Michigan
  • Scott K. Bradley, 46, of West Bloomfield, Michigan
  • Judy M. Devenow, 55, of Lansing, Michigan
  • John S. Bown, 47, of Poway, California
  • William C. Neil, 45, of Fresno, California
  • Anki K. Neil, 36, of Fresno, California
  • James E. Bragg, 39, of Queen Creek, Arizona
  • James E. Fite, 34, of Whittier, California
  • Peter Severa, age unknown, of Russia
  • How Wai John Hui, 49, of Vancouver, Canada and Hong Kong
  • Francis A. Tribble, of Los Angeles, California

Spam

The spamming operation largely focused on running a stock “pump and dump” scheme, whereby the defendants sent spam touting thinly traded Chinese penny stocks, drove up the stocks prices, and profitted from the sales of shares at the resulting inflated prices. Recipients of the schemers’ emails were deceived into opening and acting on the stock promotions through spam that evaded blocking devices through the use of evasive techniques such as

  • falsified “headers” in the email messages,
  • proxy computers to relay the spam,
  • falsely registered domain names to send the spam, and
  • misrepresentations in the advertising content of some of the underlying email messages.

Among the resources the defendants employed to get their message out was the use of a “botnet,” which is a network of “robot” computers that have been infected with malicious software code that in turn would instruct the infected computers to send spam. In deciphering who did what, the feds concluded that

  • Ralsky served as the chief executive officer and primary deal maker for the spam e-mail operation.
  • Bradley, Ralsky’s son-in-law, served as the chief financial officer and director of operations for the spam e-mail operation.
  • Bown, who was chief executive officer of an Internet services company, GDC Layer One, served as the chief technology officer for the spam e-mail operation.
  • Hui, who was the CEO of China World Trade, served as the lead dealmaker representing the companies whose stocks were being promoted via spam e-mail.
  • Tribble planned and directed the stock trading carried out in furtherance of the conspiracy.
  • Devenow served as a manager for the spam e-mail operation and also sent spam emails.
  • William Neil, who was the chief operating officer of Internet services company GDC
  • Layer One, served, created and maintained a computer network used to send e-mail in furtherance of the conspiracy.
  • Bragg and Fite were contract mailers for the spam e-mail operation
  • Patton created, marketed and sold to Ralsky specialized spamming software that the conspirators then used to send out millions of illegal spam e-mails
  • Hui’s primary role in the scheme was to act as a conduit for Chinese companies who wanted their stocks pumped by the scheme.

Sentencing

In November 2009, nine defendants were sentenced in federal court for their roles in the scheme: Alan M. Ralsky, 64, of West Bloomfield, Mich., and Scott Bradley, 48, also of West Bloomfield, were sentenced to 51 months and 40 months in prison, respectively, for conspiring to commit wire fraud, mail fraud, and to violate the Controlling the Assault of Non-Solicited Pornography and Marketing Act (“CAN-SPAM Act”), and also for committing wire fraud, engaging in money laundering and violating the CAN-SPAM Act. Ralsky and Bradley were also each sentenced to 5 years of supervised release following their respective prison terms, and were each ordered to forfeit $250,000 that the United States seized in December 2007.

How Wai John Hui, 51, a resident of Hong Kong and Canada, was sentenced to 51 months in prison for conspiring to commit wire fraud, mail fraud and to violate the CAN-SPAM Act, and also for committing wire fraud and engaging in money laundering. Hui was sentenced to 3 years of supervised release following his prison term, and agreed to forfeit $500,000 to the United States.

John S. Bown, 45, of Fresno, Calif., was sentenced to 32 months in prison for conspiring to commit wire fraud, mail fraud and to violate the CAN-SPAM Act, for conspiring to commit computer fraud by creating a botnet, and also for violating the CAN-SPAM Act. Bown was sentenced to 3 years of supervised release following his prison term, and agreed to forfeit $120,000 to the United States.

Frank Tribble, 42, of Bayside, N.Y., was sentenced to 51 months in prison for conspiring to commit wire fraud, mail fraud and to violate the CAN-SPAM Act, and also for committing wire fraud and engaging in money laundering. Tribble was also sentenced to five years of supervised release following his prison term and agreed to forfeit $500,000 to the United States.

Judy Devenow, 56, of East Lansing, Mich., was sentenced to 18 months in prison for conspiring to commit wire fraud, mail fraud and to violate the CAN-SPAM Act, and also committing a substantive violation of the CAN-SPAM Act. Devenow was also sentenced to three years of supervised release following her prison term and ordered to pay a $7,500 fine.

William Neil, 46, of Fresno, Calif., was sentenced to 35 months in prison for conspiring to violate the CAN-SPAM Act and committing a substantive violation of the CAN-SPAM Act. Neil was also sentenced to three years of supervised release following his prison term and agreed to forfeit $56,000 to the United States.

James Bragg, 40, of Sun Lakes, Ariz., was sentenced to 12 months and one day in prison for conspiring to commit wire fraud, mail fraud and to violate the CAN-SPAM Act, and also committing a substantive violation of the CAN-SPAM Act. Bragg was also sentenced to three years of supervised release following his prison term and agreed to forfeit $120,000 to the United States.

James Fite, 36, of Culver City, Calif., was sentenced to 12 months and one day in prison for conspiring to commit wire fraud, mail fraud and to violate the CAN-SPAM Act, committing a substantive violation of the CAN-SPAM Act and making a false statement to federal agents. Fite was also sentenced to three years of supervised release following his prison term and agreed to forfeit $20,000 to the United States.

David Patton, 49, of Centreville, Va., was sentenced to one day in prison for aiding and abetting Alan Ralsky and others in committing substantive violations of the CAN-SPAM Act. Patton was also sentenced to one year of supervised release following his prison term and was ordered to forfeit $50,100 to the United States, which was paid in full today. He also was ordered to pay a $3,000 fine.

Anki Neil and Peter Severa are also named as defendants in the indictment returned in the Eastern District of Michigan and their cases are still pending.

NOTE: The indictment is merely an allegation, and Defendants Neil and Severa are presumed innocent unless and until proven guilty in a court of law.

Stockbroker Berger

On February 1, 2011, an indictment was unsealed against Detroit stock broker Gregg M. Berger, 47, that charges him with one count of conspiracy to commit securities fraud and wire fraud in connection with an alleged scheme to illegally pumping and dumping thinly-traded Chinese and Israeli stocks. Among the named conspirators are

  • Alan Ralsky,
  • Francis Tribble,
  • How Wai John Hui, and
  • Scott Bradley

NOTE: The indictment is merely an allegation, and Defendant Berger is presumed innocent unless and until proven guilty in a court of law. Berger is charged with carrying out a sophisticated stock fraud scheme from January 2005 through December 2007, during which it is alleged that he caused the sale of approximately 30 million shares of stock, generating approximately $30 million for his co-conspirators and more than $600,000 in commissions for himself.

The stocks artificially inflated and then sold by Berger and his co-conspirators allegedly included:

  • China World Trade Corporation,
  • Pingchuan Pharmaceutical Inc.,
  • China Digital Media Corporation,
  • World Wide Biotech and Pharmaceutical Co.,
  • China Mobility Solutions, and
  • m-Wise.

Berger is charged with acting as the stockbroker for the conspiracy and opening brokerage accounts that facilitated the trading in the subject shares. Allegedly, Berger executed stock trades at the direction of co-conspirator Tribble rather than at the direction of those in whose name he had opened the subject accounts. Thereafter, it is alleged that Berger transferred the trading proceeds to bank accounts controlled by the conspirators. Allegedly, without the authorization of the actual account holders, Berger routinely provided confidential account information, including trade amounts, prices, cash balances and wire transfer details to Tribble, Bradley and others involved in the scheme. Ralsky, Tribble, Hui and Bradley have all been previously convicted and sentenced for their roles in the case. If convicted, Berger faces a maximum penalty of 25 years in prison, and a $250,000 fine. The government is also seeking a forfeiture of the criminal proceeds. Berger is scheduled to be arraigned on Feb. 8, 2011.

SEC Case

On February 1, 2011, the U.S. Securities and Exchange Commission (SEC) filed civil fraud charges against 11 individual and corporate defendants and sought permanent injunctions, disgorgement and civil penalties, and a penny stock bar against Berger for violations of the antifraud and registration provisions of the securities laws. Securities And Exchange Commission, Plaintiff, Versus Gregg M.S. Berger, Francis A. Tribble, How Wai Hui A.K.A. John Hui, Kwong-Chung Chan A.K.A. Bernard Chan, Xiaoqing Du A.K.A. Angela Du, Global Peopleline Telecom, Inc., Chi Shing Ng A.K.A. Daniel Ng, China Digital Media Corporation, Mordechai Broudo Shay Ben-Asulin, and M-Wise, Inc., Defendants. (ED Michigan, 11-CV-10403, February 1, 2011). The SEC’s fraud cases targets the operators of an alleged $33 million international microcap stock scheme involving the stocks of eight small U.S. companies headquartered in the People’s Republic of China, Canada, and Israel. The SEC charged the following corporate insiders for their participation in the pump-and-dump schemes and for engaging in a fraudulent scheme to conceal the sales of millions of shares of their companies’ securities:

  • Xiaoqing Du (a.k.a. Angela Du), who is a dual citizen of Canada and China and CEO and director of Global Peopleline Telecom Inc.
  • Chi Shing Ng (a.k.a. Daniel Ng), who is a citizen and resident of Hong Kong and CEO and director of China Digital Media Corp.
  • Shay Ben-Asulin, who is a citizen and resident of Israel and former Chairman of m-Wise Inc.
  • Mordechai Broudo, an Italian citizen and resident of Israel and former CEO of m-Wise.

The three companies charged are China Digital, Global Peopleline, and m-Wise.Similar to the allegations in the prior criminal cases, the SEC’s complaint alleges that Tribble masterminded the pump-and-dump schemes with respect to five of the companies, and arranged for the spam e-mail campaigns for two other companies. Berger, a long-time friend of Tribble, is charged with having played a central role in the schemes by arranging for the pump and dump of m-Wise and facilitating the sales of millions of shares in all eight companies through nominee brokerage accounts. Similarly, the SEC alleges that John Hui and Bernard Chan also played key roles in the fraudulent schemes by finding U.S. public shell companies to use in bringing private Chinese companies public through reverse mergers; and by arranging for the deposit and sale of stock through nominee brokerage accounts, and coordinated the transfer of the unlawful trading proceeds to pay for the spam e-mail campaigns among other things.The SEC seeks permanent injunctions, disgorgement and financial penalties against Berger and Chan for violations of the antifraud and registration provisions, and against Angela Du and Global Peopleline for violations of the antifraud, registration, and reporting provisions of the federal securities laws. The SEC also seeks an officer and director bar against Du, and penny stock bars against Berger, Chan, and Du.

SEC Settlements

Without admitting or denying the SEC’s allegations, Tribble, John Hui, Daniel Ng, Ben-Asulin, Broudo, m-Wise, and China Digital have agreed to settle the charges against them. The settlements are pending final approval by the court.

Tribble agreed to a final judgment permanently enjoining him from violating federal securities laws and also agreed to pay disgorgement of $2,549,520 and prejudgment interest of $349,208. Tribble consented to be barred from participating in an offering of any penny stock.

John Hui agreed to a final judgment permanently enjoining him from violating federal securities laws and from aiding and abetting violations. Hui agreed to pay disgorgement of $681,117 and prejudgment interest of $162,717. Hui also agreed to be barred from acting as an officer or director of a public reporting company and from participating in an offering of any penny stock.

Daniel Ng agreed to a final judgment permanently enjoining him from violating federal securities laws and from aiding and abetting violations. Ng also consented to be barred from acting as an officer or director of a public reporting company and from participating in an offering of any penny stock.

China Digital agreed to a final judgment permanently enjoining it from violating federal securities laws and also agreed to pay disgorgement of $200,000.

Ben-Asulin and Broudo agreed to a final judgment permanently enjoining them from violating federal securities laws and from aiding and abetting violations. Ben-Asulin and Broudo agreed to be barred from acting as officers or directors of a public reporting company and from participating in an offering of any penny stock.

m-Wise agreed to a permanent injunction from further violations of federal securities laws.m-Wise, Ben-Asulin, and Broudo agreed to pay, jointly and severally, disgorgement of $400,000.

UPDATE (Defendant Berger/Federal Criminal Case)

In April 2011, Berger pleaded guilty to conspiring to commit securities fraud and wire fraud. Federal prosecutors asserted that Berger caused the sale of approximately 30 million shares of stock, generating approximately $30 million for the co-conspirators and over $600,000 in commissions for himself. As part of his plea, Berger acknowledged that he established brokerage accounts at the direction of Hui and Tribble, and communicated with Ralsky and Bradley during the conspiracy.

Berger characterized his role in the scheme as:

  • trading the stocks that were illegally promoted by spam email campaigns;
  • arranging for the transfer of the subject shares into the referenced brokerage accounts;
  • executing unauthorized stock trades at the direction of Tribble (and not at the behest of the actual account holders);
  • causing the transfer of the stock proceeds to bank accounts controlled by the conspirators; and
  • providing without authorization from the actual account holders confidential account information (e.g., trade amounts, prices, cash balances and wire transfer details) to Tribble, Bradley and others involved in the scheme.

On September 6, 2011, Berger was sentenced in federal court in Detroit to 24 months in prison; and ordered to serve three years of supervised release following his prison term. Also, Berger agreed to forfeit $600,000 to the United States.


Topics: Spam  Ralsky  Berger  Can-Spam  
 
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