Feds Get Guilty Verdict In Social Media Shareholders' Kickbacks To FBI Agent

August 21, 2012

FBI New agent training.

FBI New agent training. (Photo credit: Wikipedia)

This story starts out with a credible enough idea: Dolphin Digital Media, Inc. creates secure social networking websites for children. We've all read about the predators on too many sites frequented by children.  Facebook, Twitter, Google+, and other sites often need careful parental monitoring. So, Dolphin Digital Media seemed to have been on to something. What's not to like about dolphins and kids, right?

Well, sometimes, when you have the cute dolphins and adorable kids in the water, a nasty old Great White Shark decides it's time for a snack.

Enter stockbroker Robert Mouallem, 57, Boca Raton, FL. Also, swimming onto the scene is Pino Baldassare, 53, Indialantic, FL, who was a substantial shareholder of and held the following titles at Dolphin Digital Media, Inc.:

  • President from May 15,2007 until March 20,2009;
  • Chief Executive Officer from May 15,2007 until June 25, 2008.

Federal Criminal Case

Following his departure from Dolphin in March 2009, federal prosecutors alleged that Baldassare and another Dolphin shareholder met with an individual ("John Doe") who claimed to have access to a network of stockbrokers who managed client brokerage accounts, over which the brokers had discretionary trading authority. Apparently, the two shareholders were looking to dump their Dolphin shares, which traded on the Over The Counter Bulletin Board. John Doe suggested that for a 30% kickback of the sale proceeds, he could arrange for the purchase of the two Dolphin shareholders' shares by the network.

Baldassarre and the other shareholder arranged for stockbroker Mouallem, who was aware of the kickback set-up, to act as their sell-side stockbroker with Doe's network. In March and April 2010, Baldassarre, the other shareholder, and Mouallem orchestrated five test sales  - it was their understanding that Doe's network matched their discretionary accounts' buy orders to Baldassare's and the other shareholder's sell orders. Apparently satisfied with the results, Baldassarre paid the promised kickback to John Doe.

Ahhh, but there was this one, little catch. You see, John Doe was an undercover special agent of the Federal Bureau of Investigation. Oops.

On August 20, 2012, a federal jury in Brooklyn, NY found Baldassarre and Mouallem guilty on conspiracy, securities fraud, and commercial bribery charges. The convicted defendants face a maximum sentence of 25 years' imprisonment on the most serious charge.

SEC Civil Complaint

A separate Securities And Exchange CommissionComplaintSEC v. Baldassare, Mouallem, and Stockdale  (EDNY, 11-5970,December 7, 2011) names the additional shareholder as Malcolm Stockdale, 66, Prince Edward Island, Canada, who is described as the owner of Winterman Group Ltd., a Canadian limited liability company that purported to be a holding company involved in private equity investments and financial services.

The SEC Complaint characterizes the fraudulent scheme as having contemplated the sale of 7 million shares of Dolphin worth at least $3 million. Further, the test sales appear to have been for a net total of 105,000 of Baldassare's and Stockdale's shares worth about $38,100, on which a kickback of $11,440 was paid.

One of my favorite paragraphs in the Complaint, is the one that gives us a glimpse at just how the kickback was planned and fleshed out:

27. During the January 11 meeting, Mouallem told CW that he expected to be compensated in cash for his part of the scheme, saying: "[Let me put it to you this way ... I meet Pino [Baldassarre] or you guys or somebody one day, and all of a sudden I find an envelope in my car, oh well, I found an envelope in my car I can't do anything with stock if you so happen to lose money or something and I find it, ok."

Bill Singers Comment

Federal prosecutors seems to suggest that Baldassare was fired by Dolphin but I found this August 28, 2009, press release, which put a somewhat different spin on things. In pertinent part, the release stated:

[A]s previously disclosed in March 2009, Pino Baldassarre stepped down after two years of helping to build Dolphin Digital Media (formerly Logica Holdings) from a start-up enterprise to a leading developer of Internet safety technology operating in the entertainment, digital media, and e-commerce sectors. Pino Baldassarre, a specialist in technology startup companies, worked to oversee the merger of the two companies, and the completion of the merger created a practical transition point for new management.

"I believe this was an ideal time to transfer executive management responsibilities to a new chief executive with broad entertainment and digital mediamanagement experience and the ability to take Dolphin Digital Media to new levels of success. We weathered the economic downturn and emerged in a strong position to seize a number of great opportunities. I feel confident that I am leaving at a time when Dolphin Digital Media is strong, healthy and poised for growth," said Pino Baldassarre.

"Pino was instrumental to the formation of Logica Holdings, the predecessor company to Dolphin Digital Media," said Bill O'Dowd, Chief Executive Officer of Dolphin Digital Media, Inc. "We wish Pino the best of luck in his future endeavors," O'Dowd said. . .

Finally, in reading about the convictions of Baldassare and Mouallem; and the SEC's case against them and Stockdale, I realized that it seemed like deja vu all over again.  In searching through my prior "Street Sweeper" columns, I found:

Hmmm . . . lemme see here, another undercover FBI agent, another 30% kickback deal, another Canadian defendant, the lovely state of Florida. I doubt it's a coincidence.

Frankly, congrats to the FBI.  It's about time that someone understood the concept of proactive regulation! Amazin', ain't it?  You throw some bloody chum on the waters and all sorts of stuff comes floatin' up to the surface.