A group of men have been convicted in Ohio for participating in a “pump-and-dump” conspiracy involving a penny stock company that proposed to make hemp-infused drinks.
The U.S. Attorney’s Office for the Northern District of Ohio said the scam cost investors roughly $2 million, leading to a combined total of 165 months imprisonment for the conspirators.
A “pump-and-dump” scheme is a financial scam where false information is used to artificially “pump” up the price of a stock. Practitioners issue hyped-up, bogus information through social media channels and online press release services that do not check the information they spread, which often reaches unwitting investors. The schemers then sell – or “dump” – their shares after they reach a higher price. Such a selloff sends the share price crashing, leaving investors with worthless stock.
Defendant Scott Levine was charged with leading the scheme at Global Resource Energy Inc. (GBEN) in which company insiders dealt themselves a massive number of shares at low prices which they later dumped, according to the U.S. Attorney.
According to court documents, GBEN reported more than 77 million shares outstanding and a market capitalization of more than $40 million in June 2020. However, the company’s statements for the period ended March 31, 2020 reflected total revenue of negative $2,116, a net loss of $66,384, and negative retained earnings of roughly $2.4 million.
Secret agreement
Prosecutors said defendant Gary Kouletas and others entered secret agreements with GBEN insiders to hawk the stocks for part of the proceeds through a separate entity, PAG Group.
GBEN was supposedly a health-and-wellness business, offering lifestyle products including a ready-to-drink, hemp-infused cocktail called “Hemp Haze.”
Levine, 45, Delray Beach, Florida, received a prison term of 18 months, while Kouletas, 47, Hasbrouck Heights, New Jersey, received 43 months.
Other defendants charged and convicted, and their prison terms were: Thomas Collins, 50, Weatherford, Texas, sentenced to 37 months; Patrick Thomas, 50, Carrollton, Texas, sentenced to 18 months; Hughe Duwayne Graham, 66, Riverside, California, sentenced to 12 months; and Brian Kingsfield, 54, Costa Mesa, California, sentenced to 37 months. Defendant Tyler Paulson, 62, of Canyon Lake, California, apparently did not receive a prison sentence.
All the defendants pleaded guilty.
‘Manipulative trading techniques’
According to a complaint filed by the U.S. Securities and Exchange Commission, Collins and Thomas obtained control of GBEN in February 2019 through a series of misleading transactions designed to conceal their control of the company through ownership of vast amounts of stock.
The Department of Justice said the pair conspired to defraud investors by issuing millions of shares of GBEN stock to themselves at little to no cost beginning as far back as 2014, and artificially controlling the price and volume of shares “using manipulative trading techniques.” They later sold shares “at fraudulently inflated prices to unsuspecting victims in Ohio and throughout the country.”
50 investors take hit
According to prosecutors, participants in the conspiracy also knowingly made false statements and omissions when they pitched GBEN stock to investors, including concealing the fact that 40% of the victim’s investment went as compensation for the PAG Group’s middlemen.
“As a result of the defendants’ combined fraudulent conduct, nearly 50 identified investors lost more than $2 million after purchasing worthless restricted and free-trading stock,” the Ohio U.S. Attorney said.
So far, the government has recovered over $400,000, which is being distributed to victims for restitution.
It’s not the first go-round with the SEC for some of those convicted in Ohio. The SEC in July 2023 settled administrative and cease-and-desist proceedings against another defendant, Damon Durante, for unregistered broker activity for selling shares of GBEN. And in a separate proceeding, the Commission also filed in the U.S. District Court for the Northern District of Texas, charging Collins, Thomas, Kouletas, Levine, and Kingsfield for their roles in another fraudulent scheme regarding GBEN.
