Editor’s note: This article was first published in July 2014; the CodeSmart share price, the CYNK Technology rally and its market value of 6 billion, and the possible prison sentences cited are figures reported at that time.
Whenever someone asks me why Jordan Belfort was arrested (the real Wolf of Wall Street), I usually answer that it was for something that is still being done in the markets today. Last week another alleged wolf fell. Abraxas J. Discala, CEO of OmniView Capital Advisors, was arrested along with six other people accused of taking part in a conspiracy to artificially inflate the shares of four penny stock companies.
Among those arrested is also the founder of CodeSmart, one of those penny stocks.
In CodeSmart’s case, prosecutors allege that Discala and his “co-conspirators” acquired 3 million shares at $0.02 per share and managed to inflate the share price to as much as $6.94 in 2013, then sold off their stake, sending the company’s share price tumbling. According to the charges, the alleged scheme cost investors more than 50 million, and they were left holding a stock trading below 1 cent. At the time of writing it stands at $0.0038.
According to the charges, to push sales of these shares they used paid press releases in financial media and several stockbrokers who called potential buyers and sold them the shares as the next chance to get rich, based on the supposed prospects of these companies.
According to prosecutors, none of these companies had any real business to speak of, which did not stop them from being worth more than 300 million dollars before they were allegedly sent crashing back down, leaving shareholders trapped.
Those arrested also include a managing director at OmniView, a lawyer who specialises in small-cap companies, two stockbrokers and two executives from two of the companies whose shares were allegedly manipulated.
Discala is 43 years old.
The four penny stocks whose prices were allegedly manipulated are CodeSmart, Cubed, StarStream Entertainment and Staffing Group. According to CNBC, these charges could carry more than 9 years in prison.
Let’s not forget, though, that these are not the only such companies we have heard about in recent days: we still don’t know who is behind CYNK Technology, a shell company whose stock has risen 25,000% in recent months, reaching a market value of 6 billion even though it has no business and no employees.
See also: The truth about penny stocks: the OTC Markets explained
Featured image: Print made by: Anonymous Published by: Pieter Schenk II (?), Public domain, via Wikimedia Commons.
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