(Updates with U.S. attorney in fourth paragraph.)
July 17 (Bloomberg) -- The chief executive officer of an investment firm, and ex-husband of an actress on “The Sopranos,” was accused by the U.S. of running a scheme to manipulate the stock of a startup company advised by former New York Governor David A. Paterson.
Abraxas J. Discala, CEO of OmniView Capital Advisors, and six other individuals including investors, brokers and an attorney were charged in a 10-count indictment unsealed today in federal court in Brooklyn, New York.
The defendants are accused of participating in a conspiracy to profit by artificially inflating the stock of four companies, including CodeSmart Holdings Inc., which OmniView advised. The founder of New York-based CodeSmart, Ira Shapiro, was also charged in the case.
The market value of the companies, which had virtually no assets or business activity, soared as high as $300 million before values fell “to the basement,” Brooklyn U.S. Attorney Loretta Lynch said today in a press conference. The participants “dumped” the stocks in part by placing them in unsuspecting investors’ retirement accounts, she said.
“These licensed professionals were supposed to ensure the market’s integrity and shepherd investors to safe returns,” Lynch said. Instead they “duped the market into thinking these companies were worth millions.”
Discala, 43, was at one time married to Jamie-Lynn Sigler, who played Meadow Soprano on the HBO series. CodeSmart had retained OmniView in 2013 to assist with capital and transaction strategy, the company said in a statement. The firm, which says on its website it helps train health-care workers how to code medical issues on forms, announced in March that Paterson had joined its advisory board.
Neither Paterson nor Sigler were accused of any wrongdoing in the case.
Penny stocks, trading at low values a share, are particularly vulnerable to manipulation schemes because “it’s very easy for people to buy up large amounts,” Lynch said.
Last year, seven other individuals were charged in Brooklyn federal court with taking part in a separate $140 million fraud scheme, in which penny stocks were sold to victims in as many as 35 countries, according to prosecutors. In January, the alleged orchestrator of another pump-and-dump scheme involving penny stocks, David Levy, was sentenced to nine years in prison in Manhattan federal court.
Now trading over the counter at less than 1 cent a share, CodeSmart rose as high as $6.94 a year ago. Investors lost as much as $50 million as a result of manipulation of the stock, Lynch said. Investigators who were probing the incident were able to avert similar losses in other companies involved in the alleged scheme, Lynch said.
The SEC said it halted trading today in another company involved in the case, Cubed Inc.
The defendants reaped profits by making share purchases that helped drive up the price and then dumping the stock at its peak in a scheme that ran from October 2012 to this month, according to the government. The defendants also touted the inflated stock through press releases, SEC filings and client calls by brokers who are accused of participating in the conspiracy, prosecutors said.
The SEC filed a separate civil case against five of the defendants, including Discala and Shapiro, over alleged manipulation of three of the four companies, describing the conspiracy as “a sophisticated scheme executed by a ring of individuals” to “generate millions of dollars in illegal proceeds.”
A representative who answered a phone call placed to the Rowayton, Connecticut, office of OmniView declined to comment on the case. An e-mail to CodeSmart was not immediately returned.
An attempt to reach Paterson through the New York State Democratic Committee, where he is state chairman, didn’t bring a response.
Lynch described Discala as the “leader of this band of thieves.” The defendants were all arrested and four are expected to appear in Brooklyn federal court later today, according to the government. Discala and another defendant were arrested in Las Vegas, according to the government. Another defendant was arrested in Texas.
“Anyone who knows A.J. is shocked by these allegations. And that is exactly what they are, merely allegations,” said Joe Tacopina, a lawyer for Discala.
The investigation was conducted in part through a wiretap of Discala’s phone, on which he was heard instructing other members of the scheme, Lynch said.
In one recorded conversation, he told another defendant, “I’m Yoda, you are Obi-Wan,” Lynch said.
In a conversation about CodeSmart, Discala said the stock “should be in the hall of shame, but at one point it was in the hall of fame,” according to prosecutors.
The case is U.S. v. Discala, 14-cr-00399, U.S. District Court, Eastern District of New York (Brooklyn).