Securities and Exchange Commission v. Nicholas Louis Geranio, et al. Civil Action No. CV-12-4257-DMG (JCx) (C.D. Cal.)
South Florida Investment Adviser and Broker/Dealer Fraud and Misrepresentation Litigation and FINRA Arbitration Attorney, Russell L. Forkey, Esq.
SEC CHARGES U.S. PERPETRATORS IN $35 MILLION INTERNATIONAL BOILER ROOM SCHEME
The Securities and Exchange Commission recently announced that the SEC filed an action against SEC recidivist Nicholas Louis Geranio, Keith Michael Field, The Good One, Inc. and Kaleidoscope Real Estate, Inc. for their roles in a $35 million scheme to manipulate the market and to profit from the issuance and sale of certain U.S. companies’ (“Issuers'”) stock through offshore boiler rooms. The scheme ran from approximately April 2007 to October 2009.
According to the SEC’s complaint, the scheme worked as follows: Geranio organized eight U.S. Issuers, installed management (including Field), and entered into consulting agreements with them through his alter-ego entities The Good One and Kaleidoscope. Geranio then allegedly set up a common system to raise money through the Issuers’ sale of Regulation S shares to offshore investors by boiler rooms that Geranio recruited. Field allegedly drafted materially misleading business plans, marketing materials, and website material for the Issuers, which the offshore boiler rooms provided to investors as part of their fraudulent solicitation efforts.
The complaint further alleges that Geranio directed traders, including Field, to engage in matched orders and manipulative trades to establish artificially high prices for at least five of the Issuers’ stock and to deceptively convey to the market the impression that legitimate transactions had created bona fide prices for the stock. According to the complaint, this manipulation of the publicly-traded stock price allowed the boiler rooms to sell the Regulation S shares at a higher price to the overseas investors. The complaint alleges that the boiler rooms, teams of unregistered telemarketers operating mostly from Spain, used high-pressure sales tactics and materially false statements and omissions to induce the investors (many of them elderly and located in the United Kingdom) to buy the Issuers’ Regulation S stock. Investors then sent their money to U.S.-based escrow agents, who paid 60% to 75% of the approximately $35 million in proceeds to the boiler rooms as their sales markups, kept 2.5% as their fee, and paid the remaining proceeds to the Issuers. The Issuers (or in some cases the escrow agents) then funneled approximately $2.135 million of the proceeds of the Regulation S sales to Geranio, through The Good One and Kaleidoscope, and paid Field approximately $279,000.
The SEC filed its action in the U.S. District Court for the Central District of California, alleging that: Geranio, Field, The Good One and Kaleidoscope violated Sections 17(a)(1) and (3) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5(a) and (c) thereunder; Field also violated Section 17(a)(2) of the Securities Act and aided and abetted the Issuers’ violations of Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder; and Geranio also is liable as a control person of The Good One and Kaleidoscope under Exchange Act Section 20(a). The SEC seeks in its action permanent injunctions, disgorgement plus prejudgment interest, civil penalties, and penny stock bars against all defendants, and also officer and director bars against Geranio and Field. The complaint further seeks disgorgement and prejudgment interest against relief defendant BWRE Hawaii, LLC based on its alleged receipt of investor funds.
The Issuers from April 2007 through October 2009 were: Green Energy Live, Inc.; Spectrum Acquisition Holdings, Inc.; United States Oil & Gas Corp.; Mundus Group, Inc.; Blu Vu Deep Oil & Gas Exploration, Inc.; Wyncrest Group, Inc.; Microresearch Corp.; and Power Nanotech, Inc.
In 2000, the United States District Court for the Central District of California enjoined Geranio from future violations of the antifraud and securities registration provisions of the federal securities laws as part of his settlement of an enforcement action that the SEC brought against him and California Laser Company. See Litigation Release No. 16628 (July 14, 2000).