FBI sting nabs 13 in alleged kickback scheme

December 2, 2011

The Boston Globe on December 1, 2011 released the following:

“By Todd Wallack

The US government yesterday charged 13 corporate executives, lawyers, and penny stock promoters with agreeing to pay illegal kickbacks, the result of a yearlong FBI sting operation run out of Massachusetts.

As part of the sting, an undercover FBI agent pretended to work for a local office of a New York hedge fund in an unnamed Boston suburb, according to government documents. The agent then approached both companies and intermediaries, offering to arrange for his fund to invest up to $5 million in the firms – under the condition that the companies secretly kick much of the money back to him.

Authorities said the agent met with about 30 individuals in the Boston area office from October 2010 through August 2011.

The government filed criminal charges against executives of two Massachusetts companies: Michael Lee, 51, of Hingham, chief executive of ZipGlobal Holdings Inc., a former telecommunications firm in Hingham now focused on lighting products; and Paul Desjourdy, 50, of Medfield, chief executive of Symbollon Corp./Symbollon Pharmaceuticals Inc., a specialty biotechnology firm in Medfield. Both were charged with mail fraud and conspiracy to commit securities fraud.

Eleven other defendants from across the country were charged with fraud, including Edward Henderson, 69, of Lincoln, R.I. Henderson, who helps firms obtain financing, allegedly arranged for the agent posing as a hedge fund representative to meet Desjourdy in hopes of receiving a portion of the kickback.

The Securities and Exchange Commission also filed civil charges against Lee, Desjourdy, and Henderson, alleging they manipulated trading in microcap stocks – shares of companies with a small market value that are typically traded over the counter, rather than on better-known exchanges such as Nasdaq Stock Market or the New York Stock Exchange.

Lee’s attorney, Thomas Brant, said his client was “shocked and devastated’’ by the charges, but declined to comment further. Desjourdy’s lawyer declined to comment. Henderson’s attorney could not be reached.

As result of the investigation, the SEC suspended trading of Symbollon, ZipGlobal, and five other thinly traded public companies. ZipGlobal last traded at 3 cents a share before being suspended. Symbollon last traded for less than a penny a share.

David Bergers, director of the SEC’s Boston office, said it is important to thwart kickback schemes – even involving small companies – because they can hurt investors. A tainted hedge fund investment could artificially drive up a firm’s stock price, forcing other investors to pay more for shares or misleading them about the company’s potential.

“Although the stock price for these companies may be low, the damage can be very high,’’ Bergers said.

US Attorney Carmen Ortiz said the case was novel because FBI agents were able to partner with the SEC to use undercover strategies more common to drug and public corruption cases than securities.

“It’s really important that the markets operate in a fair and honest fashion,’’ Ortiz said. “We hope it serves a deterrent factor so that others will not engage in this kind of criminal activity.’’”

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Douglas McNabb – McNabb Associates, P.C.’s
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Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition and OFAC SDN Sanctions Removal.

The author of this blog is Douglas McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


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