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Financial Crimes
03/22/2013

2 Florida residents found guilty of orchestrating 'pump-and-dump' stock fraud schemes

NEWARK, N.J. – Two Florida residents were found guilty Thursday of orchestrating so-called 'pump-and-dump' stock fraud schemes. The investigation was conducted by U.S. Immigration and Customs Enforcement's (ICE) Homeland Security Investigations (HSI), Drug Enforcement Administration (DEA) and Internal Revenue Service (IRS), Criminal Investigation.

David Levy, 60, and Donna Levy, 57, both of Fort Lauderdale, Fla., were convicted of conspiracy to commit wire fraud and securities fraud. The charges are part of their efforts to orchestrate multi-year pump-and-dump schemes involving two companies that they helped take public: Cardiac Network Inc., which has traded under symbol CNWI; and Banneker Inc., which has traded under symbol BANI.

At sentencing, David Levy faces a maximum sentence of 85 years in prison and a fine of over $5 million in addition to forfeiture of the proceeds of the crimes. Donna Levy faces a maximum sentence of 70 years in prison and a fine of over $5 million, in addition to forfeiture of the proceeds of the crimes.

David Levy and Donna Levy offered to help start-up companies obtain financing, take the start-up companies public and coordinate marketing and investor relations for the companies, in exchange for company shares. David Levy was also found guilty of participating in an international money laundering scheme.

Once the companies had gone public, Donna Levy put out press releases on behalf of the target companies, and worked with David Levy to secretly fund and distribute misleading third-party 'buy' recommendations concerning the targeted companies.

This misleading promotional campaign – along with other manipulative conduct – caused demand for stock in the targeted companies, and the price of the stock to rise. They and their co-conspirators took advantage of the 'pumped-up' stock trading volume and prices to 'dump' their shares into the market until the misleading promotional campaign had run out of steam.

They repeated the scheme multiple times until the target companies' shares were essentially valueless, thereby harming company founders and executives as well as innocent investors who bought in reliance on the misleading promotional campaigns they orchestrated.

David Levy was also convicted of securities fraud in connection with his efforts to orchestrate a multi-year pump-and-dump scheme involving a third company that he helped take public: Greenway Design Group Inc., which has traded under symbol GDGI. Evidence presented at trial demonstrated that David Levy awarded himself secret shares in GDGI in the name of a Panamanian shell company maintained by a money launderer.

Additionally, David Levy was convicted of a money laundering conspiracy for his efforts to conceal more than $2.3 million in proceeds from the fraudulent schemes in Panamanian shell company bank accounts maintained at a bank in Panama.

In connection with the scheme, David Levy wire transferred $150,000 in fraud proceeds to a Panamanian shell company bank account through a bank account in New York. He took $2 million in cashier's checks – representing proceeds from stock fraud to Panama – and deposited it into the shell company bank account.

Donna Levy was also convicted of securities fraud arising from her participation in a manipulation-for-hire scheme. Donna Levy was paid by others who were interested in 'dumping' large holdings of penny stocks into the market, or through intermediaries, to post or fund misleading stock buy recommendations on purportedly independent stock analysis websites and email newsletters.

Participants in the scheme would also engage in manipulative trading activity concerning stocks that they were paid to help manipulate. They did so knowing that their conduct would help pump up the prices of the stocks they were manipulating, so that they could sell and make quick profits from unsuspecting investors who would be harmed once the secretly-funded manipulative campaign ended and the stock crashed.

Donna Levy was convicted of conspiracy to commit wire and securities fraud, and of committing securities fraud, in connection with her efforts to orchestrate a pump-and-dump scheme as a manipulator for hire in connection with a purported company called Emerging World Pharma Inc., which has traded under symbol EWPI.

A sentencing date has not yet been set for either defendant.