The US Securities and Exchange Commission (SEC) has charged seven individuals in connection to an alleged pump-and-dump stock scheme.
On March 2, SEC said that investors in a technology company were defrauded out of $45 million through the scam, in which Kalistratos "Kelly" Kabilafkas secretly controlled Simi Valley, Calif.-based Airborne Wireless Network, a publicly-traded company.
Kabilafkas quietly purchased "essentially all the outstanding stock" of a shell company, Ample-Tee, which became Airborne Wireless in 2016.
Shares were then distributed to other parties. In total, "millions" of shares were carved up and brokerages were "deceived" into transferring shares into other participants' names, dumping them into brokerage accounts, and then selling them on to other investors.
SEC has named other alleged participants in the scheme. Timoleon "Tim" Kabilafkas is Kelly's father; Chrysilios Chrysiliou allegedly provided the funds for Kelly to purchase the Ample-Tee shell; Panagiotis Bolovis is Kelly's brother-in-law, and Moshe Rabin has been connected to the alleged deposit and sale of Airborne Wireless stock. Eric Scheffey, another claimed share recipient, was also named in the complaint.
The group operated a scheme between August 2015 and roughly May 2018, together with the help of Airborne Wireless executive Jack Daniels, to inflate the share price of Airborne Wireless and promote the stock -- all while hiding the firm's true control structure.
Daniels is described by SEC as a "nominee" chief executive, while Kabilafkas truly held the power in the company.
According to the complaint (.PDF), millions of dollars were spent on advertisements to push up share prices -- before the defendants allegedly dumped their stock on an unwitting market. SEC says they were able to make $23 million in profit.
SEC alleges that "much" of the profit "was kicked back to benefit the Kabilafkas family." The proceeds were allegedly used to purchase Californian real estate to generate a rental income, resolve tax liabilities, and to purchase luxury cars.
At the same time, the company also raised $22.8 million in funds from investors, through public and private offerings, based on allegedly "false and misleading statements."
"At no time during the scheme did Kabilafkas, Airborne, or Daniels disclose Kabilafkas's role as a control person or the fact that, while Airborne was raising money from investors, he and his associates were dumping millions of shares into the public market," US prosecutors claim.
The complaint has been filed in the US District Court for the Southern District of New York and charges each alleged participant with antitrust violations within federal securities laws.
SEC is pursuing civil penalties, the disgorgement of any financial gains considered fraudulent -- as well as interest -- and injunctions.
One of the defendants, Rabin, has agreed to settle without admitting or denying the agency's claims. If approved by the court, Rabin faces a $125,000 penalty and a penny stock bar.
"Kabilafkas orchestrated a wide-ranging scheme to deceive gatekeepers, conceal from investors the true ownership of a public company, and then manipulate the company's stock," said Jennifer Leete, Associate Director of the SEC's Enforcement Division. "The SEC is committed to unraveling frauds to protect investors."
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