According to prosecutors and the U.S. Securities and Exchange Commission, a Californian has been arrested for federal securities fraud after making more than $ 9 million by manipulating penny stock prices and targeting retail investors.
Charlie Abujudeh, 48, and his associates used deceptive promotional campaigns and “high pressure selling tactics” from August 2019 until at least September 2020 to falsely inflate stock prices and offload stocks at profit, according to one civil complaint filed Thursday by the SEC in Brooklyn Federal Court.
Federal prosecutors, in a separate criminal complaint and arrest warrant, charged Abujudeh with using devices and schemes to defraud and engaging in practices designed to deceive investors and potential investors.
Abujudeh was arrested Thursday in California, a spokesperson for the U.S. Attorney’s Office in Brooklyn confirmed to CNBC.
Man’s alleged market manipulation tactics highlight how vulnerable stocks traded in the OTC market and their investors are to fraud schemes.
In August 2019, Abujudeh bought 2.5 million shares of a company called Odyssey Group International, authorities said. Odyssey is purported to be a medical products and health technology company. Its shares are publicly traded in the over-the-counter market for less than a dollar.
Abujudeh bought the shares in Odyssey for a total of around $ 100,000, according to the complaints. At the time, he would have controlled around 98% of the shares available for trading.
“The backbone of Abujudeh’s schemes was his control over almost all of the stock deposited with brokerage firms and available for public trade (the ‘float’) for each of these securities. This control allowed him to manipulate the market for these securities using a variety of deceptive tactics, ”the SEC said.
At the end of July 2020, Abujudeh sold all of those Odyssey shares, making around $ 2.6 million in revenue, according to the complaints.
In addition to Odyssey shares, Abujudeh has also set up similar programs with at least two other microcap companies called Scepter and CannaPharmaRx, according to the SEC. The man generated $ 3.2 million in proceeds by selling his Scepter shares and an additional $ 3.3 million by offloading his CannaPharmaRx shares.
The Federal Bureau of Investigation used informants to obtain phone calls and texts exposing Abujudeh’s market manipulation practices with Odyssey shares, according to an affidavit from an FBI special agent.
According to the affidavit, Abujudeh and his conspirators hired people he said had access to a call room – a deal that identified potential investors and contacted them by phone or email to convince them to ‘buy stocks. However, the individuals believed to be logged into the call room were actually cooperating with the FBI, the special agent said.
The call room made “false and misleading statements to investors and potential investors,” according to the affidavit.
In one example, the call room operation used “aggressive and deceptive selling tactics” to convince a victim investor to liquidate their holdings in a diversified retirement fund on a target date and buy Odyssey shares with money, the FBI agent said. The victim-investor would have lost more than $ 39,000 because of the ordeal.
In addition to the call room, Abujudeh funded a digital marketing campaign to promote Odyssey shares to potential investors through newsletters and websites containing misleading statements or omissions, according to the complaints.
Abujudeh and his associates also coordinated matched trades to inflate the share price, according to the complaints. Matched trades are pre-scheduled purchases and sales of stocks that fraudulently inflate a stock’s trade volume, creating a false demand for the stock that drives up the stock price. Sellers generally agree to pay the buyer a portion of the profits from the related transaction.
The accused fraudster allegedly sold shares to the FBI and wired thousands of dollars to the agency, which he believed to be a bribe in exchange for an equivalent transaction.
Abujudeh’s LinkedIn account identifies him as the owner of the Lake Forest Bodycentre. The Orange County Register reported that Abujudeh lost his license to operate a spa called Lake Forest Bodycentre in California in 2007 over allegations of prostitution.
He could not be reached for comment.
—Dan Mangan of CNBC contributed reporting.
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