Ontario OTC-BB scheme draws U.S. fraud charges
SEC files case over Ecoland International
THE U.S. Securities and Exchange Commission has filed civil fraud charges over the manipulation of an Ontario OTC Bulletin Board company, Ecoland International Inc., that went to $1.24 from 11.2 cents in a 10-day span. (All figures are in U.S. dollars.) The regulator claims that a group of men boosted the stock with misleading spam and matched trades. At the same time they dumped $3.29-million worth of shares, according to the SEC.
The allegations are contained in a civil complaint filed on Sept. 29, 2016, in the Eastern District of Pennsylva-
nia. The defendants include Mississauga resident Bernardino “Dino” Paolucci Jr., 38, who is listed as the operator of a group of touting websites. These include pennyplayersclub.com, insanepennies.com and marketbulls.com.
The scheme, as described by the SEC, took place in 2011 and early 2012. According to the complaint, in July, 2011, Mr. Paolucci arranged for a private auto parts company that he controlled to go public on the OTC Bulletin Board through a merger. The deal was structured in a way that gave him and his associates control over more than 90 per cent of the stock of the resulting company, the SEC claims.
To generate interest in the largely dormant company, the men arranged a promotional campaign that included spam and news releases that Mr. Paolucci drafted, the SEC says. The spam, as quoted in the complaint, contained the nonsense typically found in such messages. Among other things, it stated: “ECIT is our next WINNER and you do not want to miss out. There is no doubt about it, this stock is headed for the moon.” The messages also bragged that “previous recommendation letters have turned $5,000 into $50,000 in less than 1 month!”
What the spam did not disclose, according to the SEC, was that the men responsible for the messages also had control over nearly all of Ecoland’s stock. It also did not say that they were busy selling into the interest they were creating, the SEC claims. Instead the spam falsely stated that the promoter received only a fixed fee (such as $100,000).
Meanwhile Ecoland’s volumes were rising substantially. During a particularly busy four-week promotional period in early 2012 the company traded an average of 3.6 million shares a day, up from 51,694 in the prior four-week period, the complaint states. The stock also reached its peak during that period, hitting $1.24. (Within three months it fell to 13 cents.)
Aiding the spam was a series of matched trades the men arranged, the SEC claims. Those trades, as described by the SEC, took place between at least 12 outside individuals that the men had hired. On many days their activity accounted for most of the company’s volume, according to the complaint.
Over a five-month period, the men generated at least $3.29-million selling Ecoland shares, the SEC claims. The bulk of this money, $2.05-million, went to Mr. Paolucci, the SEC says. The remainder was split amongst his co-defendants.
The complaint names the others as Don Rose, 59, of New York; Frank Morelli, 60, of Colorado; Jeremy Draper, 39, of New York; and Louis Buonocore, 61, of Massachusetts. Two of the men, Mr. Morelli and Mr. Buonocore, have prior criminal records for securities fraud. Mr. Morelli is awaiting sentencing for the manipulation of a company called Super Nova Inc. The Super Nova scheme also included Mr. Buonocore, who pleaded guilty to those charges on Nov. 19, 2015. His criminal record includes an 18-month sentence that he received in a securities fraud case from 2000.
The SEC is seeking disgorgement of ill-gotten gains and appropriate civil penalties. It is also seeking penny stock bans for Mr. Paolucci, Mr. Rose and Mr. Draper.