Liberty Silver manipulation case cleared for trial
SEC defendant Genovese loses motion to dismiss
ONTARIO’S BOBBY Genovese has lost a motion to dismiss civil charges that he faces from the U.S. Securities and Exchange Commission over the manipulation of Liberty Silver Corp. in 2012. He had argued that the charges were unacceptably vague and fell short of making a case for securities fraud. Unfortunately for Mr. Genovese, a New York judge has determined that the allegations are sufficient for trial.
The ruling is part of a case in which the SEC cited Mr. Genovese for his sale of $17.5-million worth of Liberty Silver shares. (All figures are in U.S. dollars.) The regulator had accused him of tout-
ing the stock without disclosing his sale of millions of shares. Among other things, he arranged for promotional newsletters and enlisted the help of a New York brokerage to boost the company, the SEC said.
Mr. Genovese had asked that the judge drop the case, saying the SEC provided so few details that the matter was not worth taking to trial. In a motion to dismiss filed on Feb. 2, 2018, he contended that there was nothing to indicate that he misled anybody in selling his Liberty Silver shares. He claimed that he had repeatedly disclosed his interest in the company. Mr. Genovese also questioned if any rational investor would stay away from the stock simply because he intended to sell his shares for a profit.
The matter landed before U.S. District Court Judge Richard Sullivan, who has ruled entirely against Mr. Genovese. In a relatively brief decision, dated June 29, 2018, the judge has determined that parts of the SEC’s case, in legal speak, “clearly satisfy the material-
ity elements” as well as the “particularity requirement.” In other words, the allegations are strong enough to proceed.
The de ci sion mean s that the SEC can pursue the matter to trial and, if successful, obtain civil penalties against Mr. Genovese. It also gives more leverage to the SEC in any settlement discussions. Should the case go to trial, the SEC would still have make its case, of course, and the ruling is not indicative of what the outcome of such a trial may be.
The judge’s ruling applies to Mr. Genovese and to one of his co-defendants, a former New York brokerage employee named Abraham “Avi” Mirman. The SEC says that Mr. Mirman helped the scheme by selling shares for Mr. Genovese without making any reasonable inquiry. Mr. Mirman had argued that there was nothing to indicate his participation was substantial or necessary, but the judge found the SEC’s description of his role sufficient. That trial will hear allegations that the SEC set out in a civil complaint filed on Aug. 1, 2017, in the Southern District of New York. The case centred around the 2012 manipulation of Liberty Silver, a purported exploration company. At the time Liberty Silver traded on the Toronto Stock Exchange and on the OTC Bulletin Board. (It has since rolled back 1:15 and is now known as Bunker Hill Mining Corp. The company is not a defendant in the case.)
The SEC claimed that Mr. Genovese was behind an effort to tout the stock through newsletters and through presentations to brokers. According to the SEC, he told a group of brokers in New York that he expected Liberty Silver to go to $7. He failed to disclose that he was a substantial shareholder and that he planned to sell his stock, the SEC said. Around the same time, Mr. Genovese was arranging to have newsletter writers publish promotional pieces about Liberty Silver, the SEC claimed. One unidentified Canadian newsletter writer received a $30,000 set of speakers for his efforts, according to the complaint.
The SEC further accused Mr. Genovese of executing wash trades in support of the scheme, with those trades beginning on Oct. 3, 2012. The trading boosted the stock by 10 cents to $1.43, the SEC claimed. Two days later, on Oct. 5, 2012, the SEC ended the scheme by imposing a trading halt on Liberty Silver. By that time, Mr. Genovese had sold $17.5-million worth of shares, generating an $8-million profit, according to the complaint.
Of the shares that Mr. Genovese sold, many came from an offshore brokerage that he used, Verdmont Capital SA, according to the complaint. He held an account there in the name of a Panamanian entity, Outlook Investments. (Verdmont is no longer in business. The firm, which was run by two former Vancouver brokers, ceased operations after the SEC charged it for share sales unrelated to Liberty Silver. The regulator said that it sold millions of shares during questionable promotions in 2013. Verdmont denied any wrongdoing, but in early 2016 it went out of business and later stopped defending the case. The SEC won a $38.5-million sanction by default. The B.C. Securities Commission also began an administrative case against Verdmont and its two founders, former Vancouver brokers Glynn Fisher and Taylor Housser. To settle that case, Verdmont agreed to pay $350,000 (Canadian). The BCSC dropped the case against Mr. Fisher and Mr. Housser.)
The SEC is seeking a penny stock ban, appropriate civil penalties, disgorgement of gains and an order barring future violations by Mr. Genovese and Mr. Mirman.