Gana LLP Investigates Craig Josephberg’s Alleged $300 Million Market Scheme

shutterstock_115971289The law offices of Gana LLP are investigating the July 17, 2014, claims brought by securities and exchange commission (SEC) against Craig Josephbergin connection with his participation in a $300 million securities fraud market manipulation scheme. According to the SEC, Abraxas J. Discala (Discala), Marc E. Wexler (Wexler), Matthew A. Bell (Bell), Craig L. Josephberg (Josephberg), and Ira Shapiro (Shapiro), assisted in manipulating the stock price of four publically traded companies, CodeSmart Holdings, Inc. (CodeSmart), Cubed, StarStream Entertainment Inc., and the Staffing Group, Ltd.

According to the complaint, in 2013, Discala and Wexler served as the CEO and President of OmniView Capital Advisors LLC (OmniView) conspired with registered representatives Bell and Josephberg to inflate the price of the stock of CodeSmart. The SEC found that Discala, Wexler, Bell, and Josephberg then profited by selling their shares at inflated values at the expense of Bell’s clients and Josephberg’s customers.

The SEC alleged that defendants accomplished their scheme following CodeSmart’s reverse merger into a public shell company in May 2013, whereby Discala and his associates, including Wexler, Bell, and Josephberg, obtained control of 3,000,000 shares of CodeSmart. Later in May 2013, the SEC found that Discala and Wexler flooded the market with CodeSmart’s shares and found ready buyers in Bell’s advisory clients and Josephberg’s brokerage customers.

For their services, the SEC found that both Bell and Josephberg received 125,000 purportedly unrestricted shares of CodeSmart for pennies in exchange for investing their client and customer base in CodeSmart stock. The SEC found that many of Bell and Josephberg’s clients invested their retirement funds in CodeSmart. In addition, the SEC found that both representatives personally dumped their CodeSmart shares on the market while at the same time purchasing CodeSmart’s stock in the accounts of their clients, sometimes on the same day.

The SEC alleged that neither Bell nor Josephberg disclosed to their clients their financial incentive to purchase CodeSmart shares for them and sold the shares to their clients knowing that the price had been inflated at the direction of Discala and Wexler. The SEC found that the fraudulent scheme was effective in manipulating CodeSmart stock price. For example, on July 12, 2013, CodeSmart stock was $6.94, equating to a market capitalization of over $100 million. By August 30, 2013, CodeSmart’s stock price was just $4.60, or a market capitalization of over $86 million. These valuations had seemingly no relationship to CodeSmart’s true value since the only publicly available financial information for CodeSmart indicated that the company had minimal assets and a loss from operations. In fact, after Discala, Wexler, Bell, and Josephberg reduced their trading CodeSmart’s stock price crashed to below ten cents per share.

The SEC found that Discala and Wexler reaped millions of dollars of illicit gains from their participation in the scheme and Bell and Josephberg both reaped in excess of $500,000 of illicit gains while Shapiro received a $225,000 salary from CodeSmart. Thereafter, in 2014, Discala, Wexler, Bell, and others were alleged to have conspired again to manipulate the securities of two other publicly traded companies, Cubed, Inc. (Cubed) and The Staffing Group, Ltd. (Staffing), by coordinating their trading in the securities of these companies.

The SEC also found that text messages between Discala and Wexler in April 2014, revealed that the two contemplated that Cubed would be an even more profitable scheme than CodeSmart. Cubed stock ultimately increased to $6.58 on June 24, 2014, a market capitalization of $170 million, even though Cubed’s public filings indicated it had minimal assets.

In part II, we will discuss Josephberg’s troubled past.

The attorneys at Gana LLP are experienced in representing investors concerning unfair practices by their financial advisors. Our consultations are free of charge and the firm is only compensated if you recover.