SEC Charges 11 in 2 Stock-Selling Cases
May 3, 2012 (The Miami Herald) The Securities and Exchange Commission on Wednesday filed civil suits against 11 people allegedly involved in two separate schemes to illegally sell stock, including one that took advantage of the dire situation in Haiti following the 2010 earthquake. Settlements totaling $3.2 million have been reached with six of the defendants, who neither admitted not denied the SEC's allegations.
The SEC alleges that Kevin Sepe of Miami directed both schemes, which involved two small-capital companies -- Miami-based Recycle Tech, which was reportedly in the business of converting shipping containers into homes, and Fort Lauderdale-based HydroGenetics, which supposedly was in the business of acquiring emerging alternative energy companies.
Sepe allegedly had the help of three attorneys, including Aventura-based Ronny Halperin, a former CEO and director of HydroGenetics, who collectively reaped more than $3.5 million in illegal profits, according to the SEC's suits, filed in federal court in Miami.
"Sepe, Halperin and others chose to ignore the laws governing stock sales and play by their own set of rules," said Eric I. Bustillo, director of the SEC's Miami office. "Some of these individuals were attorneys and corporate officers who should have known better."
According to the SEC, the Recycle Tech scheme was a "pump and dump" scenario -- using a promotional campaign to pump up the price and volume of the company's stock in the wake of the Haiti earthquake, so that those involved in the scheme could then sell the shares and earn profits.
The SEC alleges that the campaign touted that Recycle Tech signed a binding letter of intent to build up to 50 container homes in Haiti following the earthquake. However, Recycle Tech failed to disclose to investors that it had no funds, no finished container homes and minimal operations, the SEC said.
Sepe orchestrated, coordinated and funded the scheme and sold Recycle Tech stock along with Halperin and a Utah attorney, without any exemption from registering those securities with the SEC, the SEC said.
Attorneys for Sepe and Halperin responded to the allegations.
"With neither admitting nor denying the SEC's allegations, which did not include an allegation that Mr. Sepe directly violated the anti-fraud provisions of the federal securities laws, Mr. Sepe opted to resolve this matter," said David R. Chase, Sepe's attorney.
Richard E. Brodsky, attorney for Halperin, said Halperin "is happy that this matter is behind him and he looks forward to continue to provide representation to his clients and to provide quality services to his clients."
The HydroGenetics scheme, the SEC said, allegedly involved taking millions of unregistered shares of the company and improperly converting its debt into shares that were dumped on the investing public.
According to the SEC, Sepe and Halperin, with the help of a Miami-based attorney, illegally issued and liquidated 90 million unregistered shares of HydroGenetics from April 2008 until at least June 2009.
Sepe headed a group that purchased convertible debt of a South Florida publicly-held company, then formed HydroGenetics and parsed out portions of the convertible debt to friends, family and others who converted it to stock that they then sold publicly, the SEC said.
Sepe sold HydroGenetics stock without any exemption from registering the securities with the SEC, and Halperin allegedly executed corporate resolutions to help issue millions of shares of HydroGenetics stock, including 11 million shares to his daughter who he told to sell it and funnel a portion of the illegal proceeds back to him, the SEC said.
"The SEC's sole charge against Mr. Sepe was that he allegedly sold securities in violation of the registration requirements of the federal securities laws," his attorney, Chase, said in an email. "With neither admitting nor denying this allegation, Mr. Sepe agreed to resolve the case. Notably, Mr. Sepe was not charged with fraud, and was not alleged to have engaged in any fraudulent conduct."
The SEC alleges that three other Miami residents also received illegal profits in the HydroGenetics scheme, including Howard Ettelman, a provider of accounting services to various companies and Seth Eber, a self-employed jeweler.
"Certainly Mr. Eber had no intention to violate the U.S. securities laws," said Walter Mathews, partner with Fort Lauderdale-based Mathews Wallace.
Benjamin Brodsky, attorney with Coffey Burlington in Miami, said Ettelman "is pleased to resolve the complaint regarding his sale of unregistered shares."
In settling the charges, Sepe agreed to pay $1,416,466.16 plus $126,761.86 in interest and $185,000 in penalties. He is permanently barred from participating in an offer or sale of penny stocks.
Halperin agreed to pay $427,609.95, plus $33,595.33 in interest and a $100,000 penalty. He is also permanently barred from participating in a sale of penny stocks, barred for five years from serving as a company officer and director, and must surrender 1.97 million shares of HydroGenetics stock.
Settlements from four others totaled more than $653,832.
Bustillo said his office will continue to aggressively pursue those who violate securities laws. "The message is," he said, " "You'd better be careful because more than likely we're going to be looking at these things.' "