CHAIRMAN OF BOSTON-BASED BIOMEDICAL
COMPANY ARRESTED IN STOCK-FRAUD SCHEME
BOSTON – The chairman of a Boston-based biomedical company was
arrested this morning on charges arising out of his participation in a scheme
to defraud the market for the publicly traded stock of the company.
Edward Withrow, III, 51, of Malibu, Calif., was charged in U.S.
District Court in Boston with one count of conspiracy, one count of securities
fraud, two counts of wire fraud, and two counts of making false
statements. Withrow’s co-conspirator, Marco Babini, 54, was charged with
one count of conspiracy, one count of securities fraud, and two counts of wire
fraud. Babini, who is believed to reside in Vancouver, Canada, remains at
large.
In a parallel action, the Securities and Exchange Commission (SEC)
announced securities fraud charges today against Withrow, Babini, and a third
individual, Samuel Brown, in connection with the scheme. In addition, the
SEC charged Withrow with failing to disclose his stock holdings in accordance
with federal rules and regulations.
According to the indictment, in November 2012, Withrow became the
chairman of Endeavor Power Corporation (Endeavor), a Boston-based biomedical
company focused on infectious diseases, and became a significant owner of
Endeavor’s stock. Around that time, Withrow, Babini and at least one
other individual, allegedly orchestrated a promotional campaign and engaged in
manipulative trading designed to inflate investor interest in Endeavor’s
publicly traded stock. At that time, Withrow and Babini concealed their
significant control over Endeavor’s publicly traded stock from potential
investors. In March 2013, the SEC suspended trading in the securities of
Endeavor, which stopped the scheme in progress. Thereafter, when Withrow
was questioned under oath by SEC attorneys about the Endeavor scheme, he lied
about his and others’ involvement.
The charges follow a multi-year investigation focusing on
preventing fraud in the microcap stock markets. Microcap companies are
small publicly traded companies whose stock often trades at pennies per
share. Fraud in the microcap markets is of increasing concern to
regulators as such markets have proven to be fertile grounds for fraud and
abuse. This is, in part, because accurate information about microcap
stocks may be difficult for the average investor to find, since many microcap
companies do not file financial reports with the SEC.
Today’s charges follow a series of cases filed by the SEC and the
U.S. Attorney for the District of Massachusetts in which more than 20
individuals have been criminally charged and convicted for using kickbacks and
other schemes to trigger investment in, or manipulate the stock of,
thinly-traded stocks.
The charge of conspiracy and securities fraud provides a sentence
of no greater than 25 years in prison, three years of supervised release, and a
fine of $250,000, or twice the gross gain or loss. The charge of wire
fraud provides a sentence of no greater than 20 years in prison, three years of
supervised release, and a fine of $250,000, or twice the gross gain or
loss. The charge of making false statements provides a sentence of no
greater than five years in prison, three years of supervised release, and a
fine of $250,000, or twice the gross gain or loss. Actual sentences for
federal crimes are typically less than the maximum penalties. Sentences
are imposed by a federal district court judge based upon the U.S. Sentencing
Guidelines and other statutory factors.
U.S. Attorney Ortiz and Acting SAC Bonavolonta made the
announcement today. The criminal case is being prosecuted by Assistant
U.S. Attorney Eric Christofferson of Ortiz’s Economic Crimes Unit and SEC
Attorney Eric A. Forni, who was appointed as a Special Assistant U.S. Attorney.
The details contained in the indictment are allegations. The
defendants are presumed to be innocent unless and until proven guilty beyond a
reasonable doubt in a court of law.
This case was brought in coordination with President Barack
Obama’s Financial Fraud Enforcement Task Force. President Obama
established the interagency Financial Fraud Enforcement Task Force to wage an
aggressive, coordinated, and proactive effort to investigate and prosecute
financial crimes. The task force includes representatives from a broad
range of federal agencies, regulatory authorities, inspectors general, and
state and local law enforcement who, working together, bring to bear a powerful
array of criminal and civil enforcement resources. The task force is
working to improve efforts across the federal executive branch, and with state
and local partners, to investigate and prosecute significant financial crimes,
ensure just and effective punishment for those who perpetrate financial crimes,
combat discrimination in the lending and financial markets, and recover
proceeds for victims of financial crimes. For more information about the
task force visit:www.stopfraud.gov.
