Another former Stratton Oakmont Inc. broker has been accused of a scam — this time with investors duped out of $131 million by buying stock in a worthless LED lighting distributor.
It may seem like a repeat of an old story involving the Long Island boiler room where brokers got rich on empty promises. The firm was made famous in the film “Wolf of Wall Street,” with Leonardo DiCaprio playing Stratton Oakmont founder Jordan Belfort. But the pump-and-dump made famous by Mr. Belfort didn't go away.
Christopher Castaldo, the former Stratton Oakmont broker, was one of nine financial professionals charged Tuesday with helping make investors believe a company called ForceField Energy Inc. was worth hundreds of millions of dollars. In reality it had “essentially no business operations and very little revenue,” making the stock worthless, Brooklyn U.S. Attorney Robert Capers said in a statement on the arrests.
Jared Mitchell, a managing partner of investor relations at Mitchell & Sullivan Capital LLC, was allegedly this group's version of Belfort. ForceField hired Mr. Mitchell, 34, to recruit a network of registered brokers who would stuff their clients' accounts with ForceField stock, in exchange for kickbacks, according to prosecutors.
The brokers and promoters pumped the stock at investor conferences and in the media, according to prosecutors. One of them, Herschel Knippa III, discussed the company in 2014 on Fox Business Network's “Varney & Co.” Mr. Knippa got kickbacks from July 2014 to March 2015 for promoting the stock, prosecutors said.
According to the indictment, when Mr. Knippa was asked on “Varney & Co.” whether he owned shares of ForceField, he lied and said: "You bet I do. I put my money where my mouth is."
Mr. Castaldo, who is founder of StockTradersPress Inc. and Wall Street Buy Sell Hold Inc., is accused of promoting ForceField to potential investors in telephone calls, in person and in published investment research reports. Mr. Castaldo solicited more than $600,000 in purchases of ForceField stock from more than 40 investors, and didn't fully disclose his commissions, according to the indictment.
Mr. Knippa garnered more than $1.9 million in private placements from at least 10 investors, according to prosecutors. Also known by the nickname "Tres," Mr. Knippa was the owner and head trader of Dallas-based Kenai Capital Management LLC, a commodities trading firm.
“In the end, the deceived investors were left holding the empty bag,” Mr. Capers said.
A contact number for Mitchell & Sullivan on the firm's website has been disconnected.
Mr. Castaldo isn't the first former Stratton Oakmont employee to get in trouble since the firm's collapse. A broker who got his start there was accused in 2014 by Massachusetts regulators of excessive trading in the account of an 81-year-old client.
The financial professionals faces charges including securities fraud, conspiracy to commit securities fraud, wire fraud, money laundering and making a false statement to law enforcement officials over manipulation of ForceField Energy shares, which were listed on the NASDAQ exchange. The company is currently valued at $357,000. A call placed to its headquarters wasn't immediately returned.
The stock promotion and market manipulation ended up costing investors $131 million, prosecutors said.
The arrests of the alleged squad of brokers followed charges brought last year against Richard St-Julien, the former chairman of the purported lighting provider. U.S. officials accused him of scheming to boost the company's share price in part by making secret payments to conspirators through a firm based in Belize. The case is pending.
The case is U.S. v. Mitchell, 16-cr-234, U.S. District Court, Eastern District of New York (Brooklyn).