Broker Christopher 'Smitty' Cervino and investment adviser Sheik F. Khan defrauded investors out of million of dollars, according to the U.S. Attorney's Office.
This story was updated on March 20, 2018
A broker and investment adviser have been sentenced to prison for their roles in a securities fraud scheme involving the shares of a publicly traded company, VGTel Inc.
Broker Christoper "Smitty" Cervino last week was sentenced to one year and one day in prison, and investment adviser Sheik F. Khan, also known as Abida Khan, was sentenced to 53 months, according to a press release from the U.S. Attorney's Office for the Southern District of New York. The two were sentenced after they were convicted in a three-week jury trial.
The two "created a massive web of lies to defraud investors of millions of dollars," according to Manhattan U.S. Attorney Geoffrey S. Berman. "They manipulated the market, and their clients' trust, to ensure they made money. Thankfully their days of deceptive trading and investing are over, and they will spend time in prison for their crimes."
According to the press release, the fraud scheme was conceived and led by Edward Durante, a recidivist securities fraud defendant, who pled guilty in August 2016 to various crimes related to the scheme, including conspiracy, securities fraud, money laundering, and perjury.
As part of the scheme, Mr. Durante, along with defendants Mr. Cervino and Ms. Khan, conspired to control and manipulate the public stock of VGTel in order to artificially inflate the stock price and trading volume so as to profit from sales of VGTel stock and to further induce investments in private shares of the company, according to the release.
The defendants' efforts to artificially inflate the market for VGTel increased the stock price from approximately 25 cents per share to as much as $1.90 during the course of the scheme, and dramatically inflated the trading volume, which increased the defendants' abilities to raise private investments in VGTel and to unload shares controlled by Mr. Durante at artificially high prices at the expense of victim investors, the release said.
To compensate Mr. Cervino for his efforts to control and manipulate the market in VGTel, Mr. Durante made at least two cash payments to him totaling $35,000, in addition to the substantial commissions he received for executing trades in VGTel, the release stated.
For her part, Ms. Khan received more than $400,000 from Mr. Durante, including more than $100,000 in payments for liquidating her clients' investments in safe annuities so that the money could then be invested into VGTel, according to the release.
In total, Mr. Cervino purchased more than $3.5 million of VGTel shares in client accounts controlled by Ms. Khan or Mr. Durante. The VGTel shares were ultimately worthless and clients lost the entirety of their investments, the release said.
