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Description: Brooklyn, New York criminal law lawyer represented Defendant charged with stock fraud.
Craig Josephberg, a former registered broker who worked at multiple brokerage firms in New York, New York with abusinghis position as a registered broker to victimize both his customers and the investing public through an expansive fraud scheme to manipulate the stock price of multiple companies for his own financial benefit., stated United States Attorney Peace. “This prosecution and sentence shows that licensed professionals will be held to account when they deceive their customers and harm investors,” stated United States Attorney Peace.
Mr. Peace expressed his thanks to the Federal Bureau of Investigation, New York Field Office (FBI), and the United States Securities and Exchange Commission, New York Regional Office, for their invaluable efforts in the case.
The evidence at the trial of his co-conspirator Abraxas Discala established that Josephberg and his co-defendants participated in two schemes to manipulate the stock price of CodeSmart and Cubed as part of an overarching conspiracy to commit securities, mail and wire fraud with respect to the Manipulated Public Companies.
Josephberg’s co-defendant Abraxas Discala purported to raise capital for private start-up companies and offered to take them public through reverse mergers with public shell companies in exchange for obtaining control of a large portion of the free trading or unrestricted stock. Josephberg, Discala and their co-conspirators, including co-defendants Ira Shapiro, Marc Wexler, Matthew Bell, Victor Azrak, Darren Goodrich, Darren Ofsink and Michael Morris, then artificially inflated that stock through manipulative trading and promotional campaigns, generating large profits for themselves at the expense of unwitting investors. Josephberg, a registered investment advisor, sold inflated shares in the Manipulated Public Companies to his clients, ultimately leaving them with worthless shares while he made approximately $700,000 in trading profits, as well as additional commission income.
The CodeSmart Scheme
In early May 2013, Discala and his co-conspirators engineered a reverse merger of CodeSmart, a private company, with a shell public company. After gaining control of CodeSmart’s unrestricted shares, Discala and his co-conspirators on two occasions, fraudulently inflated CodeSmart’s share price and trading volume and then sold the unrestricted CodeSmart stock at a profit when the share price reached desirable levels. Shapiro, the Chief Executive Officer of CodeSmart, issued numerous press releases, including press releases with false information to facilitate inflating CodeSmart’s stock price. The defendants fraudulently manipulated CodeSmart’s stock price from $1.77 to a high of $6.94 on July 12, 2013, leading to an inflated market capitalization of over $85 million.
The co-conspirators, including Josephberg, profited by selling CodeSmart stock, issued to them at pennies, to their clients and customers. On some occasions, Josephberg had his customers buy CodeSmart shares without his customers’ knowledge and consent. Additionally, Josephberg sold CodeSmart shares in his personal trading accounts at the same time that he purchased CodeSmart stock in his customers’ accounts.
Josephberg, Discala, Wexler, Bell, Ofsink and Morris made more than $6 million in illicit trading profits from the CodeSmart scheme, and the co-conspirators caused more than $12.5 million in losses to approximately 900 CodeSmart investors who purchased the publicly traded stock.
The Cubed Scheme
In March 2014, Discala and his co-conspirators took Cubed public through an asset purchase agreement by a shell public company. After gaining control of all of Cubed’s unrestricted shares, between April 22, 2014 and April 30, 2014, Discala and his co-defendants, including Josephberg, Wexler, Bell, Goodrich and Azrak, fraudulently created trading volume in Cubed stock by purchasing more than 50% of the total number of Cubed shares purchased during this period. The defendants also were able to successfully control the price and volume of Cubed’s stock. Josephberg both purchased and placed bids on Cubed stock at specific prices to help manipulate the stock price and create the appearance of false demand. On June 23, 2014, Cubed reached its highest closing price of $6.75 per share, resulting in a market capitalization of approximately $200 million. Investors who bought publicly traded Cubed stock lost over $400,000. In addition, Cubed was able to raise over $2 million in a private offering of stock to investors who were deceived by how Cubed stock was performing in the market. Discala and Wexler also made over $1 million worth of illegal private sales of Cubed stock to over three dozen investors. Discala and his co-conspirators caused more than $4 million in total losses to approximately 100 Cubed investors.
Discala, who was convicted after a trial, was previously sentenced to 138 months imprisonment and ordered to pay $16,346,023 in restitution. The remaining convicted defendants entered guilty pleas. Shapiro was previously sentenced to 21 months imprisonment and ordered to pay $12,557,553 in restitution, Goodrich was previously sentenced to 41-months imprisonment and ordered to pay $479,007.05 in restitution, and Morris was sentenced 6 months imprisonment and ordered to pay $112,575. 35 in resitution. Wexler, Bell, Azrak, and Ofsink are awaiting sentencing.
In July 2022, Mr. Peace was selected as the Chairperson of the White Collar Fraud subcommittee for the Attorney General’s Advisory Committee (AGAC). As the leader of the subcommittee, Mr. Peace will play a key role in making recommendations to the AGAC to facilitate the prevention, investigation and prosecution of various financially motivated, non-violent crimes including mail and wire fraud, bank fraud, health care fraud, tax fraud, securities and commodities fraud, and identity theft.
The government’s case is being handled by the Office’s Business and Securities Fraud Section. Assistant United States Attorney Shannon C. Jones is in charge of the prosecution. Assistant United States Attorney Claire Kedeshian of the Office’s Asset Recovery Section is handling forfeiture matters.
Outcome: Minute Entry for proceedings held before Judge Eric N. Vitaliano:Sentencing held on 9/23/2022 for Craig Josephberg (5), Count(s) 1, 2, 3-4, 9, Dismissed on Government's Motion.; Count(s) 1s, 2s, 3s, 4s, 10s, The defendant was sentenced to 36 months of imprisonment on each count (1,2,3,4, and 10). Each term to run concurrently. Supervised Release: 3 years. Special Assessment: $500.00; Restitution:$16,346,023.00. Forfeiture order to be filed with J&C. (Court Reporter Shernelle Griffith.) (Tavarez, Jennifer) (Entered: 09/23/2022)