Securities Industry Commentator by Bill Singer Esq

From approximately October 2011 until February 2014, Costea and Dumitrescu resided in Ploiesti, Romania.  An investigation revealed that Costea and Dumitrescu allegedly identified vulnerable computers in the U.S., and installed interactive voice response software that would automatically interact with call recipients.  In addition, the defendants allegedly utilized computers in the Atlanta area to install software to initiate thousands of automated telephone calls and text messages to victims in Atlanta and around the country. The messages purported to be from a financial institution and directed victims to call a telephone number due to a problem with their respective financial account. 

When victims called the telephone number, they were prompted by the interactive voice response software to enter their bank account numbers, PINs, and full or partial Social Security numbers. The stolen account numbers were stored on the compromised computers and accessed by Costea and Dumitrescu, who then allegedly sold or used the fraudulently obtained information with the assistance of Draghici.  

At the time of his arrest in Romania, Costea possessed 36,051 fraudulently obtained financial account numbers. The financial losses from the defendants' scheme are estimated to be over $18 million.

As part of the scheme, BLASZCZAK was charged with obtaining confidential and nonpublic information from CMS employees, including his friend, CHRISTOPHER WORRALL, who worked at CMS, and who was charged with breaching his duties as a CMS employee by providing confidential information to BLASZCZAK.  BLASZCZAK then was alleged to have provided this material nonpublic information in advance of market-moving CMS announcements to employees at Deerfield, including HUBER, OLAN, and Jordan Fogel, who allegedly recommended trades on the basis of the information.  Jordan Fogel, a former partner and analyst at Deerfield, previously pled guilty and is cooperating with the Government.  As a result of these trades, Deerfield reaped more than $7 million in profits.

BLASZCZAK was also charged in a separate scheme with obtaining confidential and nonpublic CMS information about cuts in CMS's reimbursement rates for home health providers, and with providing that information to Christopher Plaford, a portfolio manager at Visium Asset Management, L.P., another healthcare-focused hedge fund in New York, New York ("Visium").  Plaford then used BLASZCZAK's information to execute trades, resulting in approximately $330,000 in profits.  Plaford has previously pled guilty to this conduct and is also cooperating with the Government. 

[I]n May 2013, Discala, along with separately charged co-conspirators, engineered a reverse merger of CodeSmart, a private company, with a public shell company.  After gaining control of CodeSmart's three million purportedly unrestricted shares, Discala and his co-conspirators on two occasions fraudulently inflated share price and trading volume of CodeSmart, which traded under the ticker symbol ITEN, and then sold their shares at a profit when the price reached desirable levels - a  scheme commonly referred to as a "pump and dump." 

The first pump and dump occurred between May 13, 2013 and August 21, 2013.  During this period, the co-conspirators manipulated CodeSmart's stock price causing it to rise from $1.77 to a high of $6.94, before "dumping" their shares thereby causing it to drop to $2.19.

The second pump and dump occurred between August 21, 2013 and September 20, 2013.  During this period, the defendant and his co-conspirators manipulated CodeSmart's stock price causing it to rise from $2.19 to a high of $4.60, before selling, or "dumping," their shares causing it drop to $2.13.  During the entire period, Discala and his co-conspirators coordinated their trading activity to artificially control CodeSmart's stock price.  Evidence at trial established that Discala made more than $2.8 million in trading profits from the CodeSmart pump and dumps, while investors lost millions of dollars.

[L]ILLARD was the leader of a large group of conspirators who stole point-of-sale terminals, then reprogrammed them with stolen merchant identification numbers to make it appear that the conspirators were in fact the merchants. They used the stolen point-of-sale terminals to process unauthorized return and refund transactions, and applied those credits to thousands of prepaid credit cards, prepaid debit cards, and gift cards. The conspirators then quickly spent the fraudulent proceeds-withdrawing cash from ATMs, buying merchandise they returned for cash, purchasing money orders and other negotiable instruments, transferring the funds to other gift cards or bank accounts, and buying precious metals-before the fraud was detected and the transactions reversed. The co-conspirators hid their fraud in part by setting up their operations first in hotel rooms, then in rented office space, and sometimes spoofing phone numbers, so that the transactions could not easily be traced to them. When search warrants were served on the homes of LILLARD and two of his co-conspirators, as well as a storage locker, law enforcement located more than 1,000 access devices, about 15 point-of-sale terminals, notebooks filled with used and unused merchant identification numbers, and thousands of receipts documenting the fraud. The victims in this case include payment processors (some owned by banks such as Chase) and dozens of merchants such as Old Country Buffet, See's Candies, Michaels, Quiznos, and many more.

LILLARD was the leader of the scheme, and has a long history of fraud convictions in both state and federal court. In 2006, when LILLARD was sentenced in Nevada to nearly nine years in prison, the prosecutor called him ‘incorrigible' - something LILLARD denied, claiming he planned to turn his life around upon release from prison. Evidence indicates he began planning the current fraud even before he completed his last prison sentence. Within weeks of his release, LILLARD had the new fraud scheme up and running.        

• Securities Industry Commentator
• Bill Singer