Defendant allegedly participated in ‘pump-and-dump’ and later misappropriated investors’ funds
On August 8, 2022, the U.S. Attorney’s Office reported that an Everett man has been charged in a superseding indictment in connection with two securities fraud schemes: one involving an alleged “pump-and-dump” and one involving the alleged misappropriation of tens of thousands of dollars of investor funds to pay his personal expenses. Christopher R. Esposito, 55, was charged with one count of conspiracy to commit securities fraud and sale of unregistered securities, one count of securities fraud and one count of sale of unregistered securities, concerning the alleged pump-and-dump scheme. In April 2022, Esposito was indicted on one count of securities fraud and one count of wire fraud, in relation to the alleged misappropriation scheme.
According to the charging documents, Esposito and Anthony Jay Pignatello conspired between 2012 and 2015 to conceal their control over the Massachusetts-based microcap company Cannabiz Mobile, Inc. and to use backdated promissory notes to fraudulently obtain free-trading shares in the company. They then allegedly arranged for a promotional campaign in October 2015 to pump up Cannabiz Mobile’s stock so that they could sell (i.e., dump) their shares into the market and make money. In so doing, they allegedly sold and offered to sell Cannabiz Mobile stock in violation of the securities laws because the securities were not registered with the U.S. Securities and Exchange Commission (SEC) and no exemption from SEC registration was available.
In addition, between August 2019 and February 2020, Esposito allegedly sold shares in a separate company, Code2Action, Inc., based on material misstatements and omissions and then misappropriated much of the proceeds. More specifically, Esposito is alleged to have, among other things, deliberately misled prospective investors about Code2Action’s plan and ability to complete a reverse merger, which Esposito touted would enable the investors to sell their shares at a profit, and he spent over $57,000 of the investors’ funds to pay himself and his personal expenses.
The charges of conspiracy and sale of unregistered securities each provide for a sentence of up to five years in prison, three years of supervised release and a fine up to $250,000 or twice the gross gain or loss from the offense. The charges of securities fraud each provide for a sentence of up to 20 years in prison, three years of supervised release and a fine of $5 million. The charge of wire fraud provides for a sentence of up to 20 years in prison, three years of supervised release and a fine of up to $250,000 or twice the gross gain or loss from the offense. Sentences are imposed by a federal district court judge based upon the U.S. Sentencing Guidelines and statutes which govern the determination of a sentence in a criminal case.
U.S. Attorney Rachael S. Rollins and the FBI’s Special Agent in Charge of the Boston Division, Joseph R. Bonavolonta, made the August 8 announcement. Assistant U.S. Attorney James R. Drabick of Rollins’ Securities, Financial & Cyber Fraud Unit is prosecuting the case.