Danish National Who Participated in the Scheme Is Also
Charged
Geoffrey S. Berman, the United States Attorney for the
Southern District of New York, and William F. Sweeney Jr., the Assistant
Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation
(“FBI”), announced today the unsealing of an indictment charging BLACKLIGHT,
S.A., a Swiss entity purporting to offer asset management and trustee services,
and its founder and principal owner, KENNETH CIAPALA, as well as ULRIK DEBO,
a/k/a “Molgaard Debo,” a/k/a “Ulrik Molgaard,” with engaging in a long-running
stock manipulation scheme involving numerous United States issuers. CIAPALA and DEBO were arrested in the United
Kingdom, and the United States Government will be seeking their extradition to
the United States.
U.S. Attorney Geoffrey S. Berman said: “As alleged, for years the Swiss firm
Blacklight, S.A., its owner, Kenneth Ciapala, and Ulrik Debo have made millions
of dollars by orchestrating stock manipulation schemes of publicly traded
shares of U.S.-based issuers. Today’s
charges make clear that our Office, along with our law enforcement partners,
will vigorously prosecute those who allegedly manipulate the stocks of U.S.
issuers, including those operating abroad.”
FBI Assistant Director William F. Sweeney Jr. said: “As a major facilitator of market
manipulation schemes, Blacklight, S.A, allegedly enabled numerous ‘pump and
dumps’ over the course of six years.
Disrupting the orchestrators of illegal financial activity is a top priority
for the FBI’s securities fraud team, and we consider today’s indictment of
Blacklight, its founder and principal owner Kenneth Ciapala, and co-conspirator
Ulrik Debo an important step in that mission.”
As alleged in the Indictment unsealed in Manhattan federal
court[1]:
BLACKLIGHT, S.A. (“BLACKLIGHT”), a Swiss entity based in
Geneva, Switzerland, that purported to offer asset management and trustee
services to its clients, and a founder and co-principal of BLACKLIGHT, KENNETH
CIAPALA, executed a wide-ranging stock manipulation scheme that spanned from in
or about 2013 through December 2019 in which they manipulated the share price
and trading volume of the publicly traded shares of multiple companies, and
laundered the proceeds generated by the scheme.
CIAPALA, utilizing BLACKLIGHT, set up various nominee entities to help
scheme participants conceal their ownership of public company shares and evade
SEC reporting requirements. BLACKLIGHT
opened bank accounts and brokerage accounts on behalf of these nominee entities
and executed trades in accounts held by these nominee entities in furtherance
of the stock manipulation scheme.
ULRIK DEBO, a Danish citizen who resided in Europe,
furthered the stock manipulation scheme by, among other things, identifying
suitable publicly traded shell companies that could be used in the scheme;
identifying, in certain instances, suitable privately held companies to engage
in “reverse merger” transactions with the shell companies; obtaining financing
to purchase all or substantially all of the outstanding shares of the issuers;
causing various nominee entities to obtain ownership of the issuer’s shares;
identifying and paying “promoters” that issued exaggerated and, at times, false
press releases about the issuers in order to raise the trading price and volume
of the issuer’s shares; and identifying and paying various “trading
specialists” who assisted in artificially manipulating the trading volume and
price of the issuer’s shares.
Overview of the Stock Manipulation Scheme
As alleged, from at least 2013 through December 2019,
CIAPALA and his firm, BLACKLIGHT, as well as others, conspired to defraud the
investing public by orchestrating and facilitating the manipulation of multiple
publicly traded stocks, commonly referred to as “pump and dump” schemes. The vast majority of the stocks that CIAPALA,
BLACKLIGHT, DEBO, and their co-conspirators sought to manipulate were “penny”
or “microcap” stocks that traded in the United States on the over-the-counter
(“OTC”) market. In executing these pump
and dump schemes, CIAPALA, BLACKLIGHT, DEBO, and their co-conspirators (i)
secretly amassed beneficial ownership of all, or substantially all, of the
stock of certain publicly traded companies; (ii) began manipulating the price
and demand for these stocks through, among other means, the release of
materially false information to the investing public and manipulative trading
practices, thereby causing the share price of these stocks to become
artificially inflated; and (iii) sold out of their secretly-amassed positions
at artificially inflated values at the expense of the investing public.
CIAPALA, using his firm BLACKLIGHT, primarily furthered the
stock manipulation scheme by helping other participants in the scheme to
obscure their beneficial ownership and control of all or substantially all of
the shares of companies whose securities they sought to manipulate. CIAPALA caused BLACKLIGHT to establish
nominee entities that were registered in the names of various third parties to
hold the shares that were, in reality, beneficially owned and controlled by the
scheme participants. In order to obscure
their ownership interests, CIAPALA, BLACKLIGHT, DEBO, and others typically
caused these nominee entities’ holdings to be structured so as to ensure that
no single nominee entity held more than five percent of the outstanding stock
of any of the relevant companies.
CIAPALA also caused BLACKLIGHT to open bank accounts in the
names of these nominee entities and to trade shares owned by these nominee
entities through various brokerage accounts.
Through BLACKLIGHT, CIAPALA exercised trading authority over these
nominee entities’ shares, and CIAPALA directed brokers to execute trades on
behalf of these nominee entities in furtherance of the stock manipulation
scheme. After CIAPALA, BLACKLIGHT, DEBO,
and others participating in the scheme had obtained control of all or
substantially all of the shares of a company, the scheme participants
manipulated the share price and trading volume of the stock of the company. This typically occurred through a promotional
campaign and through certain manipulative trading practices.
With respect to the promotional campaign, CIAPALA,
BLACKLIGHT, DEBO, and others participating in the scheme caused promotional
materials to be distributed to the investing public that contained exaggerated
and, at times, false claims about the company whose stock they sought to
manipulate. The scheme participants concealed from the investing public that
these promotional materials were financed and created at the direction of those
who beneficially owned and controlled substantially all of the shares of the
relevant company that was the subject of the promotion.
In addition, to drive investor demand and artificially
inflate the share price, CIAPALA, BLACKLIGHT, DEBO, and other participants also
engaged in manipulative trading activity in order to artificially increase the
trading volume and share price of the issuers whose stock they sought to
manipulate. This manipulative trading
activity included “match” trades whereby the scheme participants caused
multiple nominee entities they controlled to essentially trade with one another
to create the false appearance of trading volume and demand for the stock.
Laundering of the Profits Generated by the Scheme
As a result of the stock manipulation scheme, the scheme’s
participants reaped millions of dollars in illicit profits by selling the
shares they beneficially owned and controlled into the market at artificially
inflated prices. After these crime proceeds
were generated, CIAPALA and BLACKLIGHT allegedly assisted other scheme
participants in obtaining their share of the proceeds by sending these funds to
them in a manner designed to conceal the source of these funds and the identity
of the true recipients of the funds.
With CIAPALA’s knowledge and at times at his direction, transfers of the
proceeds of the stock manipulation scheme were executed in a manner intended to
conceal the true source of the funds and the recipients of these funds by, for
example, using fabricated invoices to justify wire transfers from accounts held
in the names of nominee entities (controlled and operated by BLACKLIGHT) to
other bank accounts controlled by the scheme participants.
*
* *
The Indictment charges CIAPALA, 38, who resides in
Switzerland, and BLACKLIGHT with one count of conspiracy to commit securities
fraud, which carries a maximum sentence of five years in prison; three counts
of securities fraud, each of which carries a maximum sentence of 20 years in
prison; one count of conspiracy to commit wire fraud, which carries a maximum
sentence of 20 years in prison; wire fraud, which carries a maximum sentence of
20 years in prison; conspiracy to commit money laundering, which carries a
maximum sentence of 20 years in prison; and money laundering, which carries a
maximum sentence of 20 years in prison.
DEBO, 50, is charged with one count of conspiracy to commit
securities fraud, which carries a maximum sentence of five years in prison; two
counts of securities fraud, each of which carries a maximum sentence of 20
years in prison; one count of conspiracy to commit wire fraud, which carries a
maximum sentence of 20 years in prison; and wire fraud, which carries a maximum
sentence of 20 years in prison.
The statutory maximum sentences are prescribed by Congress
and are provided here for informational purposes only, as any sentencing of the
defendants will be determined by a judge.
Mr. Berman praised the investigative work of the FBI, and
thanked authorities in the United Kingdom, the Justice Department’s Office of
International Affairs of the Department’s Criminal Division, and the Securities
and Exchange Commission, which initiated civil proceedings against CIAPALA,
BLACKLIGHT, DEBO, and others, for their assistance.
This case is being handled by the Office’s Securities and
Commodities Fraud Task Force and Complex Frauds and Cybercrime Unit. Assistant United States Attorneys Noah
Solowiejczyk and Vladislav Vainberg are in charge of the prosecution.
The allegations in the Indictment are merely accusations,
and the defendants are presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of
the text of the Indictment, and the description of the Indictment set forth
herein, constitute only allegations, and every fact described should be treated
as an allegation.
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