usa v. metter et al doc 382 filed 15 aug 14

8/11/2019 USA v. Metter Et Al Doc 382 Filed 15 Aug 14

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August 10, 2014

Honorable Dora L. IrizarryUnited States District CourtEastern District of New York225 Cadman Plaza EastBrooklyn, New York 11201

Receivedin Chambers of:

U.S. District JudgeDORAL lRIZARRY

AUG t 8 2014

Re: United States v. Steven Moskowitz

Criminal Docket No. 10-600 (DLI)

Dear Judge Irizarry:

FILEDIN CLERK S Ot+IC:E

US DISTRICT COURl le ;JN y

* AUG 1 5 U1 1 *ROOKLYN OFFICE

This letter is written in response to the US Attorney's request that mypetition for an Amendment to the Forfeiture Order be dismissed (Doc 379).

The petition should be permitted to Stand. The government's argument thatit should be time barred is not practical. The government notes that, In thepresent case, publication of the Preliminary Order began on April 16, 2014and ended on May 15, 2014. See Certificate of Service, Dkt. #371. Thus, thetime for tiling a third party petition expired on June 15, 2014. Thepetit ioner 's claim, however, was not filed until June 18, 2014. Becausepetitioner did not submit his claim within the statutorily proscribed timeperiod, it is time barred and therefore should be dismissed as untimely.

Case 1:10-cr-00600-DLI Document 382 Filed 08/15/14 Page 1 of 11 PageID #: 2280


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A second reason Mr. Morris provided for the dismissal of the petition is,... because the Court lacks subject matter jurisdiction to hear the

petitioner's claim in an ancillary proceeding. However, in paragraph 10 ofthe Preliminary Order of Forfeiture, Mr. Morris also stated that any personasserting a legal interest in the forfeited stock may petition the court for ahearing, and for an amendment of the forfeiture order. That is what I havedone. The US Attorney's argument that the Court lacks subject matterjurisdiction is not based on a comprehensive understanding of he issues, andis without merit.

That brings us to the final reason the government is providing for dismissalof the petition. That reason is that, ... he petitioner lacks standing toadvance his claim. The reason cited is that shareholders have no legalinterest in the forfeited stock held by the defendant and related entities, suchas by the Moskowitz Family Trust.

After the extensive evaluation of this issue that I have done (over the lastfive years, the total amount of time that I ve spent researching this case ismore than 4,000 hours), it is my opinion that not only do shareholders have alegal interest in shares such as issued to the Moskowitz Family Trust, wealso have a legal interest in shares issued to the other defendant-relatedentities, such as to Flo Weinberg, Inc.

Shareholders have a superior legal interest to the forfeited s tock for variousreasons, to include the following:



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represent undisclosed assets, and which were intended toaccumulate shares for retirement;

d Additional nominee accounts exist, and clearing firms and brokeragesdid not verify the true identity of the account holders.

OWNERSHIP OF THE FORFEITED STOCK CANNOT BE

DETERMINED WITHOUT PROPER DISCOVERY BECAUSE THEAUTHENTICITY OF THE CEDE SHARES CANNOT BE VERIFIEDACCORDING TO THE BROKERAGES WHO SOLD THE SHARES

T THE INVESTING PUBLIC

The following certs were officially retired, according to the Transfer Journalfrom Olde Monmouth Transfer Company.

10333222327933043383342835683367



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shares returned to the Transfer Agent) were from Flo Weinberg, Inc. Intotal, 166,891,442 shares were officially retired.

Only two certs listed above (cert 1033 for 500,000 shares, and cert 3367 for85,144 shares), were retired in their Original Issuance form. All of the othercerts were created from the cancellation of Cede certs, the authenticity ofwhich brokerages cannot verify, yet which were the source for 99 6o/o of allthe shares that were officially retired.

s noted in my petition, the company had planned and began executing ashare repurchase in 2008. So why not just keep the Original Issuance Share(OIS) certificates, and subsequently return them for cancellation? One suchreason is to hide the share accumulation as part of a bear trap, a plan toexpose the illegal short selling of he company's shares.

The point to be made, though, is to note the methodology employed bymanagement to surreptitiously accumulate shares, starting with receivingOIS certificates, converting the shares into Cede, and recalling the Cedeshares for certification, prior to retirement of the shares. However, thatprocess was not completed, and not all of the shares intended for retirementwere returned to, and accepted by, the Transfer Agent.

The data I have evaluated fully supports management's ability to haverepurchased the 526 million shares that were intended for cancellation.Shareholders have a superior legal interest in these shares, as the lowerOutstanding Share count would have greatly increased shareholder value.



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For the sake of brevity, and since the US Attorney specifically mentionedthis particular entity in his petition for dismissal, I will illustrate a

representative stock issuance to the Moskowitz Family Trust (the Trust).

n July 15, 2008, the Trust was issued cert number 2444 for 6,775,000shares. However, this issuance was made by the cancellation of eight Cedecerts. It is the Cede shares that brokerages are unable to authenticate.

There are no Outstanding certs to any company-related entity, which were

issued by Olde Monmouth Stock Transfer Company. The OIS certs werealmost immediately converted to street name, (Cede). Yet, the companymaintained an interest in these shares. That is why, anytime I saw Cedeshares being issued to a company-related entity, I knew that I was about tofind a share retirement. In this case, the Trust retired cert number 3412.This became a consistent pattern.

The only way for the Attorney General to seize company-related stockholdings is to determine the ownership of the Cede shares. The datasupports my conclusion that the company did in fact, make the claimedshare repurchase. This conclusion is supported by the May 24, 2012Settlement Agreement reached between the bankruptcy Trustee and FrankLazauskas a company director), and concerning millions of dollars in

damage to the company, stemming from their share repurchase.

CERTAIN CEDE HOLDINGS ARE LIKELY NOMINEE



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I m assuming that Mr. Overy may be the principal, or somehow affiliated,with Target IR, and that this is an Investor Relations company. I don t know

that for a fact. While I saw contracts for the Romero Group (whose affiliateshold a number of hese 28 Cede certs), I did not see any contracts for TargetIR, unless they are also Romero affiliates.

However, because I tracked the creation of every Cede cert issued, I am ableto say that issuances to Mr. Overy and Target IR match the process Ioutlined above, where RME would issue certs to related entities, which

would then be converted to Cede, and subsequently recalled for issuance incertificate form, and then be retired.

For example, on March 20, 2009, Target and Overy received certs 3537 and3538, respectively, from RME. These certs were canceled on the same daythey were issued, and both certs went into the creation of Cede cert 3542.

The Cede cert was canceled, and issued in certificate form, #3568, to FloWeinberg, Inc., on April 1st 2009. t was retired the same day. There wereseveral other issuances to these same beneficiaries (Overy and Target) thatalso went into retirements from either Flo Weinberg or from RME.

It appears that Cede certs 3583 and 3621, created by canceling certs issuedto Target IR and Mr. Overy, and then transferred to the new Transfer Agent(WorldWide), are nominee account holdings, beneficially owned by thecompany, and controlled by Moskowitz. I am only providing arepresentative example of why it is necessary to conduct proper discovery of



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However, I also said that a share repurchase program was commenced inAugust 2008, to combat the naked shorting of he company's stock, which is

prior to the period specified in the SEC s charges against Penson.t appears, though, that company executives and their shareholders,

especially those whose stock was traded by foreign entities, were beingvictimized by the abusive short selling of their stock, aided by Penson, longbefore the period specified in the SEC s charges. We have the followingannouncement from FINRA in this regard.

Penson Financial Services Fined $450,000 for Inadequate Review ofHundreds of Thousands of Trades a Day ...

Washington, D.C. T h e Financial Industry Regulatory Authority (FINRA)announced today that it has fined Penson Financial Services, a Dallas-basedsecurities clearing firm, $450,000 for failing to establish and implement an

adequate anti-money laundering (AML) program to detect and triggerreporting of suspicious transactions, as required by the Bank Secrecy Actand FINRA rules and other violations ...

FINRA found that from Oct. 1, 2003, through May 31, 2008, Penson failedto adequately establish and implement its AML compliance program ..

FINRA also found that Penson's AML training program and written AMLprocedures were deficient, and that the firm failed to adequately assess themoney-laundering risks presented by certain of the firm's correspondent



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t seems likely to me that this is the hostile environment in which the equityfinanced company found itself in It is for this reason that I think Moskowitz

may have made it appear that the company was issuing more shares thanthey actually were, a defensive ploy. My December 2011 Report ofExamination noted the following.

There were a total of 285,540,3 78 shares sent to Steve (Moskowitz) per thestock issuance directions provided to us by the trustee. This amounted toover 14% of all the shares issued by the company at that time. These

certificates were issued to a number of different stock beneficiaries, and it islikely that some of those beneficiaries were aware that their certificates weresent to the company, acting as custodians for the stockholders. Butapparently, this was not always the case. Former general counsel JoelPensley claimed that Moskowitz issued shares to him, without hisknowledge, and redirected the shares to the Mazuma Corporation, ... acorporation that worked closely with Moskowitz. (Case 1: 1O cv 02031 DLI -JMA Document 90 Filed 07/15/10 Page 6of17 .

Also included in this list of stock certificates sent to the company are sharesissued to Diomede and Maremmano. I also mentioned these companies inmy Report, as follows.

These companies, according to the WST Transaction Journal, share the

same Panama City address as do Ardee Trading Company and FribourgEnterprises, at 10 Elvira Mendez Street. I previously traced the issuance ofsome of the shares that went through Panama City to Pike Capital (see



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i f Pike was permitted to call for his remaining certs. He is currently holding160 million shares in cert form, which is about 22 million fewer shares th n

reflectedon

his Form 4.I f

hese shares don't belongto

Pike Capital, thenthey may represent an example of equity assets to the company, held byclose corporations. There is a similar example regarding an accumulation ofshares into some European accounts, and additional issuances to Diomedeand Maremmano, as well.

What this suggests is that the company did, in all likelihood, use foreign

clearing firms and close corporations to accumulate shares, and that theytook various steps to mask that accumulation. To that end, based on theBroadridge data, there is no accounting for the 22 million shares PikeCapital reported on their Form 4, beyond the 160 million shares for whichthey hold certs. Neither Pike Capital, Diomede, nor Maremmano show upon the NO O list. Canaccord Genuity only reflects 237,500 shares on theirNOBO list, and 238,440 shares on the Security Position Listing. It would

appear that the 22 million shares are either held by a foreign, non-reportingentity, or that these shares are simply not reported by Broadridge.

I previously mentioned a Settlement Agreement reached between theInvestment Industry Regulatory Organization o f Canada (IIROC), andCanaccord Genuity, the Canadian clearing firm. I noted that the Settlementspecifically concerned transactions involving SpongeTech's stock. TheSettlement was reached October 30, 2013.

I can now confirm that this Settlement regarding SpongeTech's stock, was



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usa v. metter et al doc 382 filed 15 aug 14

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