USA v. Affa Et Al Doc 81 Filed 09 May 16

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UNITED STATES DISTRICT COURT DISTRICT MASSACHUSETTS

_____________________________

) UNITED STATES OF AMERICA ) Criminal No. 14-CR-10221-WGY

) v. )

) MICHAEL AFFA, ) ANDREW AFFA, ) MITCHELL BROWN, ) CHRISTOPHER PUTNAM, and ) CHRISTOPHER NIX, ) a/k/a GABE NIX, )

) Defendants. )

_____________________________ ) )

UNITED STATES OF AMERICA ) Criminal No. 15-CR-10297-WGY )

v. ) )

MITCHELL BROWN ) )

Defendant. ) _____________________________ ) UNITED STATES’ SENTENCING MEMORANDUM AS TO MITCHELL BROWN

The United States submits this memorandum in advance of the sentencing of defendant

Mitchell Brown. On September 29, 2015, Brown pleaded guilty to all counts of a seven-count

Indictment for his participation in a pump-and-dump scheme to manipulate the market for the

publicly traded securities of Amogear Inc. (“Amogear”). On December 8, 2015, Brown pleaded

guilty to a two-count Information for his participation in another pump-and-dump scheme

involving the securities of a publicly traded company called Greenway Technology (“Greenway”).

Both guilty pleas were entered pursuant to a plea agreement with the government under Federal

Case 1:14-cr-10221-WGY Document 181 Filed 05/09/16 Page 1 of 20

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Rule of Criminal Procedure 11(c)(1)(C).1 (See Plea Agreement § 1 ¶ 2). Given the nature and

circumstances of these offenses, the need to promote respect for the law and provide a deterrent

effect, and Brown’s history and characteristics, the United States respectfully submits that a period

of incarceration of 42 months is necessary in order to meet the goals of 18 U.S.C. § 3553(a).

BACKGROUND2

From at least 2012 through 2014, Brown was in the business of promoting the stock of

publicly traded companies for compensation. (PSR ¶ 98) (SOF p. 1). In this regard, he was

well-acquainted with pump-and-dump schemes, which generally involve the artificial inflation of

the share price of a publicly traded company, orchestrated by individuals who control a substantial

portion of the company’s stock and who then divest themselves of the shares by selling them on

the open market after the price inflation has occurred. (PSR ¶¶ 13, 26 fn. 2). Hallmarks of a

typical pump-and-dump scheme include promotional campaigns featuring false or misleading

news about the company and coordinated trading of the stock to simulate market interest, as well

as drive up the price of the stock. (PSR ¶ 13).

The Greenway market manipulation for which Brown was convicted began around

mid-2012, when Brown and his coconspirators agreed to engage in a scheme to artificially inflate,

or pump, the share price of Greenway—a shell company without any active business operations or

1 Hereinafter, the “Information” refers to the Information in United States v. Brown,

1:15-cr-10297, Dk. #2; the “Plea Agreement” refers to the Plea Agreement which governs both cases, but was filed in United States v. Affa et al., 1:14-cr-10221 (D. Mass.) Dk. # 132; and the “SOF” refers to the Statement of Facts attached to the Plea Agreement, United States v. Affa et al., 1:14-cr-10221 (D. Mass.) Dk. # 132-1. 2 Under the terms of Brown’s plea agreement, he has waived any right to the determination of disputed United States Sentencing Guidelines enhancements by a jury beyond a reasonable doubt, as well as any right to an evidentiary hearing. (See Plea Agreement § 4). Rather, he has agreed that the Court can resolve any such dispute by a preponderance of the evidence, and in reliance on the agreed-upon statement of facts for the Amogear Indictment, the facts stated in the Information for Greenway, as well as any supplemental materials provided to the Court which are consistent with the statement of facts. (Id. §§ 1,4).


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significant assets—in order to sell, or dump, stock that they controlled into the market at inflated

prices. (PSR ¶¶ 42, 43, 45) (Information ¶¶ 8-10).3 Brown obtained and deposited the

Greenway shares that he ultimately sold by using backdated debt assignments and false legal

opinion letters. (PSR ¶ 45) (Information ¶¶ 13.c., 13.d., 13.i.). Then, after the Greenway stock

was cleared for sale, Brown and his coconspirators caused stock promotion websites that they

controlled or hired to send blast e-mails touting Greenway as a promising business on the verge of

acquiring hotels that would cater to gay and lesbian travelers in several major cities, when, in

actuality, Greenway lacked the means to purchase any such properties. (PSR ¶ 44) (Information ¶

11). Brown amplified the impact of the misleading promotional campaign by engaging a stock

trader to falsely inflate Greenway’s trading volume in order to exaggerate demand for the

company’s stock. (PSR ¶ 46) (Information ¶ 13.g.). As the pump reached full force, Brown and

his coconspirators preyed upon the false hype that they had created by selling millions of shares of

worthless Greenway stock to the public for gross proceeds of $855,586, almost half of which

($420,643) went to Brown. (PSR ¶ 48) (Information ¶ 13.i.).

In the fall of 2013, Brown was informed by his business associate, Michael Affa, about

another market manipulation opportunity, namely a scheme to pump and dump the publicly traded

stock of Amogear. (PSR ¶ 26) (SOF p. 1).4 Like Greenway, Amogear was a shell company with

no real assets or operations, but unlike Greenway, Amogear was controlled by a former

Boston-based stock promoter (the “CW”) who was cooperating with the FBI, while still

maintaining the guise of his previous employment. (PSR ¶¶ 12, 14) (SOF p. 1). Of course, 3 The parties have agreed to the accuracy of the facts set forth in the Information. (See Plea

Agreement § 1 ¶ 2.) 4 The parties have agreed to the accuracy of the facts set forth in the Statement of Facts. (See Plea

Agreement § 1 ¶ 2).


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Brown did not know this as he and his coconspirators planned to repeat the success of the

Greenway pump and dump, setting their sights even higher this time with the goal of selling 17

million shares of worthless Amogear stock at an average price of at least 15 to 20 cents per share.

(PSR ¶ 27) (SOF p. 2).

By this juncture, Brown was no stranger to market manipulation schemes. He made this

abundantly clear during a face-to-face meeting with the CW in Boston on January 29, 2014, during

which Brown told the CW about at least eight other “deals” in which he had participated, including

the Greenway pump-and-dump scheme.

• BROWN: “You know John [inaudible]? . . . Strange dude . . . the first time I met him was at a rest stop . . . the guy gave us some type of f***ing sales pitch, you know, like he didn’t know who we were. So he was like . . . ‘I don’t do these, you know, short-term deals . . . I stay with a company like 2, 3 years . . . put friends and family in them.’ I don’t say nothing, let him speak and finish it off, and I’m saying to myself, ‘Yeah, uh huh, you’re telling me that you put your friends and family in start-up pink sheets [stocks] and you stay on these companies for 3 years, 2 years’ . . . we put up this money and do the deal . . . We do the deal, the day it trades, you can only do 30% [i.e., sell 30% of the stock in the account] . . . We’re at his [Michael Affa’s] house, and I’m looking and . . . I just explode…” CW: What deal was that? BROWN: MCGI or MGCI.”5 (See Recording of 1/29/14 Meeting, submitted as Exhibit A, at AMOGEAR 18_01_2, 17:24-19:08) (emphasis added).

• BROWN: “Yeah we did another deal . . . HDRE . . . we had all these people go [promote the stock]. We made like, it was supposed to be just like liquidation. I’m like I can get rid of all these shares…” (Id. at AMOGEAR 18_02_1, 2:06-2:17) (emphasis added).

• BROWN: “CNOZ . . . Carl6 f***ed me. . . Couple of people that went and met with Carl representing me, and they had the shares, they were S-1 registered. They met

5 Quotations are taken from the Assistant United States Attorneys’ notes of recorded conversations

that have been provided to the defense. While they do not purport to be verbatim transcripts, the government believes these quotations to be accurate. The government is filing a separate Appendix today with copies of two recordings for the Court’s consideration at sentencing.

6 Carl appears to be a reference to Carl Marciniak as evidenced by Brown’s question: “You know Carl Marciniak?” (See Exhibit A at AMOGEAR 18_02_1, 12:34-12:36). On December 2, 2015, Marciniak pled guilty to charges of securities fraud, wire fraud, and conspiracy for his participation in a market manipulation scheme involving Super Nova Resources, Inc. See United States v. Marciniak et al.,


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him in Vegas . . . there was 20 million S-1 registered shares. They gave Carl 9 million shares. I go, ‘Did you bring back any cash?’ [They replied]: ‘No, no, it’s all good, it’s all good.’ . . . I put out news releases on top of news releases.7 . . . He [Carl] was going to use this big group [to promote the stock]. I ran up a bill like 80 grand on MarketWire, and he never sent out one f***ing alert. Nothing. . . . The stock was recorded. It was as clean as this deal. He started selling. He sold like 3 million shares of stock. Sent me 70 thousand dollars. I had to . . . fight with him to get [the rest of the stock] back. He sent it back . . . but he kept a million [shares].” (Id. at AMOGEAR 19_01_2, 4:40-5:33) (emphasis added).

• BROWN: “we did a deal with him [Carl Marciniak], I put up the cash and the

stock got halted [by the SEC]. . . We were going to whack the deal up, and cross off the top, whatever, and the thing got halted [by the SEC]. So the first $180,000 that settled, I was supposed to get paid, I never got paid.” (Id. at AMOGEAR 19_01_2, 5:55-6:54) (emphasis added).

• BROWN: “My beef with Lou8 is, they did a deal, ECIT . . . they needed money for IR,

for a program [stock promotion]. They go, ‘You put up 100 [thousand dollars], we’ll give you back 200 [thousand dollars].’ . . . They ran programs [stock promotions]. They did all this stuff. They never paid me the hundred. They made millions of dollars on that f***ing thing. I still haven’t gotten paid.” (Id. at AMOGEAR 19_01_2, 9:43-10:28) (emphasis added).

• BROWN: “Greenway Technology . . . I put up all the money for that . . . All of it . .

. I put up the 200 [thousand dollars] . . . we used Psycho [to promote the stock] . . . This guy Carlos traded it. It traded 2.7 million [dollars] that one first day. (Id. at AMOGEAR 19_01_2, 10:56-12:02). BROWN: “He traded me out of $400,000 worth of stock in 20 minutes . . . I had to give him 40 grand . . . but it was worth it.” (Id. at AMOGEAR 18_02_1, 13:24-13:43) (emphasis added).

2:14-CR-00133 (E.D. Pa.), Dk. ## 1, 175. 7 According to the public filings for Cono Italiano, which trades under the ticker symbol CNOZ,

Brown is CEO of the company. Also, on January 29, 2014, the CW asked Brown “So what’s the public company that you’ve got now?” Brown replied, “CNOZ. Cono Italiano.” (Exhibit A at AMOGEAR 18_02_1, 12:11-12:15).

8 “Lou” appears to be a reference to Louis Buonocore. (See id. at AMOGEAR 19_01_2, 9:30-10:28). On November 17, 2015, Buonocore pled guilty to charges of securities fraud and conspiracy for his participation in a scheme to pump and dump the publicly traded securities of YaFarm Technologies. See United States v. Buonocore, 1:15-CR-10272 (D. Mass.), Dk. ## 1, 15. On November 19, 2015, Buonocore pled guilty to charges of securities fraud, wire fraud, and conspiracy for his participation in a market manipulation scheme involving Super Nova Resources, Inc. See Marciniak, Dk. ## 1, 157.


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• BROWN: “We did MSHU. Then we did Greenway right after it. Then we did EWRL.9” (Id. at AMOGEAR 19_01_2, 12:14-12:18) (emphasis added).

One common thread running through most of these “deals” is a stock promotion (i.e.,

pump) during which Brown and/or his associates sold or attempted to sell (i.e., dump) their

position in the market. Another recurrent theme is the use of manipulative trading techniques.

As Brown explained, he and the Affas “work with a trader” who “takes 10% of the deal.” Brown

added, “We use him [the trader] on a lot [of deals].” (Id. at AMOGEAR 18_02_1, 12:08-12:21,

13:22-13:24). The CW asked Brown, “What does he [the trader] do?” Brown replied, “Trades.

He bid supports. He trades…” (Id. at AMOGEAR 18_02_1, 12:37- 12:41) (emphasis added).

“Bid support” refers to the practice of posting bids for a stock—with no actual desire to buy it—in

order to create the false appearance of demand and thereby keep the stock price from falling too

much during the dump. (See PSR ¶ 17). As Brown’s coconspirator Christopher Nix succinctly

explained at an earlier meeting (which Brown did not attend): “they’re just bluff bids.” (Id.)

Returning to the January 29, 2014 meeting, Andrew Affa said that when they use their trader, the

stock’s trading volume is always “tremendous . . . it’s like 30% more.” Brown agreed, prompting

the CW to ask, “Is he [the trader] doing double prints?” Brown responded, “No . . . well yeah,

they’re double prints.” (Id. at AMOGEAR 19_01_2, 12:17-12:27) (emphasis added). A

“double print” refers to a manipulative trading technique whereby a single trade is falsely

“printed” or reported as two trades, thereby artificially doubling the trading volume reported to the

public for that trade. (See PSR ¶ 47). Michael Affa explained how this works when he called

into the January 29, 2014 meeting, stating that the trader will “short against the position and then 9 EWRL is the ticker symbol for the stock of Green Energy Renewable Solutions, Inc. On May 4,

2016, two individuals—Robert Raffa and David Aubel—were indicted for a market manipulation scheme involving EWRL’s stock between approximately April 2012 and January 2013. See United States v. Aubel et al., 1:16-cr-10125 (D. Mass.), Dk. #21.


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we fill him.” (Exhibit A at AMOGEAR 18_02_2, 17:48-17:52). Thus, instead of a single trade

being reported when Brown and the Affas sold their stock, two trades were reported—i.e., their

trader’s short sale and Brown/Affas’ subsequent sale to their trader to cover his short position.

What the public did not know is that this was all prearranged and therefore half of the trading

volume was artificial.

With that as a backdrop, Brown demonstrated his considerable experience with stock

manipulation schemes through his participation in the pump and dump of Greenway’s publicly

traded securities and the attempted pump and dump of Amogear’s stock.

The Fact that Greenway and Amogear Were Worthless Was Immaterial to Brown, Who Promoted the Companies as Promising Businesses in order to Sell Stock

Although Brown knew that Greenway lacked the funds to purchase and develop hotels and

that Amogear was nothing more than a cardboard box of sample clothing items in the corner of a

basement office, none of this deterred him from promoting these companies as promising

businesses and scheming to sell millions of shares of their worthless stock to innocent investors.

To begin with Greenway, the company was a shell as of at least June 2012, without active

business operations or significant assets, and it never had the means to purchase hotels or develop

upscale resorts as Brown and his associates led the public to believe. (PSR ¶ 43) (Information ¶¶

6, 11). However, Brown’s negative views about the company did not stop him from falsely

promoting Greenway as a promising business venture on the verge of acquiring hotels that would

cater to gay and lesbian travelers in several major cities. (PSR ¶¶ 43, 46) (Information ¶¶ 6, 13.f.)

(See also Exhibit A at AMOGEAR 19_01_2, 10:56-12:02, BROWN: “Greenway Technology . . .

I put up all the money for that . . . we used Psycho [to promote the stock].”).


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Turning to Amogear, the CW told Brown that the company was nothing more than a box of

samples, that the company had no operations, and that no money was going to be used to fund the

company in the future. Upon hearing this, Brown’s only concern seems to have been whether

they could get away with it without getting caught, as evidenced by the exchange below:

BROWN: How much money does the company need? CW: We’re not going to put any money in the company. BROWN: You’re not? CW: No. No, we’re not putting anything in the company. It’s all us. A. AFFA: Um, the website’s up or not yet? CW: The website will be up, beginning of the week. BROWN: So is the company actually operating now? CW: This is basically the company right here [referring to cardboard box].

Um, and we’ve got, you know, we’ve got a CEO in place . . . BROWN: So what happens when this is all over? And someone comes

knocking? CW: We got a good CEO that will take care of all that. . . . CW: Yeah, so nothing’s going into the company. BROWN: So that box is really the whole company. CW: So that box is some shirts, you’re welcome to take what you want.

[laughter] . . . Some shirts, some gym shorts, some boxing gloves . . . and you know, I’m sorry John couldn’t make it, you met John before, he’s a very competent guy, he’s all, you know, in the past, he’s been involved with companies where he’s had to take phone calls. . .

BROWN: Yeah . . . it’s not going to be …, it’s under the radar, so, it’s not going to, right?

A. AFFA: . . . I mean the website will be up. CW: Yeah, I talked to Tony yesterday. He was on his way to LA to do some

speaking. His wife is going to have the website up by next week, so you’ll be able to take some of that content off the website and do some . . .

BROWN: Next week or this weekend? CW: Well, they’ll probably get it by this weekend. . . BROWN: We probably shouldn’t start it without the website.

(Exhibit A at AMOGEAR 18_02_1, 7:32-8:00; 9:14-9:56) (emphasis added). Moreover, when

the group began discussing what to put in the disclaimers of the blast e-mails touting Amogear’s

stock, Brown joked about the company being nothing but a box of t-shirts.


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CW: One of the things I said to Andrew was, we were talking about disclaimers, about what you guys are going to put in your disclaimer because in the beginning these guys over at Circle [Nix and Putnam] wanted to put a million shares in the disclaimer…

… M. AFFA: . . . What’s wrong with him? . . . Yeah, all he should say is that he expects to

receive up to $100,000 or something, I don’t know. . . Expects to receive a sh***y story and be told there was a momo. . . .

BROWN: How about a box of t-shirts? [Laughter] M. AFFA: Did you check out the company or no? BROWN: Huh, I’m taking it home. . . I’m bringing it home to you. CW: You can take whatever you want here, we got a pair of boxing gloves here, a

couple hoodies…(Id. at AMOGEAR 19_01_1, 2:47-3:49)(emphasis added) Notwithstanding his knowledge that Amogear was a shell company with no operations,

Brown nonetheless deployed websites that he controlled along with his codefendants to send blast

e-mails touting the company’s worthless stock to thousands of recipients. Those e-mails

contained multiple false and misleading statements designed to give the misimpression that

Amogear had several product lines and items on the market which were ready to be sold. (PSR ¶

30) (SOF, p. 2). Additionally, Brown edited a draft press release regarding Amogear before it

was disseminated to the public. That press release contained false and misleading statements

including ostensible information about Amogear’s nonexistent product lines and the materials that

those supposed products were made from. (PSR ¶ 29) (SOF p. 2).

Brown Employed and Recommended Manipulative Trading Techniques

Based on his pump-and-dump experience, Brown seems to have realized that how a stock

appeared to be trading was often just as important as what was being said about the company in the

false press releases and promotions that he and his associates were putting out. Accordingly, at

the January 29, 2014 meeting, Brown suggested that they use a trader to manipulate Amogear’s

stock price, just as he had successfully done during the Greenway pump and dump. (See Exhibit


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A at AMOGEAR 18_02_1, 12:07-13:35, BROWN: “What’s your feeling, we work with a trader

. . . He takes 10% of the deal . . . but the money you’re paying, I think you’re making more money

by paying him to trade . . . He bid supports, he trades . . . We use him on a lot [of deals] . . . I used

him on a deal. He traded me out of $400,000 worth of stock in 20 minutes.” CW: “What deal?”

BROWN: “Greenway Technologies.”). Further, over the course of the January 29, 2014 meeting,

Brown demonstrated the depth of his knowledge of manipulative trading by talking about three

distinct techniques that can be used to mislead investors about a stock’s trading, namely: (1)

walking up a stock’s price prior to a promotion with cross trades, (2) engaging in bid support to

prevent the stock’s price from falling too much during the dump, and (3) employing double prints

to artificially increase the apparent trading volume— i.e., demand—for the stock.

1. Walking Up the Stock Price Prior to the Promotion with Cross Trades

During the January 29, 2014 meeting, the group discussed the price point at which

Amogear’s stock should be trading before the promotion kicked off, with the CW asking, “So what

what price are you thinking about starting this one at?” Andrew Affa replied, “We’re talking

about 20 [cents],” and Brown chimed in, “20, 15, 20 [cents]…” (Id. at AMOGEAR 18_02_1,

11:37-11:44). A little later in the meeting, the CW noted that Amogear’s stock price was “at 10

cents right now,” leading him to ask, “We’re going to start it at 20 cents, what do we do from

here?” Brown replied, “We’re going to walk it up.” (Id. at AMOGEAR 18_02_1, 19:05-

19:09) (emphasis added). After a brief exchange about whether to put out a press release to “build

a chart around,” the CW offered, “maybe we do like the next cross [trade] at like 11 or 12 cents.”

Brown replied, “Every other penny. So it’s 10 [cents], do it at 12 [cents], then do it at 14 [cents],

then do it at 16 [cents], all the way to 20 [cents].” (Id. at AMOGEAR 18_02_1, 19:22-19:41)


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(emphasis added). In other words, Brown suggested engaging in a series of coordinated trades or

cross trades to artificially increase or “walk up” the price of Amogear’s stock to 20 cents before the

promotion commenced.10

2. Bid Support to Prevent the Stock Price from Falling during the Dump

As noted above, Brown also recommended using a trader named Carlos who engaged in

“bid support” to trade the Amogear deal. (Id. at AMOGEAR 18_02_1, 12:07-12:40). Brown

bragged that this trader had traded him “out of $400,000 worth of stock in 20 minutes” during the

Greenway pump and dump. (Id. at AMOGEAR 18_02_1, 13:24-13:30). He later elaborated that

the trader was “able to keep it [the stock price] from going backwards,” adding that, “He’ll step in

there and you won’t see it go [down] right so quick . . . he’ll keep it, momentum going.” (Id. at

AMOGEAR 19_01_2, 12:29-12:37).

3. Double Prints to Artificially Increase the Apparent Trading Volume

Another benefit of using their trader, according to Brown, was that he traded stocks in a

way that increased the apparent trading volume. As Brown boasted, for Greenway, “this guy

Carlos traded it. It traded 2.7 million [dollars] that one first day.” Andrew Affa added, “The

volume will always be tremendous . . . it’s like 30% more.” This prompted the CW to ask, “Is he

[the trader] doing double prints?” Brown responded, “No . . . well yeah, they’re double

prints.” (Id. at AMOGEAR 19_01_2, 12:00-12:27) (emphasis added). As previously

discussed, a “double print” refers to a manipulative trading technique whereby a single trade is

10 Coordinated trades to artificially increase a stock’s price are prohibited by 15 U.S.C. § 78i, which

makes it unlawful to engage in “a series of transactions in any security . . . raising or depressing the price of such security, for the purpose of inducing the purchase or sale of such security by others.”


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falsely “printed” or reported as two trades, thereby artificially doubling the trading volume

reported to the public for that trade.11 (See PSR ¶ 47).

Brown Sold Millions of Shares of Greenway Stock for Hundreds of Thousands of Dollars and Intended to Sell Millions of Shares of Amogear Stock at 15 to 20 Cents a Share

The point of using manipulative trading techniques along with false press and promotions

was, of course, to drive up the price of stocks so that Brown and his coconspirators could sell their

worthless shares for the greatest possible gain. During the Greenway pump and dump, Brown

and his coconspirators sold approximately 13 million shares of Greenway stock for proceeds of

approximately $855,586, of which Brown received about $420,643. (PSR ¶48) (Information ¶¶

13.i., 19). Indeed, Brown bragged about the proceeds that he had received from the Greenway

pump and dump during the January 29, 2014 meeting, stating that the trader had traded him “out of

$400,000 worth of stock in 20 minutes.” (Id. at AMOGEAR 18_02_1, 13:24-13:30).

In the January 29, 2014 meeting, Brown also expressed his view that they could sell their

Amogear shares for an average of about 15 cents per share.

CW: We’re going to start it at 20, what’s the goal? BROWN: I mean if we averaged . . . we got what 14 million shares, 15 million— CW: 17 million . . . by the time it’s done with this, yeah. BROWN: Yeah, who knows what the price will be when it’s done with them. . . but if

you averaged 15 cents, I did the numbers the other day, if you averaged 15 cents a share, you’re talking a million eight, minus expenses, there’s money there. (Id. at AMOGEAR 18_02_1, 20:51-21:14)(emphasis added)

Then, later in the meeting, Brown commented, “If, you know, a lot of these other deals are working

at 20 cents, I mean, we could start at 15 cents and bring it up to 25, 30 [cents] if you want.” (Id.

at AMOGEAR 18_02_2, 21:11-21:19) (emphasis added). The day after the meeting, on January

11 Engaging in bid support to create the artificial appearance of demand for a stock and employing

double prints to artificially increase the apparent demand for a stock also constitute conduct prohibited by 15 U.S.C. § 78i. See Note 10, supra.


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30, 2014, the CW spoke with Michael Affa about Amogear, noting that he was “really impressed

with Mitch [Brown].” Affa replied, “Yeah, we spend, you know, we talk every day. We spend a

sh**load of time together. So he’s, he knows what’s going on.” After a discussion of how much

Brown would pay for the promotional campaign, Affa said, “[Brown] asked me the other day, he’s

like: ‘You think we can move the first 13 [million shares] or whatever at like 15 [cents]?’ I said,

‘Yeah, probably somewhere around there.’ He’s like, ‘It’s 2 million bucks, dude.’ I’m like,

‘Yeah, I know.’” (See Recording of 1/30/14 Call with M. Affa, Exhibit B hereto, at 3:10-4:30).

SEC Halts Trading in Amogear and Brown Tells the CW Not to Issue the Press Release

Brown and his coconspirators launched the Amogear promotional campaign between

February 8-10, 2014, sending out blast e-mails to thousands of recipients touting Amogear with

false and misleading statements about the company and the compensation that the entities sending

out the e-mails would receive. (PSR ¶ 30) (SOF p. 2). On the morning of February 10, 2014

(which was a Monday), the SEC halted trading in Amogear stock before members of the investing

public could make any purchases. (PSR ¶ 32). In a telephone conversation following the trading

halt, Brown urged the CW not to disseminate the press release about Amogear (which Brown had

edited) so that regulators could “never say you f***ing put news out, that it’s a pump. . .” (PSR ¶¶

29, 32) (emphasis added) (See also SOF p. 3).

ANALYSIS

Pursuant to 18 U.S.C. § 3553(a), the sentence imposed should be sufficient, but not greater

than necessary, to achieve the purposes set forth in that statute. See 18 U.S.C. § 3553(a); see, e.g.,

Kimbrough v. United States, 552 U.S. 85, 101 (2007). In fashioning a sentence, the Court is to

consider the advisory United States Sentencing Guidelines (the “Guidelines” or “USSG”) range,


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and then proceed to review the factors set forth in Section 3553(a)(2), although the “weighting of

those factors is largely within the court’s informed discretion.” United States v. Gallardo-Ortiz,

666 F.3d 808, 811 (1st Cir. 2012) (internal marks and citations omitted). 18 U.S.C. § 3553(a) also

“invite[s] the district court to consider, broadly, the nature and circumstances of the offense and

the history and characteristics of the defendant and the need for the sentence imposed . . . to protect

the public from further crimes of the defendant.” United States v. Politano, 522 F.3d 69, 74 (1st

Cir. 2008) (internal marks omitted). The statute also expressly calls for consideration of general

deterrence. See id. The resulting sentence must be reasonable. Kimbrough, 552 U.S. at 111.

Here, a sentence of 42 months is both reasonable and necessary to effectuate the purposes of 18

U.S.C. § 3553(a).

I. Brown’s Advisory Guidelines Range is 51-63 Months

Under the plea agreement, both parties agree that Brown’s base level offense is 7; that an

enhancement of 2 should be applied for the use of mass marketing in the Greenway and Amogear

schemes under USSG § 2B1.1(b)(2)(A)(ii); and that an enhancement of 2 should be applied for the

use of sophisticated means in the Greenway scheme under USSG § 2B1.1(b)(10). Where the

parties disagree is on the size of the loss enhancement under USSG § 2B1.1(b)(1). While Brown

has agreed that an enhancement of at least 14 applies for the loss caused by the Greenway scheme,

Brown has reserved his right to argue that 2 additional points should not apply for the intended loss

in the Amogear scheme. On this score, the government agrees with the Probation Department’s

analysis that the intended loss amount falls between $1.5 million and $3.5 million for the Amogear

scheme (PSR ¶ 56) and when combined with the actual loss of $855,586 caused by the Greenway

scheme, the total loss is between about $3.4 and $4.2 million. Because the figures straddle the


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loss table ranges and because the intended loss in the Amogear scheme is difficult to calculate

precisely, the government further agrees with the Probation Office’s use of about $3.4 million as

the total intended loss amount, resulting in an advisory Guidelines range of 51 to 63 months.

A. The Intended Loss for the Amogear Scheme Is Between $1.5-$3.5 Million

The Amogear case, in effect, involved an undercover sting operation, and therefore the

scheme was halted before any victims could incur an actual loss. Thus, the measure of loss for the

Amogear scheme is intended loss. See USSG § 2B1.1, cmt. n.3(A) (2015). Intended loss “(I)

means the pecuniary harm that the defendant purposely sought to inflict; and (II) includes intended

pecuniary harm that would have been impossible or unlikely to occur (e.g., as in a government

sting operation . . .).” Id. n.3(A)(ii). “[A] sentencing court is permitted to determine the amount

of intended loss based on a reasonable estimate.” United States v. Iwuala, 789 F.3d 1, 13 (1st Cir.

2015) (citations omitted).

Determining the loss amount for the Amogear scheme is relatively straightforward because

there can be no legitimate argument that Amogear’s stock was worth anything at any time, or

would have been worth anything after the dump: Amogear “was a shell company with no real

operations.” (SOF, p. 1.) Indeed, as described above, the CW pointed out to Brown that the

company was devoid of any value. In other words, Amogear’s stock was plainly worthless at the

time that Brown and his coconspirators were planning to inflate its value and dump it onto

unsuspecting investors. See United States v. Zolp, 479 F.3d 715, 719 (9th Cir. 2007) (“If the

company whose stock is sold does not legally exist or has no activities, assets, facilities, or any

other source of value, that ‘company’ has no underlying equity. Absent highly unusual

circumstances, its stock would also be worthless.”) (citation omitted); United States v.


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Schwamborn, No. 06-CR-328 (SJF), 2012 WL 6050561, at *3 (E.D.N.Y. Dec. 3, 2012)

(“Defendant was responsible for inflating the price of securities that were inherently worthless;

World Cyberlinks produced nothing, earned nothing, and had no assets. In short, the victims’ loss

on the stock is solely attributable to the fraud.”) (citation omitted).

Because Amogear’s stock was inherently worthless, a reasonable estimate of the pecuniary

harm that Brown and his coconspirators sought to inflict on market participants is the amount of

shares intended to be sold multiplied by the aspired-to price at which the conspirators intended to

sell them.12 As noted above, Brown himself stated his belief that the coconspirators would be

able to sell their Amogear stock at an average of $.15 per share, if not $.20 per share and above.

Based on the defendant’s own stated goals, then, the intended loss would be between $2,550,000

(if the 17 million shares were sold at an average of $0.15) and $3,400,000 (if the 17 million shares

were sold at an average of $0.20).13 Indeed, this was the Court’s finding with regard to intended

loss in the sentencing of Brown’s coconspirator and business partner, Michael Affa.

12 In his objections to the PSR, Brown proposes a different method of calculating intended loss,

namely: (Amogear’s average share price in the 90 days before the promotion) x (17 million shares) x (.01 because Brown and his coconspirators were affiliates). See Objections to PSR, ¶ 56. However, this method of calculating intended loss should be rejected because (1) it assumes that investors would have purchased Amogear’s worthless stock at pre-promotion prices, as opposed to the inflated prices that Brown and his coconspirators intended to cause with their false promotions and manipulative trading and (2) it assumes that Brown and his coconspirators would have abided by the law and voluntarily limited their sales to 1% of Amogear’s outstanding shares because they were affiliates, when Brown and his coconspirators repeatedly discussed selling their entire position (i.e., all 17 million shares).

13 The Third Circuit in United States v. Margulies dealt with a similar situation when it affirmed a district court’s decision to calculate intended loss by multiplying the aspired-to price to which the stock would increase during a stock manipulation scheme by the number of shares held by the defendant: “in seeking to inflate the stock price from 30 cents per share to $2.00 per share, [the defendant] intended a $1.70 per share loss with respect to the 1,475,380 shares he owned or controlled.” United States v. Margulies, 442 Fed. App’x 727, 731 (3d Cir. 2011); see also United States v. Reifler, 446 F.3d 65, 109 (2d Cir. 2006) (the “planned inflation by $5 a share, given [the defendant’s] plan to dump 1.5 to 2 million shares at the inflated price, indicated an intended loss to shareholders of $7.5 million to $10 million”) (internal marks and citation omitted).


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At the end of the day, Brown easily falls within the Guidelines’ $1.5-$3.5 million loss level

because he admittedly caused an actual loss of $855,586 through the Greenway scheme, and the

lowest price Brown contemplated selling their 17 million of shares of Amogear stock at was an

average of $.15 per share.14

II. A Sentence of 42 Months is Reasonable and Necessary Under 18 U.S.C. § 3553(a)

The government believes that 42 months is a period of incarceration that would best reflect

the goals of 18 U.S.C. § 3553(a), particularly the need for deterrence and for the sentence to reflect

the seriousness of the offense and promote respect for the law. The conduct which led to Brown’s

conviction—two organized schemes to systematically inflate the stock price of shell companies in

order to push their worthless securities on the investing public—is serious, particularly in light of

Brown’s history of participation in the shadowy world of penny stock promotion. Though Brown

only had a few discussions with the CW, these recorded conversations clearly illustrate how

deeply immersed in the world of pump and dumps Brown was. Brown spoke dismissively about

meeting another stock promoter who “didn’t know who [Brown] [was]” and scoffed at the idea of

putting “friends and family in start-up pink sheets [stocks] and . . . staying on these companies for

3 years.” (Exhibit A, at AMOGEAR 18_01_2, 17:24-18:10). Tellingly, a good number of the

individuals whom he acknowledged doing “deals” with have been charged for participating in

pump-and-dump frauds themselves. Moreover, Brown knew full well that pump and dumps were

fast money opportunities, not long-term investments. These were “liquidation” deals, as he put it.

(Id. at AMOGEAR 18_02_1, 2:06-2:17). Appearances were all that mattered, and Brown

bragged about working with traders who were well-versed in creating a façade of legitimate 14 While at one point Brown mistakenly calculated their expected proceeds at “a million eight” if

they sold their Amogear stock at an average of $.15/share (Exhibit A, AMOGEAR 18_02_1, 20:51-21:14), this would still place Brown in the $1.5-$3.5 million loss level (i.e., $1.8 million + $855,586 = $2,655,586).


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trading in a stock to bolster its apparent value. Brown was then able to complete the illusion of

making the stocks that he was selling look legitimate and desirable by sending out false touting

e-mails from websites that he and the Affas controlled, and by paying others to do the same.

Brown is not some first-time market manipulator. He is a repeat offender who has made

hundreds of thousands of dollars (or more) playing the pump-and-dump game. The fact that

neither Greenway nor Amogear, as companies, had any chance of success did not deter Brown

from scheming to sell millions of shares of their worthless stocks by spinning yarns about luxury

resorts and nonexistent product lines. In fact, Brown actually laughed, on tape, at the notion that

Amogear was nothing more than a box and joked about bringing the company home with him.

Clearly, Brown could not have cared less about the innocent investors who were left holding the

bag after he and his coconspirators had sold their stock and moved onto the next pump and dump.

Finally, the First Circuit has noted the significance of sentences that promote general

deterrence in the cases of white collar defendants. See United States v. Mueffelman, 470 F.3d 33,

40 (1st Cir. 2006) (the deterrence of white collar crime was “of central concern to Congress” in

fashioning sentences for white-collar crime). Stock manipulation schemes present a particular

need to send a strong deterrent message because the perpetrators of such schemes, like Brown and

his coconspirators, contribute to the public’s perception that the financial markets are rigged by,

quite literally, rigging the microcap markets through manipulative trading techniques and the

widespread dissemination of false information about the securities being sold. This not only

harms the investors who buy the worthless securities being peddled, but also destroys the public’s

trust in these markets, thereby preventing legitimate companies from being able to raise necessary

capital through the sale of their stock. The sentence imposed should therefore be one that sends a


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clear message to all others who would engage in similar unlawful activities: if they are caught

rigging the financial markets, they will face significant consequences.

CONCLUSION

For the foregoing reasons, the government respectfully submits that a sentence of 42

months of imprisonment is not only reasonable, but also necessary to effect the purposes of 18

U.S.C. § 3553(a). The United States respectfully requests that the sentence include a fine of

$100,000, 36 months of supervised release, a mandatory special assessment of $900, and an order

of forfeiture in the amount of $420,643.

Respectfully submitted, JOHN T. MCNEIL Attorney for the United States Acting under Authority Conferred by 28 U.S.C. § 51

By: /s/ Andrew Palid

ANDREW J. PALID ERIC A. FORNI

Special Assistant U.S. Attorneys VASSILI THOMADAKIS

Assistant U.S. Attorney

Dated: May 9, 2016


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CERTIFICATE OF SERVICE

I hereby certify that this document, filed through the ECF system, will be sent electronically to the registered participants as identified on the Notice of Electronic Filing (NEF).

Dated: May 9, 2016 /s/ Andrew Palid

ANDREW J. PALID


Documents

USA v. Affa Et Al Doc 81 Filed 09 May 16