A Las Vegas company marketing smoke-free cigarettes and its CEO were accused of stock fraud Thursday after they were caught in an FBI sting operation.
The Securities and Exchange Commission filed suit in Florida against Thomas Schroepfer, aka Thomas Schroepfer Baetsen, and his company SmokeFree Innotec Inc.
The suit claims Schroepfer, SmokeFree Innotec and a stock promoter, Charles Fuentes, "engaged in a fraudulent scheme involving the stock of SmokeFree involving illicit kickbacks and phony agreements."
The U.S. Attorney’s Office in Miami separately announced criminal charges against Fuentes, 66, of Dana Point, Calif.; and Schroepfer, 54, Las Vegas.
They were each charged with one count of conspiracy to commit securities fraud in what the Justice Department said was "a scheme to defraud the investing public by engaging in deceptive and manipulative trading practices in connection with Smoke Free Innotec stock."
A message for comment was left with SmokeFree Innotec.
The SEC said the SmokeFree case was one of four filed in Florida involving schemes to manipulate the volume and price of penny stocks and illegally generate stock sales.
"The schemes featured illicit kickbacks, a bribe to a purported corrupt broker and the creation of a website to deliver e-mail blasts to potential investors," the SEC said in a statement.
Most of the schemes uncovered by the FBI undercover operation involved the payment of kickbacks to a purportedly corrupt pension fund manager in exchange for the fund's purchase of shares of stock in the various microcap companies, the SEC said.
Another scheme involved a bribe that was to be paid to a purported corrupt stockbroker who agreed to use his ability to buy stock in his customers' discretionary accounts to purchase a microcap company's stock in the open market, the SEC said.
SmokeFree Innotec, in the meantime, saw its stock price fall from 3 cents to 1 cent on the news Thursday, according to its website.
SmokeFree Innotec on its website says it’s "in the business of designing, developing, manufacturing and marketing hi-tech, nicotine and non-nicotine cigarette-like delivery devices which are completely smoke and vapor-free and tobacco-free."
These products purportedly "are designed to protect the non-smoker from second hand smoke and all its effects while providing the smoker a way to enjoy a smoke-free cigarette anywhere, including places where vapor emissions are offensive or smoking tobacco or similar substances is prohibited."
The SEC lawsuit says Schroepfer, with the assistance of Fuentes, paid illegal kickbacks to the purported pension fund trustee so the trustee would purchase 400,000 restricted shares of SmokeFree stock. In addition to the kickbacks, SmokeFree issued shares of its stock as payment to a middleman who introduced them to the purported pension fund trustee, the suit says.
"Unbeknownst to the defendants, the corrupt pension fund trustee was a creation of the FBI. The pension fund’s purported friend who helped arrange the deals was an undercover FBI agent, and the middleman was a witness cooperating with the FBI," the SEC complaint says.
The suit says that on May 6, 2009, following several telephone calls between Fuentes and the "cooperating witness," Schroepfer and Fuentes met with the cooperating witness and the agent in Florida to finalize a deal.
"Fuentes described his role with SmokeFree, stating his responsibility was to `maintain the public entity, create liquidity in the stock, ongoing advertising, marketing programs, [and] campaigns.’ Also, during the meeting, Fuentes stressed the need to increase the stock’s price and volume, stating, `we’ll create the volume and liquidity in it, we’re gonna pay and spend whatever we need to bring in some other people in to help create liquidity in the stock and get the price up,”’ the lawsuit says.
"As part of the scheme, the parties agreed the pension fund would purchase $20,000 worth of SmokeFree stock in exchange for a 30 percent kickback by the company to the pension fund trustee. In addition, the defendants agreed the cooperating witness, as a middleman, would receive shares of SmokeFree stock for introducing the parties to the deal," the suit says.