Encrypted disappearing texts. Cash bribes. Pawn shop transactions and rolex watches. It sounds more like a “Get Shorty” novel than fraud charges the Securities and Exchange Commission’s filed against four men allegedly involved in a bribery scheme to get a former broker to buy $750,000 of company stock without his customers’ knowledge.
The SEC has charged a former registered rep, a publicly-traded IT company president and two “investor relations” professionals, all based in New York, who allegedly were involved in the bribery scheme to entice the broker to buy the IT stock in his customers’ accounts without their knowledge.
The defendants allegedly took a number of steps to avoid detection, including using cash and encrypted, content-expiring text messages and pawning a watch to avoid a taking a bank withdrawal for one cash bribe, the SEC said.
According to the SEC's complaint, which was filed in the United States District Court for the Eastern District of New York, so-called investor relations specialists Jeffrey Auerbach, 49, and Jared Mitchell, 37, entered into purported "consulting agreements" with Gino M. Pereira, the then-CEO of Nxt-ID (NXTD), Inc., a publicly-traded security technology company to generate sale of his company’s stock from approximately July 2014 through October 2015.
The agreements were actually a scam through which Auerbach and Mitchell funneled cash bribes from NXTD’s Pereira to Richard Brown, 40, a registered rep, to pay him to purchase NXTD stock in Brown's customers' accounts. The SEC alleges that Brown did not disclose the fact or amount of the bribes he received to his customers.
Mitchell, one of the purported investor relations specialists, was imprisoned in 2016 for a similar securities fraud conviction, the SEC said.
In sum, Pereira sent Mitchell and Auerbach at least $136,000 and Auerbach paid Brown at least $20,000 in cash bribes in exchange for Brown recommending and buying more than $750,000 NXTD stock in his customers’ accounts, without disclosing the fact or the amount of the bribes he received to his clients.
Once, in order to avoid making a large bank withdrawal to pay Brown, Auerbach pawned a Rolex watch he owned and paid Brown $5,000 in cash—leaving the money in an envelope with the doorman at Auerbach’s Manhattan apartment building, according to the SEC’s complaint.
The SEC estimated that Brown’s customers lost more than $100,000 as a result of the alleged scheme.
The complaints in these actions charge Auerbach, Brown, Mitchell, and Pereira with violating antifraud and other provisions of securities law. The complaints seek permanent injunctions, disgorgement plus interest, and penalties against all defendants, an officer-and-director bar against Pereira, and penny stock bars against Pereira, Brown, and Mitchell.