Jury finds Guy Gentile liable as control person of SureTrader in SEC case
On Tuesday, July 2, 2024, after a ten-day trial, a jury in the United States District Court for the Southern District of Florida found Guy Gentile, the founder, owner, and CEO of MintBroker International, Ltd., f/k/a Swiss America Securities Ltd. and d/b/a SureTrader, a Bahamas-based broker-dealer, liable as a control person of SureTrader, which operated as a broker-dealer in the United States without being registered, in violation of the federal securities laws. The jury also found Guy Gentile liable for inducing SureTrader’s registration violations.
The SEC filed a complaint on May 22, 2021, alleging that from no later than March 2016 until at least November 2019 (the “Relevant Period”), Defendants MintBroker International, Ltd., f/k/a Swiss America Securities Ltd., d/b/a SureTrader) (“SureTrader” or the “Company”) and its founder, owner, and chief executive officer Guy Gentile (a/k/a Guy Gentile Nigro) (“Gentile”) operated an offshore broker-dealer in the Bahamas designed to help day traders in the United States circumvent the U.S. rules that regulate pattern day trading.
According to the SEC, Gentile hatched his plan in early 2012. With only about 100 customers and bleak business prospects, Gentile recognized that SureTrader would go out of business absent an influx of new customers. Gentile focused his gaze on the United States, where pattern day traders are subject to the Financial Industry Regulatory Authority’s (“FINRA”) Pattern Day Trader Rules (the “U.S. Pattern Day Trader Rules” or the “Rules”), and began marketing SureTrader as a way to avoid the Rules by trading through an offshore broker-dealer. SureTrader’s website even explicitly advertised itself as a way “to avoid the nasty PDT [(Pattern Day Trading)] Rule.”
Gentile’s plan worked. At various times during the Relevant Period, up to 80% of SureTrader’s customer base was comprised of U.S. customers. SureTrader grew from a three-man shop to one with 75 employees, more than 40,000 customer accounts, and assets of more than $10 million. According to Gentile, SureTrader effected transactions in excess of $1 billion on behalf of its customers.
Gentile and SureTrader profited from the broker-dealer services they provided. U.S. customers paid SureTrader commissions on their transactions, amounting to millions of dollars.
While SureTrader worked to help U.S. customers circumvent the Rules, SureTrader itself failed to comply with the mandatory broker-dealer registration requirements of the U.S. securities laws—namely, the federal securities laws that prohibit unregistered foreign broker-dealers from soliciting U.S. customers.
By failing to comply with the broker-dealer registration requirements, SureTrader and Gentile avoided certain regulatory obligations for broker-dealers that govern their conduct in the marketplace, including submitting to regulatory inspections and oversight, following financial responsibility rules, and maintaining books and records
The SEC charged that through these activities, SureTrader violated Section 15(a)(1) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78o(a)(1), by acting as an unregistered securities broker-dealer and that Gentile is liable for SureTrader’s violations as a control person under Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a), and for violating Section 15(a)(1) of the Exchange Act, 15 U.S.C. § 78o(a)(1), through or by means of SureTrader in violation of Section 20(b) of the Exchange Act, 15 U.S.C. § 78t(b).
On May 22, 2024, the charges against Gentile went to a jury to determine Gentile’s fate. On June 2, 2024, the jury returned a verdict in favor of the SEC, ruling that Gentile is liable for the securities violations committed by Suretrader as its control person.
Guy Gentile’s Past
Gentile has a long history in the securities industry, including some past encounters with regulators.
In 2012, Gentile was arrested by Customs and Border Patrol while sitting on a plane awaiting takeoff from the Westchester, New York airport. The customs agents transferred him to the custody of the FBI, who escorted him to Newark, New Jersey for a weekend stay in jail. There he was informed he’d been named in a sealed complaint for alleged crimes committed in connection with two pump and dump operations from years earlier.
Guy Gentile Becomes BFF With the FBI
While still en route to Newark, the FBI agents explained they were chiefly interested in Gentile’s dealings with Adam Gottbetter, a New York attorney they suspected of extensive securities fraud. They said they wanted Gentile to cooperate with them in the hope of obtaining a conviction. Gentile didn’t hesitate. Even before consulting an attorney, he agreed in principle. Once he’d spoken with his lawyer, he consented to help the authorities not only with the two pump and dump schemes but also with other investigations. Over time, his relationship with his FBI handlers expanded, even becoming what Gentile saw as a kind of friendship.
According to Gentile, he did not initially demand a written non-prosecution agreement. What happened almost four years later shocked and surprised him. On March 23, 2016, the SEC filed a civil lawsuit naming him, and the Department of Justice refiled its complaint and charged him with one count of conspiracy to commit fraud and one count of securities fraud. Feeling he’d been blindsided by his “friends” at the FBI, he filed a motion to dismiss the indictment on July 14, 2016, one day short of the anniversary of his arrest. The pleading raises a number of questions about how law enforcement treats confidential informants it’s persuaded to work for and with them.
The Pump & Dump Scams: RVNG
Gentile’s troubles began when he agreed to participate in the promotion of two penny stocks, Raven Gold Corporation (RVNG) and Kentucky USA Energy, Inc. (KYUS) in 2007-2008.
The SEC says that “between September 2005 and approximately August 2006, a pair of penny stock promoters from Canada (the “RVNG Owners”) bought the Riverbank Resources shell from the attorney who had created it. In early 2007, the new owners met Toronto promoters Mike Taxon and Itamar Cohen through a mutual acquaintance and asked them to set up a pump and dump operation. The Toronto touts were sued by the SEC for their role in the scam in May 2015. The owners agreed to give Taxon and Cohen a block of unrestricted stock to be used in the promo for a hard mailer, other advertising, and manipulative trading that would “create the false impression of liquidity and active interest” in the issue.
To make the plan work, Taxon and Cohen needed a “trader,” and chose Gentile for the job. During mid-May and mid-June, 27 million shares of RVNG stock were transferred to offshore accounts controlled by the trio.
As the initial phase of the promotion got underway, Taxon and Gentile traded RVNG stock among their accounts to suggest increasing liquidity and interest. Along with Cohen, they contacted penny stock traders and promoters known to them, offering to provide free RVNG shares as kickbacks for open market purchases of the stock. Naughty began to issue glowing press releases.
The bulk of the cash generated from the promoters’ stock sales went to advertising at websites including Bloomberg and the Wall Street Journal, and for a glossy “newsletter” that was distributed in mid-July 2007, and purported to have been compiled by an entity called “Stock Trend Report.” Not surprisingly, the report pointed to the stock’s “remarkable uptrend so far.” That “trend” had, of course, been created by Taxon and Gentile trading between themselves. The SEC characterized most of the statements made in the mailer, including the disclaimer, as “materially false and misleading.”
Predictably, RVNG’s stock price and volume increased dramatically during the promotion, the price reaching a peak of $1.73. According to the SEC, Gentile, Taxon, and Cohen’s sales of stock generated gross proceeds of about $5 million.
The Pump & Dump Scams: KYUS
The Kentucky USA Energy promotion followed on the heels of the RVNG effort. It was commissioned by Adam Gottbetter, a New York attorney specializing in penny stocks, and a partner not named in the SEC’s eventual complaint against Gottbetter. The two men became acquainted with Gentile in the summer of 2007. Over the next few months, a plan was laid. Guy Gentile would bring Taxon and Cohen in on the deal, and they would proceed as they’d done with the RVNG promotion.
KYUS had been formed in Delaware in September 2006 as Las Rocas Mining Corp. Its initial registration statement, an SB-2, became effective in June 2007. Gottbetter purchased all of the shell’s unrestricted stock in October 2007 for $760,000. The funds were provided by him, his partner, Gentile, Taxon, and Cohen. In return, Gentile and his promoter associates received 75 percent of the KYUS stock, some of which would be used to facilitate the pump. The rest was split between Gottbetter and his partner. The plan was to merge the public Las Rocas shell with a new private company, Kentucky USA Energy, that had been created in October 2007.
As before, Gentile’s group deposited their stock with offshore brokerages in the names of nominee entities. Gentile and Taxon then began to “build the chart,” as they put it, to give an impression of activity and interest. Gentile asked trader friends to buy on the open market, promising to tip them off when the promotion was to begin in earnest. The stock price gradually rose.
The Las Rocas-Kentucky USA merger closed on May 2, 2008. Shortly afterward, a mailer prepared by Gentile and his partners was sent out under the name “Global Investor Watch.” The mailer disclosed that it had been funded by a fictitious entity called Green Century Capital; in fact, it was paid for from the proceeds of sales of Taxon and Cohen’s stock. Once the promotional fluff had hit potential investors’ mailboxes, KYUS’s volume increased dramatically, and the stock price soared to a high of $3.97.
U.S. Regulators Make Their Move
The participants in the scheme took in about $10 million in gross proceeds, by the SEC’s calculations. In 2015, Gottbetter and two accomplices who helped with later promotions, Canadians Mitchell Adam and K. David Stevenson, were sued by the SEC on the same day the agency filed against Taxon and Cohen. In September 2014, Gottbetter pled guilty to crimes committed in connection with those two later promotions; he was sentenced to 18 months in prison, fined $60,000, and ordered to forfeit $344,967. He was subsequently disbarred.
Gottbetter’s partner in the KYUS fraud was never named in the pleadings associated with the KYUS case, but FBI Informant, Guy Gentile’s own account of his work for and with the New Jersey State’s Attorney’s office identifies him as Samuel DelPresto, owner and operator of MLF Group, LLC, a promotional outfit. DelPresto and MLF were sued by the SEC in December 2015 in connection with unrelated pump and dump schemes involving BioNeutral Group, Inc. (BONU), NXT Nutritionals Holdings, Inc. (NXTH), Mesa Energy Holdings, Inc. (MSEH), and Clear-Lite Holdings, Inc. (CLRH). In June 2015, months before the SEC suit was filed, DelPresto agreed to plead guilty to a single count of conspiracy to commit securities fraud for offenses committed between 2007 and 2010. Kentucky USA was one of the companies referenced in the agreement, along with the four cited in the SEC civil action, and Empire Post Media, Inc. (EMPM), Mustang Alliances, Inc. (MSTG), IDO Security, Inc. (IDOI), Brainy Brands Co., Inc. (TBBC), Premier Brands, Inc. (BRND), and LTS Nutraceuticals, Inc. (LTSN). DelPresto’s guilty plea was entered in December 2015, simultaneously with the announcement of the SEC action. According to the SEC’s complaint, DelPresto worked on the BONU, NXTH, MSEH, and CLRH schemes with a partner who is not named in the litigation. It seems certain that the partner was, at least in the case of MSEH, Adam Gottbetter.
A New Life for Guy Gentile
According to Guy Gentile, when he was arrested in 2012, one of the first things the FBI told him was that they were interested in Adam Gottbetter. He agreed to cooperate and began a new life and, in a sense, a new job. Free to carry on more or less normally under FBI supervision, he renewed his acquaintance with Gottbetter. Gottbetter persuaded Gentile, who pretended he’d “retired” from the promo game, to participate in a new deal; one in which Dynastar Holdings (DYNA) and HBP Energy Corp (HBPE) would be pumped and dumped. Gottbetter was already working with Mitchell Adam and David Stevenson but felt Gentile would make a good addition to his team.
That was a mistake. The would-be manipulators put together plans to run the two stocks following the KYUS model, but as Gentile puts it, “[a]fter Gottbetter took sufficient steps in furtherance of this new scheme, the government arrested… Stevenson, and Gottbetter was charged criminally in connection with the new scheme [as] well as co-conspirator Mitchell Adam.” Gottbetter was picked up in December 2013, but the criminal charges against the attorney weren’t immediately announced. In the meanwhile, Gentile says, DelPresto, realizing the Feds were onto him, cooperated in two investigations that resulted in the indictment of more than two dozen people involved in two $300 million pump and dump schemes. He does not offer further information about those cases.
Gentile’s Cooperation as a Penny Stock Informant
Gentile continued to do the FBI’s bidding for the next several years and collaborated with the SEC as well. Sometimes, he participated in sting operations; sometimes, he merely supplied information that had come his way; sometimes, he engaged in cloak-and-dagger operations he seemed to have enjoyed. He also at least once played instructor. When the FBI was working to bring down Robert Bandfield, Andrew Godfrey, and a number of other individuals and brokerage firms active in Belize, Gentile trained the undercover FBI agent who would infiltrate the group, teaching him what to say and how to act. In September 2014, the DOJ indicted Bandfield, Godfrey, and four associates for money laundering, securities manipulation and more. The authorities described the scheme as a $500 million fraud. Additional defendants, including well-known penny stock players, Philip Kueber and Gregg Mulholland, were later added to the case. The SEC also brought parallel civil actions.
Gentile also helped with the investigation of Alex Milrud’s complex schemes. Milrud, a Canadian from the Toronto area living in Florida, hired Chinese and Korean traders to engage in “layering,” a sophisticated form of spoofing. Layering is considered by the SEC to be manipulative trading. Gentile arranged a meeting with Milrud in his office at SureTrader in the Bahamas. The FBI had installed keylogger software that at first refused to work; Gentile also had to find a way to drown out the loud clicking noise the audio recorder made when he turned it on. In the end, all went well: “Ultimately, I was able not only to lay the groundwork for a future investigation into Milrud but actually convinced him to log onto my computer and engage in fraudulent layering trading with his Chinese traders.” Milrud was charged by the DOJ in January 2015 and was simultaneously sued by the SEC. The SEC contended that Milrud’s operation brought in between $1 million and $50 million a month.
Guy Gentile Realizes the FBI Is Not His Friend
Guy Gentile was not the FBI’s first or only informant, of course. In the past, we’ve written about Felix Sater, among others. Gentile was aware that DelPresto and an associate had themselves offered to cooperate. It’s likely that several of the Bandfield defendants who pled guilty also sang like canaries, though as far as we know, none of them has been working undercover for the authorities.
Gentile worked for the FBI for more than three years after his sealed indictment had been filed. He didn’t agree to plead guilty, much less do so. He hoped that the more helpful he was—the more Brownie points he earned—the more likely the FBI was to recommend that the DOJ not prosecute. He says that by early spring of 2014 when the Gottbetter investigation was complete, the agents he worked with “began telling [him]” that he wouldn’t be charged once his cooperation ended:
I have a specific recollection of the agents saying to me things like: They could “make the charges go away” if I cooperated against Gottbetter (on July 13, 2012); they were “not going to let anything happen to [me]” (shortly after February 2014); I was “more like an agent” and “no longer a cooperating witness” (in February 2014); there was no need to charge me given that my testimony was no longer needed (in February 2014); I would “walk” because I “fulfilled [my] agreement with Gurbir” (in February 2014); and, all the work I was doing is so that I would “not be charged” (in 2013 and 2014).
He was not unaware that another outcome was possible. From the outset, he’d signed yearly tolling agreements. The tolling agreements waived his right to claim that an eventual prosecution should be dismissed because the statute of limitations expired.
In February 2014, Guy Gentile told the agents he wouldn’t sign another tolling agreement. That would mean the government would have only one year from the time it expired a few months later in which to file charges against him. The agents confirmed his understanding of the situation. He then told the Assistant United States Attorney (AUSA) assigned to the case that he was no longer interested in cooperating unless the government agreed not to “reinstate its previously withdrawn felony charges.” The AUSA suggested it was in his best interest to continue his cooperation, saying “that “while I was more likely to be charged if I stopped cooperating if I continued my cooperation, I was more likely not to be charged with a felony at its conclusion, because I could then make a “better presentation” as to why I should not be charged with a felony.”
Concerned that the Feds could use the tolling agreement stick to force him to cooperate indefinitely, he agreed to continue his work for them on the chance of finally getting the carrot he wanted but refused to sign another tolling agreement. That way, he thought, he’d be free of any threat of Federal prosecution by June 30, 2015. At the time of his refusal, he was busy with the Milrud case and hoped law enforcement would consider it important enough to warrant his freedom. He went on working for the government into the summer of 2015, without a tolling agreement. To his dismay, in July of that year, he was told he would be prosecuted.
The Unsealed Indictment and Gentile’s Motion to Dismiss
Guy Gentile’s protestations notwithstanding, on March 23, 2016, the U.S. Attorney’s Office for the District of New Jersey charged him; on the same day, the SEC filed civil litigation. In response, he filed a motion to dismiss based on violations of the statute of limitations, his right to a speedy trial, and his right to due process.
Gentile’s attorney explains that his client’s initial arrest was handled in an unusual way. Once the oral cooperation agreement was struck, rather than arraign Gentile and release him on bail, leaving the complaint sealed, the government withdrew the complaint entirely. The U.S. Attorney’s Office did require Gentile to post bail, but “without any judicial knowledge, approval or oversight.”
The statute of limitations applicable to Gentile’s alleged crimes expired on June 30, 2015. The tolling agreements did not extend it beyond that point because, according to counsel for the defense, “the tolled charges would in fact be time-barred” if not brought by that date. Even if that were not the case, the statute of limitations for the offenses alleged is only five years. Eight years had passed since Gentile’s involvement in the RVNG pump and dump operation.
The defense argues that Guy Gentile’s constitutional right to a speedy trial triggered on the day of his arrest in 2012, was abridged because his liberty was restricted—the authorities held his passport except when they authorized its use—and his daily activities were largely under the control of the government. When the FBI required his services, he was expected to drop everything and get on the job. He reported this took a toll on his marriage and on his businesses, even though SureTrader, his Bahamas brokerage, had proved useful to the FBI in several cases, particularly the one involving Alex Milrud.
Counsel also invokes the fundamental fairness doctrine of the Fifth Amendment’s due process clause, contending that the government’s “explicit and implicit statements” created a de facto non-prosecution agreement. Gentile’s handlers heaped him with praise and, at least from his point of view, treated him as one of their own. He genuinely believed they were sincere when they told him they’d never allow the government to prosecute him.
The defense closed with a demand that the indictment be dismissed with prejudice.
Guy Gentile Gets Good News
On January 30, 2017, Gentile got the good news he’d been hoping for: Judge Jose Linares of the United States District Court for the District of New Jersey dismissed the indictment filed against him by the Department of Justice. For more details, please visit our past articles from September 2016, December 2016 and February 2017.
But, it turns out that while Gentile was stepping out clean from his earlier indiscretions, he was already getting into new trouble by skirting US regulations through his broker-dealer, Suretrader. But in true Guy Gentile style, he isn’t quite ready to give up. Gentile’s attorney has already announced that Gentile will appeal the jury verdict rendered on Tuesday.
For further information about this securities law blog, please contact Brenda Hamilton, Securities Attorney, at 200 E. Palmetto Park Rd, Suite 103, Boca Raton, Florida, (561) 416-8956, or by email at [email protected]. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
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