by Mike Caswell
George Georgiou, the former Toronto broker convicted in the United States for securities fraud, has appealed his conviction and subsequent sentence. The appeal comes six weeks after U.S. District Court Judge Robert Kelly sentenced him to 25 years in jail and ordered him to pay $55.8-million in restitution for a four-year scheme that caused $57-million in investor losses. (All figures are in U.S. dollars.) Prosecutors successfully argued during a 13-day trial in February, 2010, that Mr. Georgiou manipulated four pink sheets companies between 2004 and 2008 and caused the demise of a Bahamian brokerage, Caledonia Corporate Management Group. A Pennsylvania jury convicted him on Feb. 15, 2010, and he has been in jail since.
While Mr. Georgiou has not yet stated his reasons for appealing, he previously contended in a motion for a new trial that the prosecution's key witness, Kevin Waltzer, was not credible. Mr. Waltzer was facing criminal charges of his own for a $40-million insurance fraud, and there was evidence that he had defrauded individuals of hundreds of thousands of dollars during the time he was helping the government, Mr. Georgiou argued. Judge Kelly denied the motion on Sept. 29, 2010, ruling that there was nothing wrong with the testimony of Mr. Waltzer or other witnesses.
Mr. Georgiou could also take his submissions on sentencing to the appeal court. In a presentence memorandum, he said that prosecutors unfairly held him responsible for $57-million in investor losses when the market was in a general decline. He pointed out that between October, 2007, and March, 2009, average share prices dropped significantly, wiping out trillions of dollars in wealth. The same decline would have affected the stocks that prosecutors said he manipulated.
It is not clear when the appeal court will hear his case. Mr. Georgiou, meanwhile, is a guest of the U.S. Bureau of Prisons, which lists his current location as FTC Oklahoma City, a jail for inmates awaiting transfer to other prisons.
Georgiou's indictment
On Feb. 12, 2009, a grand jury in the Eastern District of Pennsylvania indicted Mr. Georgiou on eight counts of fraud and one count of conspiracy. According to the indictment, Mr. Georgiou and Mr. Waltzer manipulated four stocks between April, 2004, and September, 2008. The indictment listed the companies as: Neutron Enterprises Inc., Avicena Group Inc., Northern Ethanol Inc. and Hydrogen Hybrid Technologies Inc.
Much of the indictment described the sting operation in which the FBI ensnared Mr. Georgiou. In 2007, the government learned of Mr. Georgiou's activities after launching the insurance fraud case against Mr. Waltzer. In the course of negotiating a plea agreement, Mr. Waltzer agreed to inform on several individuals, including Mr. Georgiou. He told prosecutors how he had helped Mr. Georgiou manipulate stocks by executing precise buy and sell instructions.
In 2007, the FBI had Mr. Waltzer introduce an undercover agent to Mr. Georgiou. The agent, who used the alias Charlie, used a deception previously employed on stock promoters. He pretended to be a person with access to corrupt brokers who were willing to use discretionary accounts to buy shares. In return, they would receive a kickback, typically 30 per cent.
According to the indictment, Mr. Georgiou agreed to small test transaction with Charlie in August, 2007. Charlie would have his brokers buy 16,000 shares of Northern Ethanol. The FBI then bought the stock using an undercover account, and Mr. Georgiou sent a $5,000 bribe.
The next step in the sting was a face-to-face meeting meeting, purportedly to discuss larger buys and larger kickbacks. According to the indictment, Mr. Georgiou met Charlie in the restaurant at the Ritz-Carlton hotel in Pennsylvania on Sept. 17, 2008. After the initial meeting, they went to a hotel room to discuss details. They agreed that Charlie would have his brokers buy $500,000 worth of stock every week for five months, and that the accounts would hold the stock for at least a year. At the end of the meeting, the FBI arrested Mr. Georgiou.
During Mr. Georgiou's sentencing, prosecutors sought a jail term of at least 30 years. They said he showed no remorse for his crimes, and presented a serious financial threat to society. The government also pointed out that Mr. Georgiou lied to the jury and, before the trial, threatened to have Mr. Waltzer's legs broken.
Mr. Georgiou asked for a term of nine to 11 years. Among other things, he said he was the sole source of financial support for his family. His wife would not be able to look after their four young children on her own.
In addition to the criminal charges, Mr. Georgiou is facing a parallel civil suit from the U.S. Securities and Exchange Commission. That case has been on hold pending the outcome of the criminal matter, and the SEC has not yet applied to reopen it.