Federal authorities have charged a Philadelphia lawyer and three other men in a so-called pump and dump scheme to inflate the stock price of a publicly traded company that makes a Breathalyzer-like device to detect marijuana use.
Michael Garnick, 58, a personal-injury lawyer and investor who lives and practices in Center City, was arrested Friday and charged with securities fraud and conspiracy in a complaint and affidavit filed in federal court in Brooklyn by Bridget M. Rohde, the acting U.S. attorney for the Eastern District of New York. The other defendants, two of whom were also charged with money laundering, are from New York and New Jersey.
Garnick, reached at his Center City offices Saturday, said he was unaware of any illegal or improper activities.
"I became caught up in a scam," he said. "I was just an investor. I am totally innocent. I am a victim here and got caught up in someone else's nefarious activities."
Garnick said the company made a legitimate product that currently was the subject of clinical trials in Canada.
The Canadian government introduced legislation Thursday to legalize recreational marijuana use, a move that, if approved, would create significant demand for devices capable of detecting marijuana on the breath of drivers or workers in fields like construction.
U.S. authorities allege in the complaint that Chris Messala of Staten Island, N.Y., worked with Garnick to conceal his interest in BioCube Inc., which manufactures a "pot detector," so that Messala could more easily drive up its stock price through promotions and manipulative transactions designed to create the appearance of more market interest in the stock than was actually the case. In 2012, Messala had been banned from the investment advisory business by the Securities and Exchange Commission for various improprieties.
BioCube securities were in the category of "penny stocks," meaning that they traded for pennies on the dollar. The complaint alleges that Messala and his coconspirators planned to drive up the price to 20 cents or more, and that the scheme eventually generated $2 million in ill-gotten gains. Messala then employed a Paramus, N.J., consultant named Dimitrios Argyros with expertise in government anti-money laundering measures to avoid detection, according to the complaint.
The alleged scheme apparently unraveled when one of the participants, identified in the complaint only as "confidential witness," began working with the feds and recorded conversations with Messala and other participants. The feds also listened in on conversations between Garnick and Messala.
Garnick said on Saturday that he'd had no contact with any of the others named in the complaint.
In one of the recorded conversations referenced in the complaint, the confidential witness explains to one of the defendants, who is unidentified, how he imagines things would unfold.
"Three [cents] to a dollar," the witness says. "And then sell before it collapses again. So we have done deals like that, we will continue to do deals like that, where you know, the company, some of the companies are crap, there's no question, but we give them money because … we're going to buy it at three and sell it at a dollar, make two, three million dollars and be done with it."
"We know we're buying [the stock] at three pennies," the witness goes on. "We know through campaigns and manipulation and trading that the stock is gonna go up and we're gonna sell it. That's the bottom line."
The defendant answers: "OK, this is clear. Um, so what expectation do you have from me into this operation?"
The witness then tells him that he should form a company with bank accounts that would hold shares of BioCube that he intended to sell before the price went down.
A website for BioCube Inc., which lists an address in Phoenix, comes up with a page title "Pot and Portable Marijuana Breathalyzer, Canna Sense, Weed Maps and Detector."
It describes BioCube as "a biotechnology company that seeks to identify, mentor and facilitate the development of technologies, products and services for medical and biological applications," including a THC-detection device called the "CannaSens Delta9."
Shares were 13 cents at Friday's close, down less than one percent for the day. Bloomberg Markets listed a 56 percent year-to-date return.