13 nabbed for paying kickbacks in FBI sting operation of penny stocks

By Todd Wallack, Globe Staff

The US government today charged 13 corporate executives, lawyers, and penny stock promoters with agreeing to pay illegal kickbacks, the result of a year-long FBI sting operation run out of Massachusetts.

As part of the sting, an undercover FBI agent pretended to work for a local office of a New York hedge fund in an unnamed Boston suburb, according to government documents. The agent then approached both companies and intermediaries, offering to arrange for his fund to invest up to $5 million in the firms -- under the condition that the companies secretly kick much of the money back to him.

Authorities said the agent met with about 30 individuals in the Boston area office from October 2010 through September 2011.

The government filed criminal charges against executives of two Massachusetts companies: Michael Lee, 51, of Hingham, chief executive of ZipGlobal Holdings Inc., a former telecommunications firm in Hingham now focused on lighting products; and Paul Desjourdy, 50, of Medfield, chief executive of Symbollon Corp./Symbollon Pharmaceuticals, Inc. a specialty biotechnology firm in Medfield. Both were charged with mail fraud and conspiracy to commit securities fraud.

Eleven other defendants from across the country were charged with fraud, including Edward Henderson, 69, of Lincoln, R.I.. Henderson, who helps firms obtain financing, allegedly arranged for the agent posing as a hedge fund representative to meet Desjourdy in hopes of receiving a portion of the kickback.

The Securities and Exchange Commission also filed civil charges against Lee, Desjourdy, and Henderson for allegedly manipulating trading in microcap stocks -- companies with a very small market value that are typically traded over the counter, instead of on better known exchanges such as Nasdaq or the New York Stock Exchange

Lee’s attorney, Thomas Brant, said his client was “shocked and devastated” by the charges, but declined to comment further. Desjourdy’s lawyer declined comment. Henderson’s attorney could not be reached.

As result of the probe, the SEC suspended trading of Symbollon, ZipGlobal, and five other thinly traded public companies involved in the investigation. ZipGlobal last traded at 3 cents a share before being suspended. Symbollon last traded for less than a penny a share.

David Bergers, director of the SEC’s Boston office, said it’s important to thwart such kickback schemes - even involving small companies -- because it can hurt investors. A tainted hedge fund investment could artificially drive up a firm’s stock price, forcing other investors to pay more for shares or mislead them into thinking the company has more potential than it actually does.

“Although the stock price for these companies may be low, the damage can be very high,” Bergers said.

US Attorney Carmen Ortiz said the case was novel because FBI agents were able to partner with the SEC to use undercover tactics more common to drug and public corruption cases than securities.

“It’s really important that the markets operate in a fair and honest fashion,” Ortiz said. “We hope it serves a deterrent factor so that others will not engage in this kind of criminal activity.”

Todd Wallack can be reached at twallack@globe.com. Follow him on Twitter @twallack.