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8/20/2019 USA v. Pustovit Doc 33 Filed 10 Dec 15
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United States’ Sentencing Memorandum - 1U.S. v. Pustovit, CR15-5251RBL
UNITED STATES ATTORNEY700 STEWART STREET, SUITE 5220
SEATTLE, WASHINGTON 98101(206) 553-7970
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The Honorable Ronald B. Leighton
UNITED STATES DISTRICT COURT FOR THEWESTERN DISTRICT OF WASHINGTON
AT TACOMA
UNITED STATES OF AMERICA,
Plaintiff,
v.
TOVY PUSTOVIT,
Defendant.
NO. CR14-5251 RBL
UNITED STATES’ SENTENCING MEMORANDUM
A mere two months after this Court enjoined defendant Pustovit from engaging in
further securities fraud and froze certain of his assets, defendant Pustovit, flouting the
Court’s Preliminary Injunction Order, set out to victimize more individual investors for
profit. In short, defendant Pustovit is a recidivist – a fraudster determined to rig the stock
market for his benefit to the detriment of retail investors.
Defendant Pustovit’s conduct demonstrates that he is not simply a young man who
was improperly influenced by his peers from whom he learned the intricacies of stock
manipulation. Early in defendant Pustovit’s involvement in illegal stock manipulation,he participated in pump and dump schemes with the other defendants this Court
previously sentenced, Alexander Hawatmeh, Christopher Mrowca, and Mikhail Galas.
These manipulations included the manipulation of ISM International, Inc. (ticker symbol
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United States’ Sentencing Memorandum - 2U.S. v. Pustovit, CR15-5251RBL
UNITED STATES ATTORNEY700 STEWART STREET, SUITE 5220
SEATTLE, WASHINGTON 98101(206) 553-7970
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“ISML”) in April 2012 and Allied Products Corporation (ticker symbol “ADPC”) in June
and July 2013. After learning how a pump and dump scheme worked, however,
defendant Pustovit struck out on his own – conducting his own manipulations of IBSG
International, Inc. (ticker symbol “IBIN”) in November and December 2013 andResource Recovery International Corp. (ticker symbol “RRIC”) in July 2014. In an effort
to stop defendant Pustovit from engaging in further securities fraud, the United States
Securities and Exchange Commission (“SEC”) sued defendant Pustovit in a civil
enforcement action on August 5, 2014. Undeterred by the SEC action and the arrest and
prosecution of Hawatmeh, Mrowca, and Galas, defendant Pustovit immediately set out to
destroy evidence.
In the weeks that followed, defendant Pustovit met with the undersigned Assistant
United States Attorneys and the FBI to discuss his misconduct, and he was told that he
would not be facing prosecution based upon his cooperation. Despite this assurance,
approximately three months later, defendant Pustovit made the decision to commit more
fraud. In order to hide his conduct from law enforcement, he engaged in an elaborate
scheme to defraud using straw accounts controlled by unsuspecting individuals in which
to conduct the manipulative trading. After the entry of this Court’s Preliminary
Injunction Order and his meetings with law enforcement, defendant Pustovit and his co-
schemer made an additional $98,396 in illegal profit. All told, defendant Pustovit’s
profits from his fraudulent conduct totaled over $300,000.
Given the significant profits defendant Pustovit made from his fraudulent conduct,
the impact on the victims and the integrity of the financial markets, the length of time
defendant Pustovit engaged in the criminal conduct, his obstructive behavior, the
violation of the Court’s Order, and the need to deter him and others from engaging in
stock manipulation, a 63 month term of imprisonment is sufficient, but not greater than
necessary, to reflect the goals of sentencing.
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United States’ Sentencing Memorandum - 3U.S. v. Pustovit, CR15-5251RBL
UNITED STATES ATTORNEY700 STEWART STREET, SUITE 5220
SEATTLE, WASHINGTON 98101(206) 553-7970
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I.
PROCEDURAL HISTORY
On May 19, 2015, defendant Pustovit pleaded guilty to a one-count Information
charging him with Securities Fraud. Presentence Investigation Report (“PSR”) ¶ 1.
Defendant Pustovit is scheduled to be sentenced at 10:30 a.m. on December 18, 2015.
II. FACTS
A. Background
1. Pump and Dump Schemes
A “pump and dump” scheme is a form of market manipulation designed to
create a false and misleading appearance of a market for and interest in the security of a
publicly traded company in order to entice unsuspecting investors to purchase the stock atartificially high prices. There are generally three phases to a pump and dump scheme: (1)
obtaining and concealing control of a significant portion of a publicly traded company's
stock; (2) fraudulently inflating the price and trading volume of the company's stock
through a variety of means, including engaging in manipulative, coordinated trading of
the company’s stock to create the false appearance of market interest, and disseminating
false and misleading promotional materials to the investing public; and (3) once the stock
price has been fraudulently inflated, selling or “dumping” the stock at the fraudulently
inflated price. The price of the manipulated stock collapses soon after the dump as the
perpetrators cease propping up the stock’s price, and innocent investors are left with
worthless stock.
Individuals engaged in pump and dump schemes are frequently affiliated
with stock promotion websites and/or email accounts. These individuals use these
websites and email accounts to disseminate false and misleading promotional materials
concerning the stock. For example, they will blast false and misleading email
communication touting a likely sudden increase in a particular stock price or volume
without disclosing the fact that, in truth, the promoters were responsible for the recent
increase in price and volume through their manipulative, coordinated trading activities.
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UNITED STATES ATTORNEY700 STEWART STREET, SUITE 5220
SEATTLE, WASHINGTON 98101(206) 553-7970
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Manipulators frequently cause the dissemination of a barrage of misleading promotional
materials concerning a specific stock at or near the end of the manipulation. The
manipulators then sell their accumulated position at the same time the promotions are
disseminated, thus profiting from the interest generated by the promotions.The stocks favored in market manipulation schemes are generally those that
are thinly traded and quoted through an "over-the-counter" alternative trading service,
such as OTC Markets or OTCBB. These OTC trading platforms provide a marketplace
to quote and trade shares of companies that do not meet the listing requirements for
trading on a national exchange, such as the New York Stock Exchange or NASDAQ.
Many companies, or "issuers," that offer their stock through OTC trading platforms do
not submit regular, independently audited financial reports or make other disclosures with
the SEC. The securities associated with such non-filing issuers do not have many buyers
and sellers; in other words, they are “thinly traded.” They also often trade at prices well
below one dollar per share, and hence are sometimes known as "penny stocks." With
little to no information about the issuer coupled with thin trading, such stocks are
susceptible to manipulation by individuals who are able to accumulate large blocks of
shares for the purpose of profiting from the manipulation.
2.
Manipulative Stock Trading Practices
Manipulative trading techniques frequently involve trading activity with no
real economic purpose, including "matched trades" and a practice known as "layering" or
"spoofing." A matched trade is trading that involves the prearranged purchase and sale of
stock between accounts controlled by different parties. Colluding parties engage in
matched trades in order to create the misleading impression of an increase in trading
volume and price. Layering or spoofing is a practice where a trader places non-bona fide
orders - orders that the trader does not intend to have executed - to induce others to buy
or sell a stock at a price not representative of actual supply and demand. More
specifically, when engaging in layering or spoofing, a trader repeatedly enters a buy order
for a stock that the trader subsequently cancels prior to trade execution. This type of
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UNITED STATES ATTORNEY700 STEWART STREET, SUITE 5220
SEATTLE, WASHINGTON 98101(206) 553-7970
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activity is manipulative because it is done with the intention of tricking other investors to
purchase the stock at an artificial price driven by the orders the trader cancels. Layering
and spoofing impacts the best bid price and gives the market false impression of active
trading and volume when, in fact, the trader had no intention of completing the purchase.B. April 2012 – July 2013: Defendant Pustovit Participated in Stock
Manipulations with Hawatmeh, Mrowca and Galas
At the outset of his involvement in market manipulation, defendant Pustovit was a
knowing participant in schemes run by other individuals. In December 2011, Alexander
Hawatmeh and Christopher Mrowca agreed to conduct a pump and dump scheme
involving ISML stock. PSR ¶ 9. At the time, ISML stock was trading over-the-counter,
had very little trading volume, and was trading for less than one cent per share. Id. In
furtherance of their scheme, Hawatmeh and Mrowca agreed: (1) Hawatmeh would
accumulate ISML stock in accounts he controlled; (2) Hawatmeh, Mrowca, and others
would engage in manipulative trading in ISML stock to give the market the fraudulent
appearance that there was legitimate interest in ISML stock and to manipulate the price of
ISML upwards; (3) Mrowca would promote the stock using the Money Runners Group, a
stock promotion he controlled; (4) defendant Hawatmeh would sell the ISML stock he
accumulated in the market as the price rose in response to the promotion; and (5)
Hawatmeh and Mrowca would split the after-tax profits from the scheme. PSR ¶ 10.
In April 2012, Hawatmeh invited Pustovit to participate in the ISML
manipulation. PSR ¶ 11; Plea Agreement ¶ 9b. At Hawatmeh’s direction, Pustovit gave
Hawatmeh control over a brokerage account defendant Pustovit controlled which was
held in Pustovit’s mother’s name. Id. Thereafter, Hawatmeh, Galas, and Mrowca
engaged in manipulative trades of ISML in order to raise the trading volume and
influence the price of ISML. PSR ¶ 11. On April 20, 2012, Hawatmeh, Mrowca, and
Galas executed their agreement to fraudulently promote the stock and dump the
accumulated shares. PSR ¶ 11; Plea Agreement 9c. Shortly before the market opened,
the Money Runners Group alerted its subscribers that ISML was the play, and in
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UNITED STATES ATTORNEY700 STEWART STREET, SUITE 5220
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response, the price of ISML rose sharply. PSR ¶ 11. At that time, Hawatmeh, Galas
and others sold their shares reaping large profits, including $4,647.50 in profits in the
account in defendant Pustovit’s mother’s name. PSR ¶ 11; Plea Agreement 9c. In the
days following the dump, the shares of ISML collapsed. PSR ¶ 11.After the manipulation of ISML, defendant Pustovit and Hawatmeh engaged in
similar conduct with respect to the manipulation of ADPC between June 14, 2013, and
July 2, 2013 resulting in $42,233.82 in profits for defendant Pustovit. Plea Agreement
¶ 9d(i). In the ADPC manipulation, defendant Pustovit created and controlled the stock
promotion email address that he and Hawatmeh used to issue the fraudulent information
to prospective investors. Id. On July 3, 2013, defendant Pustovit sent the fraudulent alert
at Hawatmeh’s direction. Id.
C. November 2013 – July 2014: Defendant Pustovit ran his own Manipulative
Schemes
Contrary to his assertion that his role in the offense “was at a very low level,”
Defendant Pustovit’s Sentencing Memorandum, Dtk. 31, page 15, defendant Pustovit set
out to conduct his own manipulations after learning the tricks of the trade from
Hawatmeh. In approximately November 2013, defendant Pustovit orchestrated his own
pump and dump scheme using another individual’s account to evade detection by law
enforcement.1 Between November 11, 2013, and December 13, 2013, defendant Pustovit
engaged in manipulative trading in IBIN by trading in his brother-in-law’s brokerage
account. Plea Agreement ¶ 9d(ii). Defendant Pustovit controlled other brokerage
accounts his friends opened, and invited Galas to participate in the IBIN manipulation.
Id. The total profit from the IBIN manipulation was $100,361. Id.
1 Given defendant Pustovit’s use of another individual’s brokerage account to engage in thismanipulative conduct, the United States was unaware of the full scope of his misconduct until he provided the information to law enforcement in August 2014. Since the information was provided in an interview where the defendant was seeking to cooperate, the United States madethe decision at the time not to prosecute Pustovit for the pump and dump schemes he oversaw.
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Given the success of the IBIN manipulation, between July 7, 2014, and July 17,
2014, defendant Pustovit orchestrated and executed a manipulation in the stock of RRIC.
Plea Agreement ¶ 9d(iii). Again, defendant Pustovit conducted the manipulative trades in
his brother-in-law’s account and in accounts in his friends’ names, and invited others,including Marius Morariu, to participate in the RRIC manipulation. Id. The total profit
from the RRIC manipulation was $62,965. Id.
D. August 2014: The SEC Enforcement Action, Defendant Pustovit’s
Obstruction of Justice, and Defendant Pustovit’s Interviews with Law Enforcement
On August 5, 2014, the SEC filed a complaint against defendant Pustovit and
others alleging the defendant Pustovit participated in the manipulation of ISML and
ADPC. PSR ¶ 14; SEC v. Galas, et al., CV14-5621RBL, Dkt. 1; Plea Agreement ¶ 9e.
That same day, the SEC filed a motion for a temporary restraining order (“TRO”) against
defendant Pustovit and the other defendants, and the Court entered the Order. PSR ¶ 14;
SEC v. Galas, et al., Dkt. 2 and 6; Plea Agreement 9f. The TRO prohibited Pustovit from
engaging in further fraud and directed that he refrain from “destroying, mutilating,
concealing, altering, disposing, or transferring custody of any items, including but not
limited to any books, records, documents, correspondence, contracts, agreements,
assignments, obligations, tape recordings, computer media or other property.” SEC v.
Galas, et al., Dkt. 6, ¶ IX, at pages 10-11. On August 13, 2014, the Court entered a
Preliminary Injunction Order containing the same prohibitions. SEC v. Galas, et al., Dkt.
15.
Also on August 5, 2014, defendant Pustovit flew with Mikhail Galas from Oregon
to California. PSR ¶ 13; Plea Agreement ¶ 9e. Special Agents with the Federal Bureau
of Investigation arrested Galas in the presence of defendant Pustovit as they deplaned.
Id. Later that day, defendant Pustovit placed a phone call to an individual in Vancouver,
Washington. Id. During the phone call, with the intention of destroying evidence related
to his scheme to manipulate stocks, defendant Pustovit asked this individual to erase data
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from a computer located in defendant Pustovit’s apartment. Id. The individual complied
and deleted files from the computer. Id.
On August 12 and 15, 2014, defendant Pustovit met the undersigned Assistant
United States Attorneys and the FBI case agent to discuss his role in the manipulationsunderlying the criminal prosecution of Hawatmeh, Mrowca, and Galas, and any other
manipulations defendant Pustovit participated in or conducted. Given his age and the
United States’s belief at the time that he was a minor participant in the illegal activity,
prior to the interviews the United States informed defendant Pustovit that he was unlikely
to face criminal prosecution if he was cooperative and informed the United States about
the full scope of his criminal conduct. At the end of the second interview on August
15th, defendant Pustovit gave the FBI his computer. At no time, did defendant Pustovit
inform law enforcement that he had directed another individual to delete files from a
computer.
In his sentencing memorandum, defendant Pustovit points to his cooperation with
law enforcement stating that the United States “allowed him to escape criminal
prosecution based in part on his youth, his lower level involvement compared to the
others and his cooperation with law enforcement officers” and that he “provided
substantial assistance in the form of information relevant and helpful to the prosecution
of the ongoing criminal case.” Defendant Pustovit’s Sentencing Memorandum, Dkt. 32,
page 7. To the extent that defendant Pustovit is attempting to gain any benefit from
interviewing with law enforcement, the United States believes such treatment is
unwarranted. In fact, defendant Pustovit’s decision to engage in illegal activity after the
interviews and the United States’ decision to prosecute at the time is a significant
aggravating factor.
E. November 2014 – February 2015: Defendant Pustovit Violated the Court’s
Preliminary Injunction Order by Engaging in Further Pump and Dump Schemes
Undeterred by the Court’s Order in the SEC litigation and his pass from federal
prosecution, defendant Pustovit began manipulating stocks again in November 2014, just
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three short months later. At that time, Morariu contacted defendant Pustovit and asked
him to help conduct a fraudulent pump and dump scheme. Plea Agreement ¶ 9h.
Defendant Pustovit agreed to help by providing the cash necessary to promote the scheme
and instructing Morariu on how to operate a successful pump and dump scheme. Id. Inthe following months, defendant Pustovit and Morariu manipulated the stocks of
Brightech, Inc. (ticker symbol “BRTE”), General Environmental Management, Inc.
(ticker symbol “GEVI”), and Green Street Capital Corp. (ticker symbol “JAGR”).
To engage in the fraudulent schemes and avoid detection from law enforcement,
defendant Pustovit and Morariu agreed that: (1) Morariu would recruit other individuals
who did not know defendant Pustovit to open brokerage accounts; (2) defendant Pustovit
would provide cash to Morariu who would use the cash to fund the nominee accounts; (3)
the nominee accounts would be used to accumulate shares in the companies they intended
to manipulate; (4) stock promotion companies controlled by Morariu and defendant
Pustovit would promote the stocks by disseminating false and fraudulent information;
and (5) after the false promotion campaigns, the stocks would be sold into the market at
artificially inflated prices. Plea Agreement ¶ 9i.
From approximately December 4, 2014, through at least February 5, 2015,
defendant Pustovit and Morariu manipulated BRTE, GEVI, and JAGR. Plea Agreement
¶¶ 9j-o. With respect to GEVI, defendant Pustovit gave Morariu $20,000 in cash to fund
the manipulation, they accumulated 2.7 million shares of GEVI in the nominee accounts,
and they sent fraudulent promotional alerts. Id. Defendant Pustovit and Morariu made
$83,096 in the GEVI manipulation, and $6,254 and $9,046 in the BRTE and JAGR
manipulations, respectively. Plea Agreement ¶¶ 9n-o.
In his Sentencing Memorandum, defendant Pustovit paints the picture that he was
an almost unwilling participant in Morariu’s scheme. Defendant Pustovit’s Sentencing
Memorandum, Dkt. 32, pages 8-10. What is clear from the facts, however, is that
defendant Pustovit agreed to participate in the schemes, taught Morariu how pump and
dump schemes worked, and funded the schemes. In fact, he agreed to participate in the
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GEVI scheme so that he could make $20,000 to pay for his wedding. Id., page 9. The
defendant’s efforts to place the blame squarely on Morariu show that he does not fully
comprehend his wrongdoing.
At any point when Morariu was placing this “pressure” on defendant Pustovit, hecould have contacted his attorney to convey this information to law enforcement, but he
did not do so. If fact, by his own admission, when confronted by the United States about
his involvement in the new scheme, defendant Pustovit denied he was involved.
Defendant Pustovit’s Sentencing Memorandum, Dkt. 32, page 10 (stating, “[a]fter a brief
period of denial and disbelief, Pustovit promptly admitted his participation and agreed to
plead guilty.”) While defendant Pustovit did plead guilty, he should be given little credit
for his post-plea rehabilitation, as he had ample opportunity to change his behavior before
he was charged with a crime.
III. SENTENCING GUIDELINES RANGE
The Sentencing Guidelines are advisory. United States v. Booker , 543 U.S.
220, 245-46 (2005). However, “the district courts still must consult [the] Guidelines and
take them into account when sentencing[.]” United States v. Cantrell , 433 F.3d 1269,
1279 (9th Cir. 2006) (internal citation omitted, internal quote omitted). “The appropriate
guidelines range, though now calculated under an advisory system, remains the critical
starting point for the imposition of a sentence under § 3553(a).” United States v. Mashek ,
406 F.3d 1012, 1016 n.4 (8th Cir. 2005) (quoted approvingly in Cantrell , 433 F.3d at
1279).
Pursuant to the Plea Agreement, the parties agreed that the following Sentencing
Guidelines provisions apply and recommend that the Court adopt the resulting
calculations which are consistent with the Probation Office’s calculation in the PSR :
//
//
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Guideline Adjustment
Base Offense Level. USSG § 2B1.1(a) 7
Specific Offense Characteristic
USSG § 2B1.1(b)(1)(I), based on an agreed gain of$303,955.82 as a result of the defendant’s conduct
+12
Specific Offense CharacteristicUSSG § 2B1.1(b)(2)(A)(i), because the offense involvedten (10) or more victims
+ 22
Specific Offense CharacteristicUSSG § 2B1.1(b)(9) because the defendant violated a prior, specific judicial order
+ 2
Specific Offense Characteristic
USSG § 2B1.1(b)(10)(C), because the offense involvedsophisticated means
+ 2
Obstruction AdjustmentUSSG § 3C.1.1, because the defendant willfullyobstructed or impeded the administration of justice withrespect to the investigation and prosecution of the offenseof conviction
+ 2
Acceptance of Responsibility. USSG § 3E1.1(a) - 3
TOTAL OFFENSE LEVEL 24
A. Specific Offense Characteristic § 2B1.1(b)(1)(G): Use of Gain as
Alternative Measure of Loss
Application Note 3(B) to USSG § 2B1.1 explains that “[t]he court shall use the
gain that resulted from the offense as an alternative measure of loss only if there is a loss
but it reasonably cannot be determined.” Here, the parties agreed that while defendant
2 In the Plea Agreement, the parties agreed to a four-level increase since the defendant’s fraudinvolved more than 50 victims. Plea Agreement ¶ 12c. On November 1, 2015, the SentencingCommission amended the USSG and this enhancement was amended to provide a four-levelincrease when the conduct involves a substantial financial hardship to five or more victims.Given this change, the United States has agreed that the imposition of a two-level increase isappropriate.
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Pustovit conduct resulted in losses for many investors, the actual amount of loss cannot
reasonably be determined and, therefore, an agreed upon gain amount should be used as
an alternative measure. Given the manner in which trading records are kept and
produced by the various trading platforms and markets, an accounting of actual losswould require the United States to individually audit thousands of separate purchase and
sales orders for the manipulated stocks and attempt to match those thousands of purchase
and sales orders to a particular investor in order to determine whether any individual
investor made money or lost money on those stocks. As an alternative, therefore, the
parties urge the Court to find that an appropriate measure of harm in this case for
purposes of the Sentencing Guidelines calculation would be the amount of net profit
attained by Pustovit and his co-conspirators from the scheme, which totaled $303,955.82.
B. Specific Offense Characteristic USSG § 2B1.1(b)(2)(A)(i): Number of
Victims
During the investigation leading to the instant prosecution, the United States
obtained and reviewed trading records for the manipulated stocks on the date of the
fraudulent promotions and sale of defendant Pustovit’s and his co-conspirator’s stock.
These trading records reveal over that hundreds of investors purchased those stocks on
the dates of the fraudulent promotions. For example, for ISML on April 20, 2012 -- the
day Mrowca alerted his subscribers to purchase ISML while his Hawatmeh, Galas,
Pustovit and others simultaneously dumped their accumulated shares – approximately
380 separate investors purchased ISML stock. The trading records also revealed that
scores of other investors purchased the other manipulated stocks on the date of those
promotions. Certain of these investors may not have actually suffered any loss depending
upon the timing of their purchase and sale or whether or not they had taken additional
positions prior to the dates of the fraudulent promotions. Rather than undertake an
expensive and time consuming task of auditing all purchase and sales records for each
separate investor, the United States and the defendant agreed and stipulated for the
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purpose of the Plea Agreement that victims in this case at least numbered more than 50
individuals. Plea Agreement ¶ 12c.
On November 1, 2015, the Sentencing Commission amended the USSG and this
enhancement was amended to provide a four-level increase when the conduct involves asubstantial financial hardship to five or more victims. Given this change to the USSG,
the United States has agreed that the imposition of a two-level increase is appropriate
since the offense involved 10 or more victims.
C. Applicable Sentencing Guidelines Range
Defendant Pustovit had no prior criminal history, and therefore, is placed into
Criminal History Category I. With a Total Offense Level of 24 and Criminal History
Category I, defendant Pustovit’s applicable sentencing guidelines range is 51-63 months.
PSR ¶ .
IV. THE 3553(A) FACTORS SUPPORT A SENTENCE OF 63 MONTHS
Taking into account the sentencing guideline range and all of the sentencing
factors under Title 18, United States Code, Section 3553(a), including the nature and
circumstances of the offense, the history and characteristics of the defendant, and the
need for the sentence to reflect the seriousness of the offense, to promote respect for thelaw, to provide just punishment, and to afford adequate deterrence, the United States
respectfully requests that the Court sentence defendant Pustovit to 63 months
imprisonment as it is sufficient, but not greater than necessary, to meet the goals of
sentencing.
A. The Serious Nature and Circumstances of the Offense
A sentence of 63 months incarceration reflects the serious nature and
circumstances of the defendant’s fraudulent conduct. The length and breadth of the
defendant’s conduct is a significant aggravating factor. Over the span of more nearly
three years, defendant Pustovit participated in or orchestrated at least seven different
pump and dump schemes. Early in his fraudulent conduct, defendant Pustovit was a
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willing participant in manipulative schemes being conducted by Hawatmeh and Mrowca.
After learning how these destructive schemes work, however, defendant Pustovit set out
on his own – setting up and running his own pump and dump schemes to ensure the he
received the lion’s share of the profits. Defendant Pustovit’s manipulative activityresulted in profits of over $300,000, and left scores of unwitting investors in his wake as
victims.
Defendant Pustovit’s criminal activity had a profound impact on the victims of his
offense, and the serious nature of his manipulation can be best seen through the words of
his victims. The defendant’s fraudulent conduct caused certain victim’s significant
economic loss. Furthermore, the emotional impact the defendant’s conduct had on his
victims was profound. In summarizing his feelings about investing in the stock market in
the future, Victim G.D. wrote that he had “[l]ost confidence in the market” and that the
crime has impacted his view of the securities markets because it “seems to be full of
people like this.” Victim H.C. described that she is now “afraid to trade” and that the
“’scam’ has altered [her] spending habits.” Victim C.E. noted, “[t]he loss made it
difficult to pay for my wedding and let to a delay on the actual wedding day” and “I do
fear now more than before on investing my hard earned money.” Finally, Victims P.L.
and J.L. stated that the defendant’s conduct caused an adjustment of their lifestyle, “Due
to our financial situation we were unable to have the money to support ourselves and
moved in with family” resulting in a “high level of skepticism with the stock market all
together [sic].”
These are just a few of the statements from the Victim Impact Statements
submitted for the Court’s review. A review of all of the Victim Impact Statements
demonstrates the real financial harm that the defendant’s actions had on a number of hard
working individuals, and the negative impact these types of crimes have on the victims’
and the investing public’s belief in the integrity of the United States’ financial markets.
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B.
The History and Characteristics of the Defendant
A sentence of 63 months is also supported by the history and characteristics of the
defendant. 18 U.S.C. § 3553(a)(1). Most importantly, defendant Pustovit is a recidivist
whose conduct demonstrates a wanton disregard for the law. Despite being sued by the
SEC, ordered by the Court to refrain from committing more securities fraud, and being
told he would not be prosecuted by the United States Attorney’s Office, the defendant
engaged in additional criminal activity involving the exact same conduct approximately
three months later. Furthermore, knowing of the prohibition against engaging in further
securities fraud, the defendant took significant steps to hide his fraudulent conduct from
the prying eyes of law enforcement. He and Morariu used nominees to open new
brokerage accounts in order to disguise that defendant Pustovit and Morariu were behind
the fraudulent schemes. Defendant Pustovit agreed to fund these nominee accounts by
providing Morariu with cash so that the money trail would not lead back to defendant
Pustovit. Likewise, Morariu paid defendant Pustovit his share of profits in cash. In
addition, both prior to and after engaging in this additional criminal activity, defendant
Pustovit obstructed justice by directing individuals, including Morariu, to destroy
evidence. These facts demonstrate that the defendant was willing to go to great lengths to
continue to evade detection by law enforcement to make money.
Unlike many defendants present before this Court for sentencing, there are no
significant mitigating factors in the defendant’s history and characteristics. In his
Sentencing Memorandum, defendant Pustovit points to his age and his upbringing are
mitigating factors. Defendant Pustovit’s Sentencing Memorandum, Dkt. 32, pages 3-4.
The defendant’s conduct both during and after the commission of the offense, including
engaging in sophisticated securities fraud, taking steps to hide his involvement in the
scheme, destroying evidence, and willfully violating the Court’s Order demonstrate a
level of sophistication not usually seen in individuals of defendant Pustovit’s age.
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In addition, his upbringing is not a mitigating factor as he had a stable childhood
with loving parents. He grew up the child of two parents who have a loving relationship
and have been married for 24 years. PSR ¶ 39. He was raised in a stable, religious
environment and was not “subjected to any form of abuse or neglect.” Id. While thedefendant tries to describe his parents as “over protective,” it is clear that they provided a
loving household and attempted to give defendant Pustovit every opportunity to succeed,
including “disciplining him appropriately when he got into trouble.” PSR ¶¶ 39-40.
When evaluating these facts, especially in light of the defendant’s conduct described
above, it becomes clear that the defendant has demonstrated a complete lack of ability to
correct his behavior when confronted by authority figures. There is simply no evidence
that he will begin to do so now absent a significant term of imprisonment.
C. To Reflect the Seriousness of the Offense, to Promote Respect for the Law
and to Provide Just Punishment
A sentence of 63 months is also needed “to ref lect the seriousness of the offense,
to promote respect for the law, and to provide just punishment for the offense.” 18 U.S.C.
§ 3553(a)(2)(A). Securities fraud is a serious offense that carries statutory maximum
terms of imprisonment of 20 years and maximum fine of up to $5 million. The
seriousness of this crime is greatly enhanced when, as here, the fraudulent scheme
stretched over multiple years, involved significant gains to the defendant, was perpetrated
on numerous victims, involved sophisticated means, and involved a violation of a
previous Court Order and obstructive conduct. Given the seriousness of the crime and
the defendant’s behavior during its commission, a term of 63 months imprisonment will
promote respect for the law and provide just punishment for the offense.
D. To Afford Deterrence
Section 3553(a)(2)(B) requires that the sentence imposed reflect the “seriousness
of the offense” and afford “adequate deterrence.” The securities markets are a critical
aspect of our economy, and many depend upon it to generate returns on savings for future
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use. Market manipulations, like those conducted by defendant Pustovit, create doubts
about the integrity and fairness of such markets in general and, if undeterred, will lead to
withdrawals in participation to the detriment of the economy as a whole.
The issue of deterrence becomes particularly relevant in securities fraud casessuch as this one because such crimes are notoriously difficult to detect and prosecute.
Perpetrators, like Pustovit, hide behind multiple brokerage accounts that are held by or
opened in the names of other individuals, therefore making it difficult to connect the
trading activity and the promotions to the actual individuals conducting the pump and
dump. Given the difficulty of detection, effective deterrence requires meaningful
punishment in each instance where the perpetrator has been caught. As explained by
Judge Richard Posner in United States v. Heffernan, 43 F.3d 1144, 1149 (7th Cir. 1994),
“[c]onsideration of (general) deterrence argue for punishing more heavily those offenses
that either are lucrative or are difficult to detect and punish, since both attributes go to
increase the expected benefits of a crime and hence the punishment required to deter it.”
On the other hand, punishments that are perceived as too light compound the
skepticism of the public and fuel the perception that the securities markets are purposely
rigged against the average investor. Therefore, the United States urges the Court to
impose meaningful punishment in this case.
E. The Need to Protect the Public from Further Crimes of the Defendant
Section 3353(a)(2)(D) directs the Court to consider the need “to protect the public
from further crimes of the defendant.” The defendant’s conduct described above shows
that he is very likely to re-offend. Furthermore, the defendant’s comments to the
Probation Officer demonstrate that he still has not received the message that his
involvement in securities trading puts the investing public at risk. In discussing his
employment record, the defendant stated that he is currently self-employed as a buyer and
seller of auto parts where he earns approximately $2,000 per month. PSR ¶ 47. Despite
this stable employment in an occupation that does not involve stocks, the defendant told
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the Probation Officer that “his employment plan is to return to day trading (if allowed).”
Id. After everything that has happened with the defendant and his conduct manipulating
stocks, there is simply no reason for him to ever trade securities again, let alone as a day
trader. The defendant’s statement proves that he has not learned his lesson, and there is astrong likelihood that he will re-offend.
In his Sentencing Memorandum, defendant Pustovit asserts that he is a “low risk
for recidivism” because “[h]e is a true first time offender.” Defendant Pustovit’ s
Sentencing Memorandum, Dkt. 32, page 2. This statement is belied by the facts.
Although he evaded criminal prosecution and conviction for his manipulative activity
underlying the SEC litigation, he was sued by the SEC and ordered to stop engaging in
securities fraud by this very Court. Shortly thereafter, he made a conscious decision to
participate in the very same activity by manipulating three additional stocks. Therefore,
it is a stretch to call defendant Pustovit a first time offender. Furthermore, the
defendant’s assertion also fails to take into consideration that the defendant obstructed
justice not only after the SEC litigation, but when Morariu was confronted by law
enforcement in March 2015. According to Morariu, he contacted defendant Pustovit after
Morariu was contacted by the FBI. In a meeting shortly thereafter, defendant Pustovit
and Morariu agreed that Morariu would take full responsibility for the conduct, and
defendant Pustovit instructed Morariu on what would happen at the meeting with the FBI.
Furthermore, Morariu admitted to law enforcement that he had deleted information off
his computer at the direction of defendant Pustovit.
In sum, the defendant’s actions to date, unlike the words he now puts forth in his
Sentencing Memorandum, demonstrate a significant likelihood that he will engage in
further criminal conduct.
F. The Need to Avoid Unwarranted Sentencing Disparities
Section 3553(a)(5) cautions against creating unwarranted sentencing disparities
among similarly situated defendants. Previously, the Court sentenced Hawatmeh to a
sentence of 60 months, Mrowca to a term of 36 months, and Galas to a sentence of time
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UNITED STATES ATTORNEY700 STEWART STREET, SUITE 5220
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served (after serving one day). Although his gain was significantly lower than
Hawatmeh’s gain, the United States believes a sentence higher than Hawatmeh’s
sentence is warranted given the defendant’s violation of the Court’s Order, his repeated
obstructive conduct, and the likelihood he will re-offend.V. RESTITUTION
Pursuant to the Plea Agreement, the parties jointly recommend that no restitution
be ordered because “the complication and prolongation of the sentencing process
resulting from the fashioning of an order of restitution under this section outweighs the
need to provide restitution to any victims.” 18 U.S.C. § 3663(a)(1)(B)(ii). The
government does not have access to the brokerage records of each individual who may
have been impacted by the defendant’s stock manipulation. Instead, as noted above, in
order to calculate with any reasonable degree of certainty the amount of loss each
investor suffered, the government would have to individually audit separate purchase and
sales orders, match them up with an individual investor, and then determine whether that
individual made money or lost money. Such an endeavor would take significant
expenditure of personnel time and resources, and unduly delay sentencing. In sum, the
burden of calculating and verifying each investor’s loss outweighs the need to provide
restitution to the victims in this case, and the parties urge the Court to so find.
//
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//
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VI.
CONCLUSION
For the foregoing reasons, the United States recommends that the Court sentence
defendant Pustovit to 63 months imprisonment followed by a term of three years of
supervised release.
DATED: December 10, 2015
Respectfully submitted,
/s/ Justin W. Arnold
JUSTIN W. ARNOLDAssistant United States Attorney
/s/Katheryn Kim Frierson
KATHERYN KIM FRIERSONAssistant United States AttorneyWSBA # 37794
United States Attorney’s Office 700 Stewart Street, Suite 5220Seattle, Washington 98101Telephone: (206) 553-7970Facsimile: (206) 553-2502E-mail: [email protected]
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CERTIFICATE OF SERVICE
I hereby certify that on December 10, 2015, I electronically filed the foregoing
with the Clerk of Court using the CM/ECF system which will send notification of such
filing to the attorney(s) of record for the defendant(s).
s/Jenny FinglesJENNY FINGLESUnited States Attorney’s Office 700 Stewart, Suite 5220Seattle, Washington 98101-1271Phone: 206-553-7970
Fax: 206-553-0755E-mail: [email protected]
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mailto:[email protected]:[email protected]:[email protected]:[email protected]