Mounties charge 3 in alleged 'pump and dump' stock fraud

The RCMP have charged three people with fraud and other offences relating to an alleged "pump and dump" stock manipulation.

The Mounties have charged Aneillo Peluso, 47, of King City, Ont.; Michael Ciavarella, 44, of Markham, Ont.; and Michael Mitton, 47, of Ottawa with fraud over $5,000, conspiracy to commit fraud over $5,000, and two counts of extortion.

Mitton is also charged with money laundering, while Peluso also faces charges of robbery and assault.

Peluso and Ciavarella have been arrested. An arrest warrant has been issued for Mitton.

The 18-month investigation started following a tip from the Ontario Securities Commission. The OSC had noticed "trading irregularities" by several people in shares of Pender International Inc.

Pender was a stock that traded on the Over-the-Counter Bulletin Board in the United States.

It described itself as a "merchant bank for small to medium-sized, undervalued companies that require capital for growth or financial restructuring." It said it was in real estate and resort ownership and development, and gold mining in Canada and Mexico.

But the OSC said its only asset was a flooded mine in northern Ontario.

Pender stock rose 3,783% in 5 weeks

In its statement of allegations, the OSC said shares of Pender moved from the 30-cent US range in mid-October 2004 to as much as $11.35 US just five weeks later an increase of 3,783 per cent.

Trading volume went from almost non-existent to two million shares, even though the company had no significant news to report.

"Trading in the shares of Pender was dominated by trading that was arranged between the accounts [which were all related to Pender insiders] in a way that created a misleading appearance of trading activity and artificially increased the share price of Pender," the OSC said.

If proven, that would be a classic "pump and dump" stock manipulation.

"The OSC issued the cease trade order almost immediately upon hearing of this group," said RCMP Supt. Don Panchuk, in a release Tuesday.

"By recognizing the threat immediately, and acting together, we [the RCMP and the OSC] were able to avert a potential fraud that would have been capable of netting over $360 million," he said.

Two brokers face discipline

In a separate announcement, the Investment Dealers Association announced disciplinary proceedings against two brokers relating to their alleged role in the Pender case.

Chak Ng, formerly of HSBC Securities (Canada), and Robert Faiello of RBC Dominion Securities, are accused of facilitating the manipulation of Pender shares and of failing to exercise due diligence.

The OSC said most of the trades in Pender stock during the time in question were funnelled through two main accounts held by the two investment dealers.