More TM fun in new prosecution filing ...
06/07/2005 39 NOTICE of Intent to Offer Evidence Pursuant to Rule 404(b) of the Federal Rules of Evidence as to Timothy C. Moses (Burby, Raymond) (Entered: 06/07/2005)
You might want to get a PACER account just to read this - bargain at 8c/page.
Actually, looks like I can cut & paste this one ... Footnote formatting doesn't work properly, makes it a bit ahrd to follow in places.
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
UNITED STATES OF AMERICA :
: CRIMINAL INDICTMENT
v. :
: No. 1:04-CR-508-CAP
TIMOTHY C. MOSES :
GOVERNMENT’S NOTICE OF INTENT
TO OFFER EVIDENCE PURSUANT TO RULE 404(b)
OF THE FEDERAL RULES OF EVIDENCE
COMES NOW the United States of America, by and through the United States
Attorney for the Northern District of Georgia, and R. Joseph Burby, IV and Paul N.
Monnin, Assistant United States Attorneys, and respectfully files this Notice of Intent
to Offer Evidence Pursuant to Rule 404(b) of the Federal Rules of Evidence. Please
take notice that the government intends to introduce at trial the evidence described
below which may be offered as inextricably intertwined with the crimes charged and
under theories other than those embodied in Rule 404(b). If the evidence is not
otherwise admissible, however, its admission will be sought under Rule 404(b) as
proof of motive, opportunity, intent, preparation, plan, knowledge, identity, or absence
of mistake or accident.
1 The UC described the mutual fund as a financial institution based in London, England with
assets in excess of $800 million.
2 The CWs described themselves as employees of Connelly & Williams, an affiliate of the
mutual fund based in Atlanta, Georgia, responsible for handling U.S. investments for the fund.
3 The promoter’s name was Chris Sagnelli. Mr. Sagnelli was eventually charged and
convicted of securities fraud for his role in connection with numerous of these fraudulent stock
transactions.
4 BioShield later changed its name to International BioChemical Industries, Inc. (“IBCL”).
2
OPERATION BERMUDA SHORT
In 2001 and 2002, the Federal Bureau of Investigation (“FBI”) conducted an
undercover operation code-named “Bermuda Short” in the Southern District of Florida
designed to expose and prosecute those who attempt to engage in the fraudulent
purchase and sale of stock of publicly-traded companies. As part of this operation, an
undercover FBI agent (the “UC”) posed as a corrupt trader for a mutual fund seeking
to invest millions of dollars of the fund’s money in the stock of a publicly-traded
company that was willing to pay him a large kickback.1 Assisting the UC were two
cooperating witnesses (“CWs”) who posed as investment associates of the UC.2
During the course of this investigation, a corrupt stock promoter3 (who had already
engaged in several kickback transactions with the UC/CWs relating to public
companies) informed the UC/CWs that defendant Timothy C. Moses (“Moses”), who
was then President and Chief Executive Officer of BioShield Technologies, Inc.
(“BioShield”),4 was interested in conducting a stock-trade-and-kickback transaction
5 These telephone conversations and meetings were surreptitiously recorded.
6 The average closing price of BioShield stock between January and February 2002 was
around $0.30/share. It never closed above $0.50/share in January, or above $0.40/share in
February. The stock had not closed at $0.60/share since October 2001. Additionally, the shares
were restricted shares, meaning that the UC’s mutual fund would not be allowed to trade them
for a significant period of time, making them less valuable than regular, free-trading shares.
7 A company may set up an employee benefit plan through which it can compensate its
employees, and certain consultants, with company stock. Using SEC Form S-8, the company
registers an amount of stock for the benefit plan. The company may then issue shares of this S-8
3
with them.
In January and February 2002, the UC/CWs spoke with Moses numerous times
by telephone and also met with him in person twice.5 As a result of these discussions,
the UC agreed to cause the mutual fund to buy 3.33 million shares of BioShield
restricted stock from BioShield at an inflated price of $0.60/share for a total of
$1,980,000.00.6 The UC also agreed to cause the mutual fund to buy 1.67 million
shares of BioShield restricted stock from an offshore company owned by Moses called
M5 Trust 1 for $1,020,000.00 (again at the inflated price of $0.60/share). In
summary, the UC would cause the mutual fund to pay a total of $3 million for
BioShield stock that had a current market value of only half that amount (around $1.5
million) and that the fund also could not sell immediately.
In exchange for the UC causing the fund to buy the overpriced stock, Moses
agreed to pay a large kickback to the UC as follows. Because BioShield had no cash,
Moses would cause BioShield to issue 5 million shares of BioShield S-87 stock to the
stock over time to eligible employees or consultants of the company. Compensation of
consultants with S-8 stock is strictly limited, however. “Form S-8 is available for the issuance of
securities to consultants only if: i) they are natural persons; ii) they provide bona fide services
to the registrant [company]; and iii) the services are not in connection with the offer or sale of
securities in a capital raising transaction, and do not directly or indirectly promote or maintain a
market for the registrant’s securities.” Securities and Exchange Commission, Registration of
Securities on Form S-8, 64 F.R. 11103, 11117 (March 8, 1999) (emphasis added); 17 C.F.R. §
230.405 (defining “employee benefit plan” and eligibility of consultants); 17 C.F.R. §
239.16b(a)(1) (governing Form S-8 registration). Securities registered under Form S-8 are
commonly freely-tradable shares.
4
UC’s offshore company, Southern Star Shipping (“Southern Star”), a company which
Moses was told had no relation to the mutual fund and was not even known by the
fund. In order to make the S-8 stock transfer appear legitimate, Moses proposed that
BioShield and Southern Star enter into a consulting agreement. Under the agreement,
BioShield would hire Southern Star to provide it with investment banking and other
financial consulting services for a term of five years, for which Southern Star would
receive the 5 million S-8 shares as a consulting fee. In fact, the consulting agreement
would be a total fiction, because Southern Star had no intention of providing such
services (nor any ability to -- it was described to Moses as a shipping company). The
UC told Moses that after this transaction he would cause the mutual fund to buy the
BioShield S-8 stock from Southern Star, and that he and the CWs would split the cash
proceeds.
The parties agreed that before the large trade and kickback transaction occurred,
they would perform a “test” trade and kickback, whereby the UC would pay BioShield
8 As the CWs explained to Moses, “These guys don’t get paid on paper...they get it in green.”
9 Moses’s attorney, Gary Wolff, was implicated in the instant criminal case. On January 27,
2003, two days before Moses issued the first false press release charged in the indictment, Wolff
purportedly exercised options to purchase one million shares of IBCL stock. The exercise price
was only $0.02/share, which IBCL credited against the amount of its debt to Wolff for past legal
services. Wolff sold the stock days later while the share price was artificially inflated due to the
false press releases for between $0.08-0.11/share.
5
$9,600.00 for 16,000 BioShield shares (again at the inflated price of $0.60/share), and
also pay the same amount of money to Moses for the same number of BioShield
shares from his company, M-5 Trust 1, in return for Moses wiring $10,000.00 to the
UC. The UC/CWs told Moses that this “test” trade was necessary because it would
be easier to justify making the larger stock purchase once BioShield’s stock was on
the mutual fund’s books. The UC/CWs also told Moses that the $10,000.00 would be
used to “pay off” the fund’s due diligence officers so that they would not question the
deal.8
The parties discussed this fraudulent deal in great detail and even reduced it to
writing (the UC/CWs sent draft subscription and stock purchase agreements to Moses,
and he in turn sent them back a draft consulting agreement). However, the deal was
never consummated because Moses said that his attorney wanted to speak with the
UC/CWs.9 During a recorded telephone conversation on February 21, 2002, Moses
explained that his attorney wanted to talk to them about the consulting agreement to
make sure it was worded correctly. One of the CWs asked Moses, “Does [the
10 Indeed, during this conversation, the UC/CWs reminded Moses that if the fund ever found
out about the payment of the kickback to Southern Star, they would all end up in jail.
6
attorney] understand what’s really going on here? Or is he going to be throwing stuff
out and all of a sudden say wait a minute what is this?” Moses replied, “No, he
understands” and later added “he’s cool -- I mean he knows what’s going on....”
Moses further assured the UC/CWs that his attorney understood that there were two
different entities involved on the UC’s end (the mutual fund and the UC’s secret
offshore company) and that the fund could not know about the offshore company.10
The UC/CWs warned Moses that they would not sugarcoat the details of the deal with
the attorney if he asked about them. Moses stated again several times that the attorney
understood all of the details of the deal.
The UC/CWs still objected. They mentioned that the consulting agreement
provided that the UC’s offshore company was obligated to perform consulting
services for the S-8 stock that BioShield was going to pay to the UC, but in reality all
parties knew that the UC’s offshore company could not and would not actually
provide those consulting services. The UC/CWs reminded Moses that Southern Star
“[doesn’t] have anything to do with any investment banking” and could only talk to
BioShield “about ships and boats and how many sailors to put on board.” The
UC/CWs expressed concern about perpetuating this fiction directly to the attorney,
11 The United States subsequently decided to discontinue the investigation with regard to
Moses and BioShield out of concern that contact between the UC/CWs and Moses’s attorney
could result in the disclosure of privileged information, although the United States did strongly
consider seeking a court order finding that the crime-fraud exception would apply to such
communications. Operation Bermuda Short nevertheless resulted in the indictment of 58
individuals for securities fraud, mail fraud, money laundering and other charges. In all, the
undercover operation exposed fraudulent securities sales in excess of $200 million.
7
and then later being sued for not performing their duties under the agreement. One
of the CWs asked Moses directly, “Does he understand we’re not gonna do anything?”
Moses responded that his attorney “understands it’s a total deal.” Moses repeated
several times that his attorney only wanted to speak to them about the language of the
consulting agreement so that if the U.S. Securities & Exchange Commission (“SEC”)
ever asked about the kickback transaction, the attorney could simply show them the
agreement. The UC/CWs told Moses that they would think about his request and call
him back. After this conversation, Moses’ attorney, Gary Wolff, called the UC and
left a message. However, the UC/CWs never spoke with Moses’ attorney, nor did
they communicate any further with Moses.11
12 Should the government present evidence at trial of Moses's misuse of escrowed NBP
investment funds (as set forth in this notice), the legitimacy of the transfer of IBCL's intellectual
property to NBG, which constituted IBCL's principal assets at a time when its debts and
expenses were compelling the company's cessation of operations, will likely also be a subject of
government proof.
8
THOMAS TOPP INVESTMENT
After separating from BioShield/IBCL in early 2004, Moses became an officer
and director of Nova BioGenetics, Inc. (“NBG”), a Delaware corporation organized
in January 2002, with its principal place of business in Atlanta, Georgia. NBG's
wholly owned subsidiary, Nova Biopharmaceuticals, Inc. (“NBP”), is a privately held
company, also headquartered in Atlanta, that touted itself as being in the business of
discovering, developing and commercializing products aimed at addressing bacterial,
viral and fungal resistance to existing drug therapies. Much of NBG/NBP's
intellectual property, specifically its issued United States patents and patent
applications and foreign patents and patent applications, were transferred to NBG by
IBCL as IBCL was shuttering its operations,12 and NBP has access to such intellectual
property through licensing arrangements with NBG.
To raise capital for its operations, in late 2003 and early 2004, NBP offered to
sell a total of two million shares of unregistered common stock in 25,000-share units.
The NBP stock to be sold in connection with the private placement was priced at
$1.00 per share; consequently, each unit was priced at $25,000, with one unit being
9
the minimum available for purchase pursuant to the private placement. Although NBP
offered the units without registration under the federal securities laws (thereby
necessitating that investors be sufficiently sophisticated to justify their investment in
restricted shares), the company disseminated a private offering memorandum
describing NBP, its business and operations, and the uses to which the proceeds of the
private placement would be put, along with a subscription agreement and purchaser
questionnaire.
In early January 2004, Thomas Topp, a German national and chief financial
officer of Heidelberg USA, was approached by his neighbor, Stephan Todd Smith,
regarding investing in NBP pursuant to its private placement of securities. Todd
Smith represented that he had been engaged by NBG/NBP to solicit investment in
NBP in connection with its unregistered offering of 25,000-share units of NBP
common stock. While Topp was interested in investing in NBP, he was concerned
about the risks associated with any such investment given the company's relative lack
of operating history and disclosure of its financial performance. In response to Topp's
concerns regarding the security of his investment, Todd Smith proffered an escrow
agreement in which another NBP investor had escrowed the funds underlying his
purchase of unregistered NBP units until such time, but in no event later than twelve
months, as NBP received a firm underwriting commitment to sell company shares in
13 The evidence will show that by far the majority of funds in the PFG account on or about
February 9, 2004 came from Topp's $400,000 transfer.
10
a registered initial public offering (“IPO”), at an IPO price of no less than $5.00 per
share. Topp forwarded the escrow agreement tendered by Todd Smith and the NBP
private placement subscription agreement to his investment advisor at Bank of
America (“B of A”).
After Topp's investment advisor suggested that his investment in NBP would
be secure if Topp and the company entered into an escrow agreement locking up
Topp's funds until NBP had a firm IPO commitment, Topp indicated that, provided
his investment funds were escrowed, he was willing to acquire 16 NBP private
placement units at an aggregate purchase price of $400,000. Topp signed the
subscription agreement, purchaser questionnaire and escrow agreement pertaining to
his $400,000 investment in NBP on or about February 9, 2004. He also directed B of
A to wire $400,000 from his account to Todd Smith's account at B of A, which was
held by Pyramid Financial Group (“PFG”), an entity operated by Todd Smith and
which Topp understood -- and the escrow agreement reflects -- would be the escrow
agent.
After Topp's $400,000 investment hit the PFG account,13 requests were made
to distribute funds from the account, which, because Topp's investment advisors at B
14 Topp ultimately did not have to come to NBP's office because Todd Smith undertook to
bring the investment agreements directly to Topp.
11
of A were aware that his funds were to be escrowed, caused B of A to freeze the PFG
account and to call Topp, advising him of the requested distribution of funds. Topp
proceeded to call Todd Smith to question the distributions from the PFG account,
which caused Todd Smith to come over to Topp's home. Topp and Todd Smith then
called Moses to ask about the distributions from the PFG account. In addition to
Moses identifying himself on the call, Topp had previously spoken with Moses by
phone when he was initially prepared to sign the NBP subscription and escrow
agreements and received directions to NBP's offices from Moses.14
Moses represented to Topp that his $400,000 investment in NBP was secure
because Topp's funds had been moved from the PFG account to another escrow
account held by NBP. Moses further represented that this escrow account held
additional investor funds deposited by other investors in NBP's private placement.
The evidence will show, however, that no such transfer of Topp's investment from the
PFG account to any NBP account ever occurred. Moreover, although NBP disclosed
or intended to disclose that it had raised additional investment in connection with the
NBP private placement that exceeded Topp's $400,000 investment, the evidence will
show that no such additional investment was made or that such additional investment
15 A grand jury returned the indictment on September 29, 2004. (Doc. 1).
12
had itself been escrowed and therefore was not available as security for Topp's
investment.
Based upon Moses's representation that Topp's $400,000 investment had either
been moved to another NBP escrow account or was otherwise adequately secured, B
of A removed the freeze on the PFG account. Funds were thereafter distributed from
Topp's putatively escrowed investment in the PFG account to pay, among other
things: (1) $30,000 to satisfy a lien lodged by Chapes, Ltd. against the engagement
ring of Moses's wife; (2) $15,000 to a brokerage account at Track Data, over which
Moses held trading authority; (3) $10,000 to pay the legal fees of Jack Martin, Moses's
criminal defense attorney in the instant indictment; and (4) other purely personal
expenses of Moses that were represented to be NBG/NBP expenses. By the fall of
2004, Topp confronted Todd Smith about the status of his $400,000 investment in
NBP, at which time Todd Smith admitted that, notwithstanding the escrow agreement,
Topp's funds had been used to satisfy Moses's obligations associated with the instant
indictment,15 along with his personal expenses.
Accordingly, the government intends to offer the foregoing proof to establish
Moses's awareness that Topp's $400,000 investment in NBP was to be escrowed and
that, notwithstanding such knowledge, Moses both misrepresented the status of the
funds to Topp and took advantage of the investment to satisfy purely personal
obligations, including obligations incurred in defending himself in the instant criminal
action.
Respectfully submitted,
DAVID E. NAHMIAS
UNITED STATES ATTORNEY
/s/
R. JOSEPH BURBY, IV
ASSISTANT UNITED STATES ATTORNEY
Georgia Bar No. 094503
/s/
PAUL N. MONNIN
ASSISTANT UNITED STATES ATTORNEY
Georgia Bar No. 516612
600 Richard B. Russell Bldg.
75 Spring St., S.W.
Atlanta, GA 30335
(404) 581-6000 (phone)
(404) 581-6181 (fax)
CERTIFICATE OF SERVICE
This is to certify that I have this day served upon the person listed below a copy
of the foregoing document electronically:
John Richard Martin, Esq.
Martin Brothers, P.C.
500 Grant Building
44 Broad Street, N.W.
Atlanta, GA 30303-2327
This 7th day of June, 2005.
/s/
R. JOSEPH BURBY, IV
ASSISTANT UNITED STATES ATTORNEY
