The top executives at Spongetech Delivery Systems Inc., a small company
that frequently advertised at various sport venues, including the Yankee
Stadium, have been arrested and charged in an alleged
investment fraud scheme.
According to U.S. Attorney Loretta Lynch, “the defendants in this
case – Spongetech’s highest corporate officers – are
charged with executing a bold scheme to portray Spongetech as a company
that was performing at a level far above reality.”
Based on the criminal complaint, Michael Metter, Spongetech’s chief
executive and president, and Steven Moskowitz, chief operating officer
and chief financial officer, were charged with conspiracy to commit securities
fraud and obstruction of justice. Each of these executives could face
up to five years in prison.
This complaint isn’t the only problem for these executives, as the
U.S. Securities and Exchange Commission (SEC) has also filed civil charges
in connection with this alleged fraud. The SEC has referred to the matter
as a “pump-and-dump” scheme.
From January 2007 to May 2010, Mr. Metter and Mr. Moskowitz allegedly
made public reports that the company had secured purchase orders or made
sales to five customers that weren’t real, according to prosecutors
from the U.S. Attorney’s office in Brooklyn. Those reported sales
made up as much as 99 percent of Spongetech’s revenue.
The executives allegedly filed numerous false reports with the SEC and
also created multiple press releases that boasted the fictitious sales
figures. Based on a civil lawsuit, Mr. Metter and Mr. Moskowitz committed
this alleged fraud with the intent to fraudulently inflate Spongetech’s
Supposedly, the executives illegally distributed approximately 2.5 billion
company shares at the inflated prices, said the SEC.