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Originally published August 5, 2014 at 1:35 PM | Page modified August 5, 2014 at 6:55 PM

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SEC, federal prosecutors charge NW promoters with stock manipulation

The U.S. Attorney’s Office and the Securities and Exchange Commission alleged several Pacific Northwest residents reaped more than $2.5 million in illegal profits by pumping up penny stocks, including marijuana-related companies.


Seattle Times deputy business editor

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The Securities and Exchange Commission has charged several Pacific Northwest residents with reaping more than $2.5 million in illegal profits by pumping up two marijuana-related penny stocks and other microcap companies.

Two of the men and an associate in Florida also face criminal charges of securities fraud and conspiracy to launder money stemming from one of the microcap stock promotions, according to the U.S. Attorney’s Office in Seattle.

“The defendants’ manipulative trading created the illusion of an active market in these stocks, which caused the stock price to artificially increase,” the SEC said in a federal civil suit seeking an emergency order to freeze the promoters’ assets and force them to surrender profits deposited overseas.

All were inexpensive, thinly traded stocks in which the promoters conducted prearranged trades and then sold their shares after “aggressive promotional campaigns that urged investors to buy the stocks because the prices were on the verge of rising substantially,” according to the SEC.

The promoters sued by the SEC are: Mikhail Galas, 25, and Tovy Pustovit, 20, both of Vancouver, Wash.; Alexander Hawatmeh, 24, of Lincoln City, Ore.; and Christopher Mrowca, 25, of Bradenton, Fla.

Galas, Hawatmeh and Mrowca also were charged by federal prosecutors with manipulating, in 2011 and 2012, the stock of ISM International. “During that period the men accounted for 85 percent of the trades in the particular stock related to a purported flea-market business in Florida,” according to the U.S. Attorney’s Office.

The men sent “fraudulent and misleading ‘blast’ emails through promotional websites and email addresses under their control with the intent of increasing demand for the stock,” and then dumped their shares for a profit of $223,000, prosecutors say.

The defendants could not be reached for comment.

The two stocks related to marijuana are GrowLife, which recently moved its headquarters to Seattle, and Hemp, based in Las Vegas. GrowLife sells lights and other equipment to growers; Hemp says it sells products made with hemp.

The SEC in April suspended over-the-counter trading in GrowLife shares, citing questions “about the accuracy and adequacy of information in the marketplace and potentially manipulative transactions” in its stock. The move was part of a broader effort to squelch penny-stock promotions of companies claiming they will profit from a boom in medical and recreational marijuana.

GrowLife’s new CEO, Marco Hegyi, said in a mid-July interview that it’s working to regain SEC compliance. The civil suit doesn’t allege any wrongdoing by company officials.

The other stocks cited by the SEC along with ISM are Riverdale Oil and Gas, Allied Products Corp and Aden Solutions.

According to the SEC civil case, filed in federal court in Tacoma, Mrowca and Galas engaged in several bouts of coordinated trading in GrowLife, which uses the ticker PHOT.

From Jan. 9 to 14, as part of a broader promotion of several marijuana-related stock, they allegedly traded 6.4 million shares of GrowLife in “wash trades” designed to mislead others into thinking there was active demand for the stock. During the manipulative trading, the stock’s price increased 196 percent from about 16 cents a share to a high of almost 47 cents, says the suit.

Again from March 6 to 18, during another promotional effort using Mrowca’s MoneyRunnersGroup website, they traded about 17 million GrowLife shares, helping to lift the stock more than 100 percent to nearly 78 cents a share.

They sold their holdings by March 18, pocketing about $134,000 in profits, according to the SEC.

GrowLife shares now trade at 8 or 9 cents.

Rami Grunbaum: 206-464-8541 or rgrunbaum@seattletimes.com



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