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Lev Parnas's South Florida Stomping Ground A Mecca For Financial Scams


It is perhaps not a coincidence that Lev Parnas chose the wealthy beachfront town of Boca Raton in Florida as the location for one of his brokerages. (file photo)

In late 2000, Jewish emigres from the former Soviet Union gathered in Brooklyn's ethnic enclave of Brighton Beach for the lighting of a 27-foot menorah to celebrate the start of Hanukkah.

The event, which included free food such as latkes, fresh sufganiyot, and mini-franks, was financed by two men who were "living the American dream" and wanted to give back to the community, according to a report at the time by The Jewish Press.

Lev Parnas and his business partner, Robert Grinberg, who had settled in Brooklyn like many Soviet emigres, were now owners of a broker-dealer in southern Florida trading in equities, including penny stocks, risky investments that are often the subject of lawsuits.

The Jewish Press described the two financial-sector workers as "successful beyond their wildest dreams."

Parnas's background is now under scrutiny after he was arrested on October 9 along with his latest business partner, Igor Fruman -- also a Soviet emigre -- and charged with funneling foreign money through an American shell company to politicians and political action committees, breaking U.S. campaign-finance laws.

Parnas and Fruman have pleaded not guilty.

Lev Parnas (left) and Igor Fruman were arrested on October 9.
Lev Parnas (left) and Igor Fruman were arrested on October 9.

The 47-year old is also a key figure in the House impeachment inquiry into whether President Donald Trump pressured Ukrainian President Volodymyr Zelenskiy to investigate a political rival.

The details emerging about Parnas's work over the past two decades show a businessman who spent considerable time doing business in southern Florida, which has been a hotbed of financial fraud -- including Ponzi schemes and penny-stock scams -- for decades.

Parnas worked for two of the many southern Florida brokerages that would get shut down for fraud before buying his own. At least two former employees of his brokerage -- including his childhood friend -- and one of its former directors would later be arrested for financial scams.

Parnas, too, would catch the eye of market regulators after he was found to have used financial engineering -- and a flutter of press releases -- to turn a defunct penny-stock company into a nearly $600 million firm overnight before it soon blew up.

Parnas would then try to profit from the region's plethora of financial scams by offering his services as a defender against fraud.

Job Hoppers

Parnas and Grinberg agreed in 1998 to buy Program Trading Corp., an Orlando-based brokerage firm, through their company Aaron Investment Group.

They relocated it to Boca Raton, disparagingly called at the time the "Maggot Mile" or "Maggot Row" due to the large number of brokerages clustered in the area peddling dubious penny stocks.

The two men -- yet to turn 30 -- had tumultuous careers as brokers, changing employers often.

Parnas worked for eight brokerages in less than 4 1/2 years before taking over Program Trading, never holding a position for longer than a year, according to Financial Industry Regulatory Authority (FINRA) broker-registration data.

One of his many stops was Euro-Atlantic Securities, which he joined in late 1996. According to the South Florida-based paper the Sun Sentinel, the Boca Raton-based firm was allegedly controlled by organized-crime figures. It would be at the center of a $40 million penny-stock scam that operated from January 1996 to April 1997. Federal prosecutors would charge 12 people in the case. Parnas, who was not accused of any wrongdoing, left Euro-Atlantic Securities in April 1997 shortly before the firm was expelled by FINRA.

Grinberg also bounced from place to place, working for 11 firms in a little over 6 1/2 years prior to joining Program Trading with Parnas.

Mari Adams, a financial adviser in Boca Raton, who urges her clients to check brokers' backgrounds, said such a history of changing jobs would have raised "red flags."

'The Boca Bunch'

Boca Raton had already developed an image as a haven for unsavory businessmen and brokerages -- often called "boiler rooms" for their high-pressure sales tactics -- before Parnas and Grinberg showed up.

In the span of a year in the early 1990s, the Securities and Exchange Commission (SEC) launched investigations into six Boca Raton corporations and shut a seventh for running a Ponzi scheme, according to a 1992 New York Times article.

Companies with nothing more than an idea might issue promising press releases or hire promoters to tout their stock online.

Unscrupulous brokers would hit the phones, pitching the company's dubious story to retail investors, including retirees.

As the price climbed, insiders could sell their shares at a profit before the company floundered and the stock price crashed, a practice known as "pump and dump."

State regulators would refer to the brokers pushing these empty shells and other high-risk investments as the "Boca Bunch," according to The New York Times article.

Since then, things appear to have changed little. Courts have convicted several individuals from Boca Raton with securities and investment fraud since 2017.

In one of the largest cases, Boca Raton lawyer James Schneider was convicted last year in a case that involved the creation of 20 shell companies from 2008 through 2015. Shares of the fake companies were pumped and then sold to investors.

Parnas (left) with U.S. President Donald Trump's attorney Rudy Giuliani at the funeral for George H.W. Bush in 2018. The Soviet-born Parnas worked as a fixer for Giuliani in Ukraine.
Parnas (left) with U.S. President Donald Trump's attorney Rudy Giuliani at the funeral for George H.W. Bush in 2018. The Soviet-born Parnas worked as a fixer for Giuliani in Ukraine.

Eleven others were convicted in the case, including Ian Kass, who had earlier worked for Program Trading under Parnas.

Robert Shapiro, the former chief executive officer of the Woodbridge Group of Companies, which was founded in Boca Raton, was sentenced last month to 25 years in prison for operating a $1.3 billion real estate Ponzi scheme.

"Another Day, Another Ponzi Scheme In Boca Raton," Adams, the financial adviser, titled a post on her company's website in January 2018 amid the investigation of Woodbridge.

Adams said scammers are drawn to Boca Raton by the wealthy population, many of whom are retirees, as well as Florida's low taxes and "strong asset protection laws." Courts cannot easily seize the assets of individuals convicted of fraud, such as their homes, she said.

Such was the operating environment Parnas and Grinberg encountered when they relocated Program Trading to Boca Raton.

Russian Athletes

Robert Renneker, who founded Program Trading in 1995, told RFE/RL he sold the brokerage because it wasn't very profitable, and competition was fierce.

He described it as a brokerage with a clean name and good infrastructure, but with no competitive edge over other firms and no niche. Parnas and Grinberg paid about $1 million, with part of the money coming from backers, Renneker said.

However, the two new owners were not really focused on the brokerage's bread-and-butter business of creating a market for investors to buy or sell securities, a commission-based business, Renneker and other employees recalled.

The two appeared more interested in investment deals, and owning a brokerage would give them credibility, Renneker said. It is also where the big profits are.

A small brokerage like Parnas's could offer financing to struggling, startup companies in exchange for shares and then promote the stock to their clients, said James Angel, a professor at Georgetown University's McDonough School of Business.

Former employees of Program Trading said the two men's investment clients included current and former Russian athletes living in the United States.

Parnas has often seemed to move in high circles. This 2018 social media post appears to show him at the White House with President Donald Trump.
Parnas has often seemed to move in high circles. This 2018 social media post appears to show him at the White House with President Donald Trump.

Renneker said Parnas was an "aggressive salesman" who acquired membership in a Boca Raton country club to hobnob with wealthy people in hopes of attracting more clients.

Parnas and Grinberg received some of their startup capital from Neal Tolar, who co-founded the Florida-based tech company Sawtek, which was taken over in 2001 in an all-stock deal for $1.3 billion. Tolar died earlier this year at age 77 and his family could not be reached for comment.

Tolar was one of four individuals listed as directors or officers of Aaron Investment, according to Florida registration documents, along with Mitchell Reisman, Grinberg, and Parnas. Reisman was also listed as an officer at Program Trading.

Arrests

Reisman would be sentenced in 2010 to 51 months in jail for investment fraud. Reisman was part of a group that solicited money from investors for B.I.M. Mining Corp., a company he and others falsely claimed possessed significant gold and mineral rights licenses.

Steven Koifman, who worked for Program Trading during two stints from 1999 to 2000 and 2002 to 2003, was arrested in 2013 along with Michael Vax -- whom The Wall Street Journal described in a 1999 article as a "Russian gangster" -- in connection with a pump-and-dump scheme.

In between his two stints at Program Trading, Koifman worked for two Boca Raton brokerages that would later be shut for fraud.

Koifman and Parnas were close childhood friends, according to a 2010 Boca Raton police report that was filed following an altercation between the two men.

Brokerage Losses

Grinberg told RFE/RL that Program Trading made good money "and then some."

However, the two bought Program Trading just as the U.S. stock market boom driven by Internet speculation came to an end.

The market-making business also fundamentally changed in 2001 as stock price quotes changed from fractions to decimals and spreads narrowed to a penny, crushing the profitability of brokerages.

Program Trading sustained a loss of $4.3 million in 2002, SEC filings show.

FINRA data indicates that Parnas and Grinberg shut the firm in September 2003. Angel, of Georgetown University, said many owners walked away from such brokerages as spreads narrowed and profits dropped.

Parnas would years later state on his new company website that he had "founded" a brokerage -- a clear reference to Program Trading -- and that his firm had been the fifth-largest wholesale market maker in the United States.

A Facebook screen shot showing from left to right: Donald Trump Jr., Tommy Hicks Jr., Lev Parnas, and Igor Fruman in May 2018.
A Facebook screen shot showing from left to right: Donald Trump Jr., Tommy Hicks Jr., Lev Parnas, and Igor Fruman in May 2018.

He would also claim that the firm had employed over 200 traders, made markets for over 4,500 stocks, and took over 1,000 companies public.

FINRA data indicates that no more than 57 registered professionals worked at Program Trading over its eight-year history, including Parnas and Grinberg.

Several of them left before Parnas and Grinberg took over and others had short stints, implying no more than 20 market professionals at any time.

Parnas's claim of bringing 1,000 penny stocks public during his tenure at Program Trading would imply nearly one a day, "a bit of a stretch," said Angel, a former member of the OTC Bulletin Board Advisory Committee. The OTC Bulletin Board offers prices on penny stocks.

Parnas would make a three-month comeback as a broker with Basis Financial in North Miami in 2009.

Basis Financial would be shut down by FINRA a few years later and its owner barred from the industry for repeatedly defrauding customers with penny stock investments.

Edgetech

Parnas also claims on his website that he took a technology distribution company public -- a reference to Edgetech -- and that it reached a $600 million market capitalization.

It nearly did on paper -- through financial ingenuity rather than profit growth. And it crashed quickly.

Parnas arranged in April 2006 for Dariene International -- a defunct, publicly traded company that sought to produce cholesterol-free cow's milk -- to buy his EGTH Inc. in exchange for 52.5 million new shares.

Dariene had 41,784 shares outstanding that barely traded. The bid and ask prices for its shares prior to the deal with EGTH stood at between $3.50 and $4.00, giving it a market value of $167,136.

Parnas arrives for his arraignment in the Southern District of New York on October 23.
Parnas arrives for his arraignment in the Southern District of New York on October 23.

Parnas renamed Dariene to Edgetech International, issued another 5.3 million shares to holders of $53,000 of debt and then carried out a stock split, bringing the number of shares to 115 million, according to filings.

Dariene's stock ticker DRNE was changed to EGIL and stock trading began in late May at around $3, climbing to as high as $5.03 in July on little volume, according to Bloomberg data. That gave the newly formed company with almost no revenue a market value of nearly $600 million on paper and Parnas a net worth of nearly $400 million.

Edgetech had the exclusive rights to distribute the PocketSurfer -- a mobile, wireless computer made by a Canadian company called DataWind -- but had essentially no revenue yet.

The PocketSurfer -- so named because it could surf the Internet and fit in your pocket -- would seek to compete with the emerging smartphone market.

Parnas would pump out 48 press releases between June 2006 and March 2007 touting the potential future success of Edgetech, including possible sponsorships with athletes and Hollywood stars, the opening of an office in Beverly Hills, and launch of sales in Russia.

However, Parnas struggled to sell PocketSurfers. Then, in January 2007, Apple announced it would release the iPhone, a product that revolutionized the mobile phone and online industries.

Edgetech would report sales of just $61,168 over the first eight months of 2008 and post a $1.3 million net loss, according to filings. It would have 155 million shares outstanding by 2008, an increase of 40 million over two years. The share price would tumble to just $0.02 by the end of 2008.

Peter Murray, who briefly worked at Edgetech in 2007, told RFE/RL he had concerns about the stories Parnas was peddling about the company. "None of it was even close to true other than that there was a device and a penny stock," Murray said.

A court sketch of Lev Parnas at an arraignment hearing in New York last month.
A court sketch of Lev Parnas at an arraignment hearing in New York last month.

Murray said he was led to believe that Parnas had a fortress of about $30 million earned from his penny-stock brokerage that he could tap to grow Edgetech.

Some investors accused Parnas of pumping up Edgetech stock through the tidal wave of press releases. Parnas's cousin Alex Bolbirer owned about 8 percent of the company's stock in 2006, filings show.

"The company is a scam. They have a great story, but it's just that: a story. Lev Parnas is a former stockbroker and knows what the hell he's doing here. If you can get out, do it. They may pump this baby again, but it's all smoke and mirrors. So, you're playing with fire!!" said an anonymous person in a post on the stock investor board Investorhub in January 2007.

BuzzFeed said the Orlando FBI began to look into a case of possible stock manipulation with Edgetech in 2008, but the government did not pursue charges.

After Edgetech was a flop, Parnas set up Fraud Guarantee with David Correia, who was also charged last month in the scheme to funnel money to politicians. Parnas said on his company website that he set up Fraud Guarantee, which seeks to protect "other investors from loss due to fraud," after being a "victim" himself.

'Miami-Based Financiers'

Grinberg said he and Parnas went their own ways after Program Trading.

Grinberg has in recent years invested in several companies alongside Charles Arnold -- a well-known penny-stock promoter from Florida.

In a 1998 article, the Barron's financial newspaper exposed Arnold's investment in a company tied to Ivana Trump called Tel-Com Wireless Cable TV.

Shortly after the article was published, Michael Vax -- the same individual arrested along with Parnas's childhood friend Koifman in 2013 for stock fraud -- and his brother Boris visited several individuals they believed may have been the source of the story.

The Russian brothers allegedly demanded compensation for any financial loss Arnold may have suffered, Barron's reported.

OTC Markets Research, a firm that specializes in analyzing penny stocks, said in a report last year that Grinberg, Arnold, and three other investors from southern Florida -- whom it collectively calls "the Miami Financiers" -- have a history of teaming up in penny stocks like Life Clips to use them "as their own personal ATM machines."

The research firm said in its note that Life Clips had issued "false and misleading press releases" to help pump up the stock so the Miami Financiers could dump their holdings on the market.

Life Clips CEO Huey Long stepped down in November 2017, saying he could not run the company in the interest of all shareholders and had not been paid for several months.

"Unfortunately, the Miami-based convertible note holders continue to strengthen their grip on the company. As a result, I am no longer comfortable leading or certifying SEC documents on behalf of the company," he said in a statement.

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