In a shocking turn of events, Andrew DeFrancesco has been Charged with a Pump-and-Dump Scheme
In a civil complaint that was just filed today by the Securities and Exchange Commission (SEC), Andrew DeFrancesco, who is known for his involvement in the boom and bust of the cannabis industry, has been accused of fraud. This case is about a company that was listed on the NASDAQ called Cool Holdings, and he served as the Chairman of that company.
In a nutshell, the SEC asserts that DeFrancesco “orchestrated a fraudulent scheme to deceive the investing public about the operations and prospects of Cool, through repeated, materially false and misleading misstatements and omissions in SEC filings and in a promotional campaign” as part of a pump-and-dump scheme.
This allegation comes as a result of the fact that the SEC believes that DeFrancesco “orchestrated a fraudulent scheme In addition to him, his ex-wife Catherine DeFrancesco, an assistant, and several executives from the company have been charged.
DeFrancesco maintains a presence in some of the market’s most speculative areas, such as the lithium and blockchain technology industries. It is reasonable to assume that he has a number of critics in the community who will feel a sense of schadenfreude at the news that this transpired.
SEC Complaint
In its complaint against defendants Andrew DeFrancesco (“DeFrancesco”), Marlio Mauricio Diaz Cardona (“Diaz”), Carlos Felipe Rezk (“Rezk”), Nikola Faukovic (“Faukovic”), and Catherine DeFrancesco (collectively referred to as the “Defendants”), the Securities and Exchange Commission (the “Commission” or “SEC”) alleges the following:
Synopsis of Allegations
Beginning in March 2018, Defendants DeFrancesco, Diaz, and Rezk, each of whom was an officer or director of Cool Holdings, Inc. (“Cool”), a publicly-traded company, orchestrated a fraudulent scheme to deceive the investing public about Cool’s operations and prospects through repeated, materially false and misleading misstatements and omissions in SEC filings and in a promotional campaign.
DeFrancesco, the scheme’s chief architect, was chairman of Cool’s board of directors from March to December 2018. Diaz and Rezk served as Cool’s CEO and CMO, respectively, from March 2018 to early June 2019 (the “Relevant Period”).
Throughout the Relevant Period, Cool, the operator of a small chain of retail electronic stores, made materially false and misleading statements and omissions in its SEC filings, including about its critical business relationship with consumer electronics behemoth Apple Inc. (“Apple”).
Diaz signed each of Cool’s false and misleading quarterly reports; Diaz and Rezk both signed Cool’s false and misleading annual report; and Diaz, DeFrancesco, and Rezk all signed Cool’s false and misleading registration statement and amendments (collectively, the “Registration Statement”).
The Registration Statement, which never became effective, sought to offer and sell up to $25,000,000 in securities. DeFrancesco also orchestrated a “pump and dump” of Cool stock in mid-September 2018, with the help of Diaz and Rezk, as well as his executive assistant Faukovic.
Despite Cool’s serious financial problems, underperforming stores, and precarious relationship with Apple, promotional articles falsely claimed, among other things, that Cool’s stores were more profitable per square foot than retailers such as Tiffany & Co. and Michael Kors, and that Cool planned to expand the number of its Apple-product-focused stores from nine in March 2018 to 200 by 2020.
Cool’s share price and trading volume skyrocketed during and after the false and misleading articles were published. With the help of Faukovic, Cool’s share price and trading activity were artificially elevated in the four days following the start of the promotion.
DeFrancesco sold over 500,000 shares that he owned and held in numerous brokerage accounts in the names of nominee entities under his secret control. DeFrancesco made nearly $3.5 million from these sales.
By the end of 2018, DeFrancesco had sold more than 1.6 million shares, all through accounts nominally controlled by his ex-wife Catherine DeFrancesco and other family members, but really controlled by DeFrancesco, for a total of more than $8 million.
DeFrancesco, with the help of Faukovic and Catherine DeFrancesco, concealed his ownership of Cool shares, which at its peak during the Relevant Period accounted for more than 32% of Cool’s outstanding shares.
To keep DeFrancesco’s stock ownership secret, he and Catherine DeFrancesco filed false beneficial ownership reports with the SEC. Diaz, Faukovic, and Rezk also sold Cool stock while Cool was disseminating false and misleading information in its SEC filings.
