SEC accuses Canadian businessman Andrew DeFrancesco of fraud

U.S. regulators have sued long-time Bay Avenue financier Andrew DeFrancesco, alleging he orchestrated a fraudulent “pump-and-dump” scheme in 2018 with the shares of a small Nasdaq-listed tech firm known as Cool Holdings Inc.

The Securities and Alternate Fee’s civil go well with additionally names Mr. DeFrancesco’s ex-wife Catherine, two former firm executives, and Mr. DeFrancesco’s private assistant on the time as defendants.

The SEC, which alleges Mr. DeFrancesco offered US$8-million price of Cool Holdings inventory, is looking for a return of earnings, financial penalties, and a everlasting ban on Mr. DeFrancesco serving because the director or officer of an organization registered with the SEC.

The proof, contained in a lawsuit filed Friday, has not been examined in court docket. Makes an attempt to achieve Mr. DeFrancesco Friday afternoon have been unsuccessful. Miami-based Cool Holdings, now generally known as Merely Inc., filed a voluntary petition for liquidation chapter in June.

In a “pump-and-dump,” shareholders in an organization hype an organization’s prospects (”pump”), typically by making false statements, then promote their shares (”dump”) at inflated costs to new, unsuspecting shareholders.

The Globe detailed the rise and fall of Cool Holdings in a February, 2019, article.

In 2017, Mr. DeFrancesco took a shell firm with no enterprise operations, named it Cooltech after which used it to amass Latin American consumer-electronics firms wherein his household had stakes. Cooltech then merged with a struggling Nasdaq-listed smartphone firm and named itself Cool Holdings. Mr. DeFrancesco was chairman of the general public firm’s board.

In a single week in mid-September 2018, Cool Holdings inventory caught fireplace, rising from US$5.18 to commerce as excessive as US$22.61. On the time, Cool Holdings was the topic of a collection of promotional articles which appeared on varied web sites and on PR Newswire, a news-release service. The articles touted ties to Apple Inc. and its growth plans. One article claimed the corporate’s One Click on shops “earn [US]$3,750 per sq. foot,” outperforming, it mentioned, Kate Spade & Co., Lululemon Athletica Inc., Michael Kors and Tiffany & Co.

Cool Holdings, the article added, “plans to roll out 200 boutique shops by 2020″ with “a projected income stream price [US]$900-million in Part 1 alone.”

In a February, 2019, e-mailed assertion, Mr. DeFrancesco informed The Globe the corporate that authored the promotional articles was “an organization we checked out briefly as an possibility to offer IR [investor relations] companies for Cool Holdings. Finally the contract was not executed and the corporate made no funds.”

Cool Holdings disclosed in Might, 2019, that it had obtained a subpoena from the SEC in March of that yr.

The allegations within the lawsuit add new particulars to the corporate’s historical past. The SEC alleges Mr. DeFrancesco used a collection of small firms, coupled with false statements by him and his spouse, to hide that he owned 32 per cent of Cool Holdings. Mr. DeFrancesco did not file the required experiences that will have divulged that possession, the SEC alleged.

In June, 2018, the SEC says, Mr. DeFrancesco employed a promoter of penny shares to conduct a promotional marketing campaign for Cool Holdings for US$350,000 in money plus 150,000 shares within the firm. The SEC says the promoter, which it didn’t title, shared a collection of drafts with Mr. DeFrancesco, chief govt Marlio Mauricio Diaz Cardona, and chief advertising officer Carlos Felipe Rezk.

In accordance with the SEC, at one level, the promoter despatched an e-mail that mentioned its lawyer requested for supporting proof for the per-square-foot gross sales quantity and the store-expansion plans that led to the US$900-million headline quantity. “My lawyer actually wants this to maintain us all protected,” the promoter mentioned in an e-mail, in line with the SEC.

The SEC says the executives signed off on the textual content. Nonetheless, the SEC alleged, “the [US]$900 million determine was derived by combining a number of false information factors.”

Additionally, the SEC alleged, Apple had halted Cool’s Latin American growth of its licensing in January, 2018, due to poor gross sales and an lack of ability by Cool Holdings to pay its invoices. But the articles – in addition to Cool Holdings’s securities filings – did not replicate that. “Cool’s purported objective of increasing to 200 shops was unattainable and had no foundation in actuality, Cool had already failed to satisfy Apple’s efficiency necessities, and the prevailing shops weren’t working profitably,” the SEC alleged.

The SEC says that on Sept. 19, 2018, “Apple’s Authorized Director for Latin America spoke with Mr. Rezk and adopted up by e mail attaching a hyperlink to one of many promotional articles, demanding ‘written affirmation from Cool Holdings that Cool Holdings and its associates will … not do something like this paid promoting once more.’”

Whereas the promoter’s bill was addressed to Cool Holdings, it was paid by Delavaco Holdings Inc., a non-public firm that that was purportedly owned and managed by Catherine DeFrancesco. The SEC alleges that Mr. DeFrancesco had affect and management over Delavaco and he and Ms. DeFrancesco falsely offered written statements to Cool Holdings’s auditors that mentioned he didn’t.

Mr. DeFrancesco “deliberately hid that he was funding the articles as a result of on the time of the articles he was Cool’s board chairman and he was planning to instantly promote a considerable variety of Cool shares that he had surreptitiously acquired and secretly held,” the SEC alleged.

“By the tip of 2018, DeFrancesco had offered greater than 1.6 million shares, all by accounts nominally managed by his ex-wife Catherine DeFrancesco and different members of the family, however actually managed by DeFrancesco, for proceeds of greater than $8 million,” the SEC alleges.

By early 2019, the corporate’s inventory traded round US$2. Friday, it closed at a bit of greater than two-tenths of 1 U.S. cent.