usa v. pustovit doc 33 filed 10 dec 15

8/20/2019 USA v. Pustovit Doc 33 Filed 10 Dec 15

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United States’ Sentencing Memorandum - 1U.S. v. Pustovit, CR15-5251RBL

UNITED STATES ATTORNEY700 STEWART STREET, SUITE 5220

SEATTLE, WASHINGTON 98101(206) 553-7970

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The Honorable Ronald B. Leighton

UNITED STATES DISTRICT COURT FOR THEWESTERN DISTRICT OF WASHINGTON

AT TACOMA

UNITED STATES OF AMERICA,

Plaintiff,

v.

TOVY PUSTOVIT,

Defendant.

NO. CR14-5251 RBL

UNITED STATES’ SENTENCING MEMORANDUM

A mere two months after this Court enjoined defendant Pustovit from engaging in

further securities fraud and froze certain of his assets, defendant Pustovit, flouting the

Court’s Preliminary Injunction Order, set out to victimize more individual investors for

profit. In short, defendant Pustovit is a recidivist – a fraudster determined to rig the stock

market for his benefit to the detriment of retail investors.

Defendant Pustovit’s conduct demonstrates that he is not simply a young man who

was improperly influenced by his peers from whom he learned the intricacies of stock

manipulation. Early in defendant Pustovit’s involvement in illegal stock manipulation,he participated in pump and dump schemes with the other defendants this Court

previously sentenced, Alexander Hawatmeh, Christopher Mrowca, and Mikhail Galas.

These manipulations included the manipulation of ISM International, Inc. (ticker symbol

Case 3:15-cr-05251-RBL Document 33 Filed 12/10/15 Page 1 of 21


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“ISML”) in April 2012 and Allied Products Corporation (ticker symbol “ADPC”) in June

and July 2013. After learning how a pump and dump scheme worked, however,

defendant Pustovit struck out on his own – conducting his own manipulations of IBSG

International, Inc. (ticker symbol “IBIN”) in November and December 2013 andResource Recovery International Corp. (ticker symbol “RRIC”) in July 2014. In an effort

to stop defendant Pustovit from engaging in further securities fraud, the United States

Securities and Exchange Commission (“SEC”) sued defendant Pustovit in a civil

enforcement action on August 5, 2014. Undeterred by the SEC action and the arrest and

prosecution of Hawatmeh, Mrowca, and Galas, defendant Pustovit immediately set out to

destroy evidence.

In the weeks that followed, defendant Pustovit met with the undersigned Assistant

United States Attorneys and the FBI to discuss his misconduct, and he was told that he

would not be facing prosecution based upon his cooperation. Despite this assurance,

approximately three months later, defendant Pustovit made the decision to commit more

fraud. In order to hide his conduct from law enforcement, he engaged in an elaborate

scheme to defraud using straw accounts controlled by unsuspecting individuals in which

to conduct the manipulative trading. After the entry of this Court’s Preliminary

Injunction Order and his meetings with law enforcement, defendant Pustovit and his co-

schemer made an additional $98,396 in illegal profit. All told, defendant Pustovit’s

profits from his fraudulent conduct totaled over $300,000.

Given the significant profits defendant Pustovit made from his fraudulent conduct,

the impact on the victims and the integrity of the financial markets, the length of time

defendant Pustovit engaged in the criminal conduct, his obstructive behavior, the

violation of the Court’s Order, and the need to deter him and others from engaging in

stock manipulation, a 63 month term of imprisonment is sufficient, but not greater than

necessary, to reflect the goals of sentencing.



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I.

PROCEDURAL HISTORY

On May 19, 2015, defendant Pustovit pleaded guilty to a one-count Information

charging him with Securities Fraud. Presentence Investigation Report (“PSR”) ¶ 1.

Defendant Pustovit is scheduled to be sentenced at 10:30 a.m. on December 18, 2015.

II. FACTS

A. Background

1. Pump and Dump Schemes

A “pump and dump” scheme is a form of market manipulation designed to

create a false and misleading appearance of a market for and interest in the security of a

publicly traded company in order to entice unsuspecting investors to purchase the stock atartificially high prices. There are generally three phases to a pump and dump scheme: (1)

obtaining and concealing control of a significant portion of a publicly traded company's

stock; (2) fraudulently inflating the price and trading volume of the company's stock

through a variety of means, including engaging in manipulative, coordinated trading of

the company’s stock to create the false appearance of market interest, and disseminating

false and misleading promotional materials to the investing public; and (3) once the stock

price has been fraudulently inflated, selling or “dumping” the stock at the fraudulently

inflated price. The price of the manipulated stock collapses soon after the dump as the

perpetrators cease propping up the stock’s price, and innocent investors are left with

worthless stock.

Individuals engaged in pump and dump schemes are frequently affiliated

with stock promotion websites and/or email accounts. These individuals use these

websites and email accounts to disseminate false and misleading promotional materials

concerning the stock. For example, they will blast false and misleading email

communication touting a likely sudden increase in a particular stock price or volume

without disclosing the fact that, in truth, the promoters were responsible for the recent

increase in price and volume through their manipulative, coordinated trading activities.



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Manipulators frequently cause the dissemination of a barrage of misleading promotional

materials concerning a specific stock at or near the end of the manipulation. The

manipulators then sell their accumulated position at the same time the promotions are

disseminated, thus profiting from the interest generated by the promotions.The stocks favored in market manipulation schemes are generally those that

are thinly traded and quoted through an "over-the-counter" alternative trading service,

such as OTC Markets or OTCBB. These OTC trading platforms provide a marketplace

to quote and trade shares of companies that do not meet the listing requirements for

trading on a national exchange, such as the New York Stock Exchange or NASDAQ.

Many companies, or "issuers," that offer their stock through OTC trading platforms do

not submit regular, independently audited financial reports or make other disclosures with

the SEC. The securities associated with such non-filing issuers do not have many buyers

and sellers; in other words, they are “thinly traded.” They also often trade at prices well

below one dollar per share, and hence are sometimes known as "penny stocks." With

little to no information about the issuer coupled with thin trading, such stocks are

susceptible to manipulation by individuals who are able to accumulate large blocks of

shares for the purpose of profiting from the manipulation.

2.

Manipulative Stock Trading Practices

Manipulative trading techniques frequently involve trading activity with no

real economic purpose, including "matched trades" and a practice known as "layering" or

"spoofing." A matched trade is trading that involves the prearranged purchase and sale of

stock between accounts controlled by different parties. Colluding parties engage in

matched trades in order to create the misleading impression of an increase in trading

volume and price. Layering or spoofing is a practice where a trader places non-bona fide

orders - orders that the trader does not intend to have executed - to induce others to buy

or sell a stock at a price not representative of actual supply and demand. More

specifically, when engaging in layering or spoofing, a trader repeatedly enters a buy order

for a stock that the trader subsequently cancels prior to trade execution. This type of



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activity is manipulative because it is done with the intention of tricking other investors to

purchase the stock at an artificial price driven by the orders the trader cancels. Layering

and spoofing impacts the best bid price and gives the market false impression of active

trading and volume when, in fact, the trader had no intention of completing the purchase.B. April 2012 – July 2013: Defendant Pustovit Participated in Stock

Manipulations with Hawatmeh, Mrowca and Galas

At the outset of his involvement in market manipulation, defendant Pustovit was a

knowing participant in schemes run by other individuals. In December 2011, Alexander

Hawatmeh and Christopher Mrowca agreed to conduct a pump and dump scheme

involving ISML stock. PSR ¶ 9. At the time, ISML stock was trading over-the-counter,

had very little trading volume, and was trading for less than one cent per share. Id. In

furtherance of their scheme, Hawatmeh and Mrowca agreed: (1) Hawatmeh would

accumulate ISML stock in accounts he controlled; (2) Hawatmeh, Mrowca, and others

would engage in manipulative trading in ISML stock to give the market the fraudulent

appearance that there was legitimate interest in ISML stock and to manipulate the price of

ISML upwards; (3) Mrowca would promote the stock using the Money Runners Group, a

stock promotion he controlled; (4) defendant Hawatmeh would sell the ISML stock he

accumulated in the market as the price rose in response to the promotion; and (5)

Hawatmeh and Mrowca would split the after-tax profits from the scheme. PSR ¶ 10.

In April 2012, Hawatmeh invited Pustovit to participate in the ISML

manipulation. PSR ¶ 11; Plea Agreement ¶ 9b. At Hawatmeh’s direction, Pustovit gave

Hawatmeh control over a brokerage account defendant Pustovit controlled which was

held in Pustovit’s mother’s name. Id. Thereafter, Hawatmeh, Galas, and Mrowca

engaged in manipulative trades of ISML in order to raise the trading volume and

influence the price of ISML. PSR ¶ 11. On April 20, 2012, Hawatmeh, Mrowca, and

Galas executed their agreement to fraudulently promote the stock and dump the

accumulated shares. PSR ¶ 11; Plea Agreement 9c. Shortly before the market opened,

the Money Runners Group alerted its subscribers that ISML was the play, and in



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response, the price of ISML rose sharply. PSR ¶ 11. At that time, Hawatmeh, Galas

and others sold their shares reaping large profits, including $4,647.50 in profits in the

account in defendant Pustovit’s mother’s name. PSR ¶ 11; Plea Agreement 9c. In the

days following the dump, the shares of ISML collapsed. PSR ¶ 11.After the manipulation of ISML, defendant Pustovit and Hawatmeh engaged in

similar conduct with respect to the manipulation of ADPC between June 14, 2013, and

July 2, 2013 resulting in $42,233.82 in profits for defendant Pustovit. Plea Agreement

¶ 9d(i). In the ADPC manipulation, defendant Pustovit created and controlled the stock

promotion email address that he and Hawatmeh used to issue the fraudulent information

to prospective investors. Id. On July 3, 2013, defendant Pustovit sent the fraudulent alert

at Hawatmeh’s direction. Id.

C. November 2013 – July 2014: Defendant Pustovit ran his own Manipulative

Schemes

Contrary to his assertion that his role in the offense “was at a very low level,”

Defendant Pustovit’s Sentencing Memorandum, Dtk. 31, page 15, defendant Pustovit set

out to conduct his own manipulations after learning the tricks of the trade from

Hawatmeh. In approximately November 2013, defendant Pustovit orchestrated his own

pump and dump scheme using another individual’s account to evade detection by law

enforcement.1 Between November 11, 2013, and December 13, 2013, defendant Pustovit

engaged in manipulative trading in IBIN by trading in his brother-in-law’s brokerage

account. Plea Agreement ¶ 9d(ii). Defendant Pustovit controlled other brokerage

accounts his friends opened, and invited Galas to participate in the IBIN manipulation.

Id. The total profit from the IBIN manipulation was $100,361. Id.

1 Given defendant Pustovit’s use of another individual’s brokerage account to engage in thismanipulative conduct, the United States was unaware of the full scope of his misconduct until he provided the information to law enforcement in August 2014. Since the information was provided in an interview where the defendant was seeking to cooperate, the United States madethe decision at the time not to prosecute Pustovit for the pump and dump schemes he oversaw.



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Given the success of the IBIN manipulation, between July 7, 2014, and July 17,

2014, defendant Pustovit orchestrated and executed a manipulation in the stock of RRIC.

Plea Agreement ¶ 9d(iii). Again, defendant Pustovit conducted the manipulative trades in

his brother-in-law’s account and in accounts in his friends’ names, and invited others,including Marius Morariu, to participate in the RRIC manipulation. Id. The total profit

from the RRIC manipulation was $62,965. Id.

D. August 2014: The SEC Enforcement Action, Defendant Pustovit’s

Obstruction of Justice, and Defendant Pustovit’s Interviews with Law Enforcement

On August 5, 2014, the SEC filed a complaint against defendant Pustovit and

others alleging the defendant Pustovit participated in the manipulation of ISML and

ADPC. PSR ¶ 14; SEC v. Galas, et al., CV14-5621RBL, Dkt. 1; Plea Agreement ¶ 9e.

That same day, the SEC filed a motion for a temporary restraining order (“TRO”) against

defendant Pustovit and the other defendants, and the Court entered the Order. PSR ¶ 14;

SEC v. Galas, et al., Dkt. 2 and 6; Plea Agreement 9f. The TRO prohibited Pustovit from

engaging in further fraud and directed that he refrain from “destroying, mutilating,

concealing, altering, disposing, or transferring custody of any items, including but not

limited to any books, records, documents, correspondence, contracts, agreements,

assignments, obligations, tape recordings, computer media or other property.” SEC v.

Galas, et al., Dkt. 6, ¶ IX, at pages 10-11. On August 13, 2014, the Court entered a

Preliminary Injunction Order containing the same prohibitions. SEC v. Galas, et al., Dkt.

15.

Also on August 5, 2014, defendant Pustovit flew with Mikhail Galas from Oregon

to California. PSR ¶ 13; Plea Agreement ¶ 9e. Special Agents with the Federal Bureau

of Investigation arrested Galas in the presence of defendant Pustovit as they deplaned.

Id. Later that day, defendant Pustovit placed a phone call to an individual in Vancouver,

Washington. Id. During the phone call, with the intention of destroying evidence related

to his scheme to manipulate stocks, defendant Pustovit asked this individual to erase data



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from a computer located in defendant Pustovit’s apartment. Id. The individual complied

and deleted files from the computer. Id.

On August 12 and 15, 2014, defendant Pustovit met the undersigned Assistant

United States Attorneys and the FBI case agent to discuss his role in the manipulationsunderlying the criminal prosecution of Hawatmeh, Mrowca, and Galas, and any other

manipulations defendant Pustovit participated in or conducted. Given his age and the

United States’s belief at the time that he was a minor participant in the illegal activity,

prior to the interviews the United States informed defendant Pustovit that he was unlikely

to face criminal prosecution if he was cooperative and informed the United States about

the full scope of his criminal conduct. At the end of the second interview on August

15th, defendant Pustovit gave the FBI his computer. At no time, did defendant Pustovit

inform law enforcement that he had directed another individual to delete files from a

computer.

In his sentencing memorandum, defendant Pustovit points to his cooperation with

law enforcement stating that the United States “allowed him to escape criminal

prosecution based in part on his youth, his lower level involvement compared to the

others and his cooperation with law enforcement officers” and that he “provided

substantial assistance in the form of information relevant and helpful to the prosecution

of the ongoing criminal case.” Defendant Pustovit’s Sentencing Memorandum, Dkt. 32,

page 7. To the extent that defendant Pustovit is attempting to gain any benefit from

interviewing with law enforcement, the United States believes such treatment is

unwarranted. In fact, defendant Pustovit’s decision to engage in illegal activity after the

interviews and the United States’ decision to prosecute at the time is a significant

aggravating factor.

E. November 2014 – February 2015: Defendant Pustovit Violated the Court’s

Preliminary Injunction Order by Engaging in Further Pump and Dump Schemes

Undeterred by the Court’s Order in the SEC litigation and his pass from federal

prosecution, defendant Pustovit began manipulating stocks again in November 2014, just



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three short months later. At that time, Morariu contacted defendant Pustovit and asked

him to help conduct a fraudulent pump and dump scheme. Plea Agreement ¶ 9h.

Defendant Pustovit agreed to help by providing the cash necessary to promote the scheme

and instructing Morariu on how to operate a successful pump and dump scheme. Id. Inthe following months, defendant Pustovit and Morariu manipulated the stocks of

Brightech, Inc. (ticker symbol “BRTE”), General Environmental Management, Inc.

(ticker symbol “GEVI”), and Green Street Capital Corp. (ticker symbol “JAGR”).

To engage in the fraudulent schemes and avoid detection from law enforcement,

defendant Pustovit and Morariu agreed that: (1) Morariu would recruit other individuals

who did not know defendant Pustovit to open brokerage accounts; (2) defendant Pustovit

would provide cash to Morariu who would use the cash to fund the nominee accounts; (3)

the nominee accounts would be used to accumulate shares in the companies they intended

to manipulate; (4) stock promotion companies controlled by Morariu and defendant

Pustovit would promote the stocks by disseminating false and fraudulent information;

and (5) after the false promotion campaigns, the stocks would be sold into the market at

artificially inflated prices. Plea Agreement ¶ 9i.

From approximately December 4, 2014, through at least February 5, 2015,

defendant Pustovit and Morariu manipulated BRTE, GEVI, and JAGR. Plea Agreement

¶¶ 9j-o. With respect to GEVI, defendant Pustovit gave Morariu $20,000 in cash to fund

the manipulation, they accumulated 2.7 million shares of GEVI in the nominee accounts,

and they sent fraudulent promotional alerts. Id. Defendant Pustovit and Morariu made

$83,096 in the GEVI manipulation, and $6,254 and $9,046 in the BRTE and JAGR

manipulations, respectively. Plea Agreement ¶¶ 9n-o.

In his Sentencing Memorandum, defendant Pustovit paints the picture that he was

an almost unwilling participant in Morariu’s scheme. Defendant Pustovit’s Sentencing

Memorandum, Dkt. 32, pages 8-10. What is clear from the facts, however, is that

defendant Pustovit agreed to participate in the schemes, taught Morariu how pump and

dump schemes worked, and funded the schemes. In fact, he agreed to participate in the



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GEVI scheme so that he could make $20,000 to pay for his wedding. Id., page 9. The

defendant’s efforts to place the blame squarely on Morariu show that he does not fully

comprehend his wrongdoing.

At any point when Morariu was placing this “pressure” on defendant Pustovit, hecould have contacted his attorney to convey this information to law enforcement, but he

did not do so. If fact, by his own admission, when confronted by the United States about

his involvement in the new scheme, defendant Pustovit denied he was involved.

Defendant Pustovit’s Sentencing Memorandum, Dkt. 32, page 10 (stating, “[a]fter a brief

period of denial and disbelief, Pustovit promptly admitted his participation and agreed to

plead guilty.”) While defendant Pustovit did plead guilty, he should be given little credit

for his post-plea rehabilitation, as he had ample opportunity to change his behavior before

he was charged with a crime.

III. SENTENCING GUIDELINES RANGE

The Sentencing Guidelines are advisory. United States v. Booker , 543 U.S.

220, 245-46 (2005). However, “the district courts still must consult [the] Guidelines and

take them into account when sentencing[.]” United States v. Cantrell , 433 F.3d 1269,

1279 (9th Cir. 2006) (internal citation omitted, internal quote omitted). “The appropriate

guidelines range, though now calculated under an advisory system, remains the critical

starting point for the imposition of a sentence under § 3553(a).” United States v. Mashek ,

406 F.3d 1012, 1016 n.4 (8th Cir. 2005) (quoted approvingly in Cantrell , 433 F.3d at

1279).

Pursuant to the Plea Agreement, the parties agreed that the following Sentencing

Guidelines provisions apply and recommend that the Court adopt the resulting

calculations which are consistent with the Probation Office’s calculation in the PSR :

//

//



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Guideline Adjustment

Base Offense Level. USSG § 2B1.1(a) 7

Specific Offense Characteristic

USSG § 2B1.1(b)(1)(I), based on an agreed gain of$303,955.82 as a result of the defendant’s conduct

+12

Specific Offense CharacteristicUSSG § 2B1.1(b)(2)(A)(i), because the offense involvedten (10) or more victims

+ 22

Specific Offense CharacteristicUSSG § 2B1.1(b)(9) because the defendant violated a prior, specific judicial order

+ 2

Specific Offense Characteristic

USSG § 2B1.1(b)(10)(C), because the offense involvedsophisticated means

+ 2

Obstruction AdjustmentUSSG § 3C.1.1, because the defendant willfullyobstructed or impeded the administration of justice withrespect to the investigation and prosecution of the offenseof conviction

+ 2

Acceptance of Responsibility. USSG § 3E1.1(a) - 3

TOTAL OFFENSE LEVEL 24

A. Specific Offense Characteristic § 2B1.1(b)(1)(G): Use of Gain as

Alternative Measure of Loss

Application Note 3(B) to USSG § 2B1.1 explains that “[t]he court shall use the

gain that resulted from the offense as an alternative measure of loss only if there is a loss

but it reasonably cannot be determined.” Here, the parties agreed that while defendant

2 In the Plea Agreement, the parties agreed to a four-level increase since the defendant’s fraudinvolved more than 50 victims. Plea Agreement ¶ 12c. On November 1, 2015, the SentencingCommission amended the USSG and this enhancement was amended to provide a four-levelincrease when the conduct involves a substantial financial hardship to five or more victims.Given this change, the United States has agreed that the imposition of a two-level increase isappropriate.



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Pustovit conduct resulted in losses for many investors, the actual amount of loss cannot

reasonably be determined and, therefore, an agreed upon gain amount should be used as

an alternative measure. Given the manner in which trading records are kept and

produced by the various trading platforms and markets, an accounting of actual losswould require the United States to individually audit thousands of separate purchase and

sales orders for the manipulated stocks and attempt to match those thousands of purchase

and sales orders to a particular investor in order to determine whether any individual

investor made money or lost money on those stocks. As an alternative, therefore, the

parties urge the Court to find that an appropriate measure of harm in this case for

purposes of the Sentencing Guidelines calculation would be the amount of net profit

attained by Pustovit and his co-conspirators from the scheme, which totaled $303,955.82.

B. Specific Offense Characteristic USSG § 2B1.1(b)(2)(A)(i): Number of

Victims

During the investigation leading to the instant prosecution, the United States

obtained and reviewed trading records for the manipulated stocks on the date of the

fraudulent promotions and sale of defendant Pustovit’s and his co-conspirator’s stock.

These trading records reveal over that hundreds of investors purchased those stocks on

the dates of the fraudulent promotions. For example, for ISML on April 20, 2012 -- the

day Mrowca alerted his subscribers to purchase ISML while his Hawatmeh, Galas,

Pustovit and others simultaneously dumped their accumulated shares – approximately

380 separate investors purchased ISML stock. The trading records also revealed that

scores of other investors purchased the other manipulated stocks on the date of those

promotions. Certain of these investors may not have actually suffered any loss depending

upon the timing of their purchase and sale or whether or not they had taken additional

positions prior to the dates of the fraudulent promotions. Rather than undertake an

expensive and time consuming task of auditing all purchase and sales records for each

separate investor, the United States and the defendant agreed and stipulated for the



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purpose of the Plea Agreement that victims in this case at least numbered more than 50

individuals. Plea Agreement ¶ 12c.

On November 1, 2015, the Sentencing Commission amended the USSG and this

enhancement was amended to provide a four-level increase when the conduct involves asubstantial financial hardship to five or more victims. Given this change to the USSG,

the United States has agreed that the imposition of a two-level increase is appropriate

since the offense involved 10 or more victims.

C. Applicable Sentencing Guidelines Range

Defendant Pustovit had no prior criminal history, and therefore, is placed into

Criminal History Category I. With a Total Offense Level of 24 and Criminal History

Category I, defendant Pustovit’s applicable sentencing guidelines range is 51-63 months.

PSR ¶ .

IV. THE 3553(A) FACTORS SUPPORT A SENTENCE OF 63 MONTHS

Taking into account the sentencing guideline range and all of the sentencing

factors under Title 18, United States Code, Section 3553(a), including the nature and

circumstances of the offense, the history and characteristics of the defendant, and the

need for the sentence to reflect the seriousness of the offense, to promote respect for thelaw, to provide just punishment, and to afford adequate deterrence, the United States

respectfully requests that the Court sentence defendant Pustovit to 63 months

imprisonment as it is sufficient, but not greater than necessary, to meet the goals of

sentencing.

A. The Serious Nature and Circumstances of the Offense

A sentence of 63 months incarceration reflects the serious nature and

circumstances of the defendant’s fraudulent conduct. The length and breadth of the

defendant’s conduct is a significant aggravating factor. Over the span of more nearly

three years, defendant Pustovit participated in or orchestrated at least seven different

pump and dump schemes. Early in his fraudulent conduct, defendant Pustovit was a



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willing participant in manipulative schemes being conducted by Hawatmeh and Mrowca.

After learning how these destructive schemes work, however, defendant Pustovit set out

on his own – setting up and running his own pump and dump schemes to ensure the he

received the lion’s share of the profits. Defendant Pustovit’s manipulative activityresulted in profits of over $300,000, and left scores of unwitting investors in his wake as

victims.

Defendant Pustovit’s criminal activity had a profound impact on the victims of his

offense, and the serious nature of his manipulation can be best seen through the words of

his victims. The defendant’s fraudulent conduct caused certain victim’s significant

economic loss. Furthermore, the emotional impact the defendant’s conduct had on his

victims was profound. In summarizing his feelings about investing in the stock market in

the future, Victim G.D. wrote that he had “[l]ost confidence in the market” and that the

crime has impacted his view of the securities markets because it “seems to be full of

people like this.” Victim H.C. described that she is now “afraid to trade” and that the

“’scam’ has altered [her] spending habits.” Victim C.E. noted, “[t]he loss made it

difficult to pay for my wedding and let to a delay on the actual wedding day” and “I do

fear now more than before on investing my hard earned money.” Finally, Victims P.L.

and J.L. stated that the defendant’s conduct caused an adjustment of their lifestyle, “Due

to our financial situation we were unable to have the money to support ourselves and

moved in with family” resulting in a “high level of skepticism with the stock market all

together [sic].”

These are just a few of the statements from the Victim Impact Statements

submitted for the Court’s review. A review of all of the Victim Impact Statements

demonstrates the real financial harm that the defendant’s actions had on a number of hard

working individuals, and the negative impact these types of crimes have on the victims’

and the investing public’s belief in the integrity of the United States’ financial markets.



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B.

The History and Characteristics of the Defendant

A sentence of 63 months is also supported by the history and characteristics of the

defendant. 18 U.S.C. § 3553(a)(1). Most importantly, defendant Pustovit is a recidivist

whose conduct demonstrates a wanton disregard for the law. Despite being sued by the

SEC, ordered by the Court to refrain from committing more securities fraud, and being

told he would not be prosecuted by the United States Attorney’s Office, the defendant

engaged in additional criminal activity involving the exact same conduct approximately

three months later. Furthermore, knowing of the prohibition against engaging in further

securities fraud, the defendant took significant steps to hide his fraudulent conduct from

the prying eyes of law enforcement. He and Morariu used nominees to open new

brokerage accounts in order to disguise that defendant Pustovit and Morariu were behind

the fraudulent schemes. Defendant Pustovit agreed to fund these nominee accounts by

providing Morariu with cash so that the money trail would not lead back to defendant

Pustovit. Likewise, Morariu paid defendant Pustovit his share of profits in cash. In

addition, both prior to and after engaging in this additional criminal activity, defendant

Pustovit obstructed justice by directing individuals, including Morariu, to destroy

evidence. These facts demonstrate that the defendant was willing to go to great lengths to

continue to evade detection by law enforcement to make money.

Unlike many defendants present before this Court for sentencing, there are no

significant mitigating factors in the defendant’s history and characteristics. In his

Sentencing Memorandum, defendant Pustovit points to his age and his upbringing are

mitigating factors. Defendant Pustovit’s Sentencing Memorandum, Dkt. 32, pages 3-4.

The defendant’s conduct both during and after the commission of the offense, including

engaging in sophisticated securities fraud, taking steps to hide his involvement in the

scheme, destroying evidence, and willfully violating the Court’s Order demonstrate a

level of sophistication not usually seen in individuals of defendant Pustovit’s age.



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In addition, his upbringing is not a mitigating factor as he had a stable childhood

with loving parents. He grew up the child of two parents who have a loving relationship

and have been married for 24 years. PSR ¶ 39. He was raised in a stable, religious

environment and was not “subjected to any form of abuse or neglect.” Id. While thedefendant tries to describe his parents as “over protective,” it is clear that they provided a

loving household and attempted to give defendant Pustovit every opportunity to succeed,

including “disciplining him appropriately when he got into trouble.” PSR ¶¶ 39-40.

When evaluating these facts, especially in light of the defendant’s conduct described

above, it becomes clear that the defendant has demonstrated a complete lack of ability to

correct his behavior when confronted by authority figures. There is simply no evidence

that he will begin to do so now absent a significant term of imprisonment.

C. To Reflect the Seriousness of the Offense, to Promote Respect for the Law

and to Provide Just Punishment

A sentence of 63 months is also needed “to ref lect the seriousness of the offense,

to promote respect for the law, and to provide just punishment for the offense.” 18 U.S.C.

§ 3553(a)(2)(A). Securities fraud is a serious offense that carries statutory maximum

terms of imprisonment of 20 years and maximum fine of up to $5 million. The

seriousness of this crime is greatly enhanced when, as here, the fraudulent scheme

stretched over multiple years, involved significant gains to the defendant, was perpetrated

on numerous victims, involved sophisticated means, and involved a violation of a

previous Court Order and obstructive conduct. Given the seriousness of the crime and

the defendant’s behavior during its commission, a term of 63 months imprisonment will

promote respect for the law and provide just punishment for the offense.

D. To Afford Deterrence

Section 3553(a)(2)(B) requires that the sentence imposed reflect the “seriousness

of the offense” and afford “adequate deterrence.” The securities markets are a critical

aspect of our economy, and many depend upon it to generate returns on savings for future



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use. Market manipulations, like those conducted by defendant Pustovit, create doubts

about the integrity and fairness of such markets in general and, if undeterred, will lead to

withdrawals in participation to the detriment of the economy as a whole.

The issue of deterrence becomes particularly relevant in securities fraud casessuch as this one because such crimes are notoriously difficult to detect and prosecute.

Perpetrators, like Pustovit, hide behind multiple brokerage accounts that are held by or

opened in the names of other individuals, therefore making it difficult to connect the

trading activity and the promotions to the actual individuals conducting the pump and

dump. Given the difficulty of detection, effective deterrence requires meaningful

punishment in each instance where the perpetrator has been caught. As explained by

Judge Richard Posner in United States v. Heffernan, 43 F.3d 1144, 1149 (7th Cir. 1994),

“[c]onsideration of (general) deterrence argue for punishing more heavily those offenses

that either are lucrative or are difficult to detect and punish, since both attributes go to

increase the expected benefits of a crime and hence the punishment required to deter it.”

On the other hand, punishments that are perceived as too light compound the

skepticism of the public and fuel the perception that the securities markets are purposely

rigged against the average investor. Therefore, the United States urges the Court to

impose meaningful punishment in this case.

E. The Need to Protect the Public from Further Crimes of the Defendant

Section 3353(a)(2)(D) directs the Court to consider the need “to protect the public

from further crimes of the defendant.” The defendant’s conduct described above shows

that he is very likely to re-offend. Furthermore, the defendant’s comments to the

Probation Officer demonstrate that he still has not received the message that his

involvement in securities trading puts the investing public at risk. In discussing his

employment record, the defendant stated that he is currently self-employed as a buyer and

seller of auto parts where he earns approximately $2,000 per month. PSR ¶ 47. Despite

this stable employment in an occupation that does not involve stocks, the defendant told



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the Probation Officer that “his employment plan is to return to day trading (if allowed).”

Id. After everything that has happened with the defendant and his conduct manipulating

stocks, there is simply no reason for him to ever trade securities again, let alone as a day

trader. The defendant’s statement proves that he has not learned his lesson, and there is astrong likelihood that he will re-offend.

In his Sentencing Memorandum, defendant Pustovit asserts that he is a “low risk

for recidivism” because “[h]e is a true first time offender.” Defendant Pustovit’ s

Sentencing Memorandum, Dkt. 32, page 2. This statement is belied by the facts.

Although he evaded criminal prosecution and conviction for his manipulative activity

underlying the SEC litigation, he was sued by the SEC and ordered to stop engaging in

securities fraud by this very Court. Shortly thereafter, he made a conscious decision to

participate in the very same activity by manipulating three additional stocks. Therefore,

it is a stretch to call defendant Pustovit a first time offender. Furthermore, the

defendant’s assertion also fails to take into consideration that the defendant obstructed

justice not only after the SEC litigation, but when Morariu was confronted by law

enforcement in March 2015. According to Morariu, he contacted defendant Pustovit after

Morariu was contacted by the FBI. In a meeting shortly thereafter, defendant Pustovit

and Morariu agreed that Morariu would take full responsibility for the conduct, and

defendant Pustovit instructed Morariu on what would happen at the meeting with the FBI.

Furthermore, Morariu admitted to law enforcement that he had deleted information off

his computer at the direction of defendant Pustovit.

In sum, the defendant’s actions to date, unlike the words he now puts forth in his

Sentencing Memorandum, demonstrate a significant likelihood that he will engage in

further criminal conduct.

F. The Need to Avoid Unwarranted Sentencing Disparities

Section 3553(a)(5) cautions against creating unwarranted sentencing disparities

among similarly situated defendants. Previously, the Court sentenced Hawatmeh to a

sentence of 60 months, Mrowca to a term of 36 months, and Galas to a sentence of time



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served (after serving one day). Although his gain was significantly lower than

Hawatmeh’s gain, the United States believes a sentence higher than Hawatmeh’s

sentence is warranted given the defendant’s violation of the Court’s Order, his repeated

obstructive conduct, and the likelihood he will re-offend.V. RESTITUTION

Pursuant to the Plea Agreement, the parties jointly recommend that no restitution

be ordered because “the complication and prolongation of the sentencing process

resulting from the fashioning of an order of restitution under this section outweighs the

need to provide restitution to any victims.” 18 U.S.C. § 3663(a)(1)(B)(ii). The

government does not have access to the brokerage records of each individual who may

have been impacted by the defendant’s stock manipulation. Instead, as noted above, in

order to calculate with any reasonable degree of certainty the amount of loss each

investor suffered, the government would have to individually audit separate purchase and

sales orders, match them up with an individual investor, and then determine whether that

individual made money or lost money. Such an endeavor would take significant

expenditure of personnel time and resources, and unduly delay sentencing. In sum, the

burden of calculating and verifying each investor’s loss outweighs the need to provide

restitution to the victims in this case, and the parties urge the Court to so find.

//

//

//



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VI.

CONCLUSION

For the foregoing reasons, the United States recommends that the Court sentence

defendant Pustovit to 63 months imprisonment followed by a term of three years of

supervised release.

DATED: December 10, 2015

Respectfully submitted,

/s/ Justin W. Arnold

JUSTIN W. ARNOLDAssistant United States Attorney

/s/Katheryn Kim Frierson

KATHERYN KIM FRIERSONAssistant United States AttorneyWSBA # 37794

United States Attorney’s Office 700 Stewart Street, Suite 5220Seattle, Washington 98101Telephone: (206) 553-7970Facsimile: (206) 553-2502E-mail: [email protected]



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CERTIFICATE OF SERVICE

I hereby certify that on December 10, 2015, I electronically filed the foregoing

with the Clerk of Court using the CM/ECF system which will send notification of such

filing to the attorney(s) of record for the defendant(s).

s/Jenny FinglesJENNY FINGLESUnited States Attorney’s Office 700 Stewart, Suite 5220Seattle, Washington 98101-1271Phone: 206-553-7970

Fax: 206-553-0755E-mail: [email protected]

mailto:[email protected]:[email protected]:[email protected]:[email protected]

usa v. pustovit doc 33 filed 10 dec 15

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