2 North Jersey Traders Charged In $10 Billion Market Manipulation Scheme

Two North Jersey securities traders were arrested Monday and charged with orchestrating a long-running scheme that netted them $26 million in illegal profits, U.S. Attorney Paul J. Fishman announced.

For three years, Joseph Taub, 37, of Clifton, and Elazar Shmalo, 21, of Passaic, and others allegedly manipulated the prices of $10 billion in securities of several publicly-traded companies by coordinating the trading of dozens of brokerage accounts the companies controlled, Fishman said.

They looked for companies whose securities had had low trading volumes because they were easier to manipulate them. They artificially inflated the securities' prices and made a profit by selling them.

In 2014 and 2015, Taub, Shmalo, and others engaged in more than 23,000 instances of such "manipulative trading," making more than $26 million in illegal profits, authorities said.

"This type of behavior cheats the average investor and has a terrible impact on the securities industry," said Timothy Gallagher, special agent in charge of the FBI's Newark Division.

The brokerage accounts they manipulated were in their names, the names of family members, and entities they controlled, but many of them were "straw holder accounts" and were opened in the names of people who neither controlled them or traded securities, Fishman said.

The manipulative trading generally involved two or more trading accounts that purchased and sold the same stock on the same day, authorities said. The trades often happened just a few minutes each and involved, in some cases, at least 80 percent of a stock's volume.

Taub allegedly funded many of the accounts that were not in his name and used the straw account holders to hide the scheme from authorities, Fishman said.

Taub and Shmalo were each charged with conspiracy to commit securities fraud, which carries a maximum penalty of five years in prison and a fine of $250,000, twice the gain derived from the offense, or twice the loss caused by the offense.

In a separate civil action, the Securities and Exchange Commission (SEC) Monday filed a complaint in Newark federal court charging the men with violating and aiding and abetting antifraud provisions of securities law. The complaint seeks a permanent injunction, along with the return of the profit, plus interest and penalties, Fishman said.

Tabu and Shmalo are scheduled to appear Monday afternoon before U.S. Magistrate Judge Steven C. Mannion in Newark federal court.

The FBI, IRS Criminal Investigations Unit, the SEC, and U.S. Attorney's Office investigated Tabu's and Shmalo's actions.

"The charges we filed today are part of our continuing effort to hold accountable those who would try to illegally tilt the playing field in their own favor," Fishman said in a statement.

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