Securities Law Blog

The United States Attorney’s Office of the Southern District of New York and The Federal Bureau of Investigation (FBI) announced the unsealing of an indictment charging Steven Kimmel and twelve others for their alleged roles in a $12 million securities and wire fraud scheme that is being deemed a “stock-promoting boiler room operation.”

On June 9, 2010 the indictment was unsealed in Manhattan federal court. Ten of the defendants were arrested, two are expected to surrender at a later date, and one remains at large.

According to the indictment, Kimmel was the owner and chief executive officer of the Miami-based company Realcast. Organized in 1999, Realcast provided live broadcasting and video on demand over the internet. In 2000, Kimmel began publicly selling shares in Realcast. Kimmel employed a New York-based office known as Powercom Energy Services Corp. and Empire Energy Services Corp. (Powercom/Empire) to solicit investors. The defendants employed by Powercom/Empire allegedly aimed at attracting investments from out-of-state and elderly investors who would not be able to personally check up on its operations.

From 2000 until 2010, Realcast allegedly brought in $12 million through use of fraudulent statements and omissions of material facts via Powercom/Empire. During this time, Realcast generated minimal revenue from its business and allocated 40% - 50% of investments to Powercom/Empire to continue to secure outside investments, according to the indictment.

Among its false representations, Realcast allegedly did not disclose to investors that it was siphoning almost half of their money to Powercom/Empire. Nor did they admit to paying commissions to or using broker-dealers after 2004.

In a press release issued by the FBI, FBI Acting Assistant Director-In-Charge George Venizelos stated, “As long as there are prospective victims and a fast buck to be made, the bottom-feeders of the securities industry will try to capitalize…Any investment strategy bears risk, but it ought not to include the risk that the person selling you on it is lying to you.”

If convicted of securities fraud or conspiracy to commit wire fraud, the defendants face as much as 20 years in prison.