Government Misconduct Blog; Should a Federal Prosecutor Sit on a Penny Stock Board? (Part 1 of a 3 part series on simple questions)
This question: “Should a Federal Prosecutor Sit on a Penny Stock Board?”, seems either rhetorical or easy enough to answer. But in the District of Massachusetts, many simple questions generate complex, incomplete, or surprising answers.
Take for example, an AUSA who wears a public hat when investigating penny stock companies, while sporting a private hat when his name appears on Yahoo! message boards and the like as a director of a penny stock company known as Evermedia Group (EVRM). This AUSA’s status as a federal prosecutor has appeared on investor message boards (e.g., Yahoo! Finance, InvestorsHub, and Raging Bull) to tout the credibility of Evermedia’s management team. A July 25, 2009 post on InvestorsHub identified the AUSA as “Board Member” who “currently serves as a federal prosecutor in Boston.” A post on InvestorsHub dated September 15, 2009, responded to another post suggesting Evermedia was a scam and, referring to the fact that a board member was a federal prosecutor, stated: “u think [the AUSA] would be involved in a scam now?” On September 26, 2009, one post on InvestorsHub stated in pertinent part: “don’t u love having a federal prosecutor on your board of directors.” A December 30, 2010 post on Yahoo! Finance listed the AUSA as “Board Member” and a “Federal prosecutor in Boston,” and stated: “I think the bashers are going to have a tough time calling these folks crooks.” A post as recent as September 9, 2011 on Yahoo! Finance pointed out that the Boston address for EVRM (which announced a relocation to Boston to be closer to its professional advisors) is a residential building, and anticipated leadership “dumping the stock into oblivion and then doing a reverse split and then…doing it again.”
The Executive Office of United States Attorneys (EOUSA) has not produced any documents reflecting the approval of an expanded role by the AUSA on an actual Board of Directors for a publicly traded company, let alone approval of his official position being used to tout the value of Evermedia penny stock. Arduous efforts at FOIA requests concerning these potential conflicts-of-interest, as well as appeals from blanket refusals to produce anything, ultimately resulted in the production by the EOUSA of a single but interesting document. This document reflected a conditional and limited approval of a request by the AUSA to serve for compensation in an “advisory” position for a “privately-held” company while remaining a federal prosecutor. The EOUSA conditioned its approval on the AUSA serving in only an “advisory” capacity for a specific “privately-held” company, no use of government resources, and a requirement to advise the EOUSA if any circumstances would change that could affect his service. After that limited approval, the company merged into a publicly–traded Pink Sheets company and, according to its website and other websites, the AUSA assumed a full-fledged position on the publicly-traded parent company’s Board of Directors. It is not entirely clear the extent to which Evermedia described the AUSA’s role accurately, but the description the company used remained publicly available for more than a year, leading investors and potential investors to believe that an AUSA was part of the management team, as posted on message boards.
As if this complex web of public and private roles were not enough, the AUSA was investigating officers of a different penny stock company (including a client of this firm) that used the same outside counsel as Evermedia. Wow. Yet when called to the attention of United States Attorney Carmen Ortiz, the AUSA was still permitted to handle portions of an ensuing prosecution. Wow.
These and related issues have been elevated to OIG, OPR, Attorney General Eric Holder, Senator John Cornyn of Texas, and Congressman Darrell Issa of California. Back to my original question: “Should a Federal Prosecutor Sit on a Penny Stock Board?” Stay tuned for answers.