Ohio and Virginia Men Convicted of Conspiracy to Commit Securities Fraud

CLEVELAND - A jury convicted two men for conspiring to artificially inflate prices on a low-value stock being sold to investors. After a trial that proceeded in two stages for over four weeks, Paul Spivak, 65, of Willoughby Hills, Ohio, and Charles Scott, 70, of Alexandria, Virginia, were found guilty of conspiracy to commit securities fraud. Spivak was also found guilty on two counts of wire fraud in the first stage of trial, and he then pled guilty to four other counts of wire fraud, two counts of securities fraud, and a separate count of conspiracy to commit securities fraud. Scott was then found guilty of a securities fraud conspiracy and one count of securities fraud in the second stage of trial.

According to court documents, trial testimony, and exhibits, Spivak was the majority owner and chief executive officer of U.S. Lighting Group, Inc. (USLG), a publicly traded Florida corporation based in Euclid, Ohio, that focused on the design and manufacture of commercial LED lights, aftermarket auto parts, and fiberglass recreational campers and boats. The company traded on OTC Markets under the ticker USLG and was considered a "penny" stock due to its lower market value. Penny stocks are more vulnerable to price manipulation because they draw less scrutiny and have lower trading volume than other stocks.

Between 2016 and 2019, Spivak and his co-conspirators manipulated USLG's stock price to their financial benefit. He and his co-conspirators arranged to take USLG public through a reverse merger with a shell company. They sought to artificially inflate or "pump" up the price of USLG stock using call rooms and other manipulative practices. One co-conspirator who helped to take USLG public and inflate the stock price was Richard Mallion, who was previously convicted of securities fraud and banned for life from participating in the securities industry. Numerous investors throughout the country were pressured to purchase USLG stock while Mallion and other co-conspirators covertly arranged for sell orders to match with the buy orders that the call rooms generated.

While the stock price was artificially inflated, Spivak arranged for co-conspirators to act as unlicensed stockbrokers, cold-calling investors to sell them restricted shares of USLG stock. The brokers used aliases and represented the stock as offered at a steep discount relative to the apparent market price. Spivak arranged to pay those brokers large, undisclosed commissions, while concealing the true nature of USLG's payments to those brokers by entering into fraudulent consulting agreements with them and requiring them to submit invoices that falsely described commission payments as payments for other services.

Between 2016 and 2019, USLG took in approximately $6.9 million from numerous restricted stock investors-many of them elderly and located throughout the country-in increments between $4,000 and $1 million. During that time, the company made approximately 200 payments totaling $2 million in undisclosed commissions to those unlicensed stockbrokers.

From February through June of 2021, Spivak and Scott engaged with undercover agents and a confidential source, who together posed as co-conspirators arranging to artificially inflate or "pump" up the price of USLG. Spivak arranged for them to receive stock, to be sold at inflated prices, from Scott and another co-conspirator, who had also agreed to kick back proceeds to USLG.

Spivak and Scott arranged for Scott to sell free-trading USLG stock to undercover agents and to send approximately half of the proceeds of those sales back to USLG in exchange for additional restricted stock. Undercover agents, in turn, would sell USLG stock at inflated prices, and then use some of the profits to buy more free-trading shares from Scott, who would then kick back additional money to USLG to buy more restricted stock.

Six of the defendants' co-conspirators previously pled guilty to conspiracy to commit securities fraud and other charges in this matter. Those co-conspirators included Mallion, Spivak's wife, Olga Smirnova, and a number of the unlicensed stockbrokers. A seventh co-conspirator, Robert Louis Carver, also admitted to participating in this scheme as an unlicensed stockbroker using a stolen identity, all while he was a fugitive in a long-pending securities fraud matter in the U.S. District Court for the Central District of California (Case No. 8:11-CR-62).

"These men orchestrated an aggressive, fraudulent scheme to benefit their company, enrich themselves, and to add to their personal coffers at the expense of others. They not only withheld information, but also purposely engaged a team of affiliates that devised tactics to make it appear that USLG shares were a valuable and valid investment to people who thought they were investing in good faith," said U.S. Attorney Rebecca C. Lutzko for the Northern District of Ohio. "We will not tolerate those who think they can outsmart and manipulate the system through fraud and misrepresentation. This verdict helps protect our citizens and our business communities from these predatory methods and serves as a warning to others who are tempted to break federal securities laws because of greed."

Sentencing is scheduled for Jan. 9, 2025 for Spivak, and Jan. 16, 2025 for Scott. Spivak faces a maximum penalty of 170 years in prison. Scott faces a maximum penalty of 25 years in prison. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

The case was investigated by the FBI Cleveland Division. This case was prosecuted by Assistant U.S. Attorneys Elliot Morrison, Megan Miller, and Stephanie Wojtasik for the Northern District of Ohio.

Report investment, financial, and related violations at https://www.sec.gov/submit-tip-or-complaint.