The opinion of the court was delivered by: Eduardo C. Robreno, J.
On May 6, 2009 Defendant Richard Margulies ("Defendant"), pleaded guilty to one count of securities fraud and aiding and abetting, in violation of 15 U.S.C. §§ 78j(b) and 78ff, 17 C.F.R. § 240.10b-5, and 18 U.S.C. § 2. The Court held hearings on December 8, 2009, and March 2, 2010. After considering the testimony of the Government's expert witness at these hearings, the exhibits received in evidence, and the written submissions of the parties, the Court makes the following Findings of Fact and Conclusions of Law.
1. Defendant was the chief financial officer and a director of Advatech, Inc. ("Advatech"), a West Palm Beach, Florida corporation that described itself as an early stage biotechnology company engaged in the research and development and the commercialization of non-invasive electrical therapies.
(Presentence Investigation Report "PSR" ¶ 10.)*fn1 Advatech stock was publicly traded under the ticker symbol "ADVA" on Pink OTC Markets Inc., an inter-dealer electronic and trading system in the over-the-counter ("OTC") securities market commonly referred to as the "Pink Sheets." (Id.)
2. Defendant owned 1,475,380 shares of the 5.6 million outstanding shares of Advatech. (Id.)
3. On May 21, 2008, Defendant met with Eduardo Rodriguez ("Rodriguez") and Kevin Waltzer ("Waltzer") to discuss a scheme to artificially inflate the price of Advatech stock. (Id. ¶ 11.) At the time of this meeting, Waltzer was acting as a cooperating Government witness and surreptitiously recorded this conversation. (Id.) During this meeting, Defendant, Rodriguez, and Waltzer agreed that Defendants would pay Rodriguez and Waltzer to purchase and hold Advatech stock. (Id.) By generating these fraudulent purchases, Defendant would cause artificial demand in the Advatech stock and thereby drive the price up. (Id.)
4. Defendant told Rodriguez and Waltzer that he personally owned approximately thirty (30) percent of Advatech's stock and that he otherwise controlled the "float" or free trading stock.
(Id.) With that level of control over the stock, Defendant would be in a position to make sure that when the fraudulent buying was occurring there would not be sellers in the market who would drive the price of the stock down. (Id.)
5. During the May 21, 2008 meeting, Defendant agreed to pay Rodriguez and Waltzer twenty (20) percent of the cost of the shares in Advatech stock that they, or individuals working with them, purchased and held as part of the scheme. (Id. ¶ 12.)
6. During this May 21, 2008 meeting, Defendant explained to Rodriguez and Waltzer that, in order to avoid regulatory or other scrutiny, he wanted to move Advatech's stock price up slowly. (Id.) Initially, Defendant said they should keep the price between $1.00 and $1.50 per share. (Id.) Defendant stated that he wanted Rodriguez and Waltzer to arrange for the purchase of approximately $150,000 to $250,000 of Advatech stock, but that these purchases should be spread out over time to avoid scrutiny. (Id.) Defendant stated that if he was able to raise funding through the stock purchase scheme of as little as $100,000 to $200,000, Advatech stock could be trading at $8.00 or $9.00 per share. (Id.) On May 21, 2008, the Advatech stock was trading at a share price of $.30.
7. Following the initial meeting, Defendant and Waltzer corresponded through a series of e-mails and over the telephone concerning the stock fraud scheme. (Id. ¶ 13.) On May 30, 2008, Defendant e-mailed Waltzer a confidential list of shareholder positions in Advatech. (Id.) On June 2, 2008, Defendant told Waltzer in a recorded call that "our job is to have [sic], without too much difficulty, so that if we have to go to Plan B and they start putting money in they have to put it in at higher prices." (Govt.'s Proposed Findings of Fact and Conclusions of Law Ex. A, Transcript of June 2, 2008 telephone call.) On June 11, 2008, Defendant told Waltzer that an upcoming Advatech press release would announce an agreement with a major university and that they should "move [the stock] up nice and slow, so it doesn't look like we're a bunch of idiots." (PSR ¶ 13.)
8. On June 12, 2008, Defendant told Waltzer by telephone that he was issuing the Advatech press release on June 16, 2008, and that he expected it to create trading activity in Advatech stock. (Id. ¶ 14.) Defendant instructed Waltzer that he should make sure that the individuals who were purchasing stock as part of the scheme did not purchase Advatech stock until after the news was released, in order to avoid scrutiny. (Id.)
9. On June 16, 2008, prior to its public release, Defendant e-mailed Waltzer an Advatech press release announcing a research agreement with a major university. (Id. ¶ 15.)
10. On June 17, 2008, at approximately 2:00 p.m., Defendant telephoned Waltzer to inform him that the press release should be public by 3:00 p.m. and instructed him to purchase the Advatech stock after that time. (Id.) Defendant agreed to wire Waltzer's fee after the trades cleared, but to conceal his involvement in the scheme, Defendant stated that he would make the payment from an account that was not his. (Id.)
11. Subsequent to this conversation, on June 17, 2008, Defendant telephoned Waltzer to inform him that the press release had not yet been issued and instructed Waltzer to refrain from purchasing Advatech stock until the next day because Defendant did not want buying "in the absence of news." (Id. ¶ 16.) A short time later, Defendant informed Waltzer that the press release was publicly available and that Waltzer should purchase the Advatech stock ...