A group of pre-IPO investors were arrested by the DOJ's Eastern District of New York this July for their alleged roll in using free trading shares, hidden in multiple accounts, to create a market in microcap stocks that included CodeSmart ($ITEN). AJ Discala and his partner, Marc Wexler, at OmniView Capital claim they were long-term investors and never devised a plan to promote then dump CodeSmart shares. In an exclusive interview with Discala he laid out how an unregistered financial 'consultant', named Joe Salvani, could be the driving force behind the stocks ride to near $7 and its subsequent crash to pennies. The case questions if microcap advisors should be forced to identify in SEC filings the deep discounted, unrestricted stock they are so easily granted by CEO's desperate to get access to capital and create a market in their stock?
CodeSmart founder, Ira Shapiro, sought the help of Jeff H. Auerbach to take his medical coding company public in 2013. Shapiro, who also faces criminal charges, hoped Auerbach, a registered broker, would get him introductions to bankers for a capital raise. FINRA's brokercheck shows Auerbach is being sued for $2 million by a client claiming negligence and multiple FINRA securities violations. Emails from April 2013, sent by Auerbach, show independent investment professionals: Danny Weinstein, Joe Salvani, Neil Rock, and Seth Fireman were going to act as 'advisors' to help Shapiro with the CodeSmart capital raise. When they backed out A.J. Discala agreed to raise funds for the bridge loan of $250,000. This money was needed to boost the company balance sheet before a public shell could be bought and a reverse merger completed. Small companies often use reverse mergers to go public because of the significant cost savings.
Auerbach worked for New York-based Kuhns Brothers Securities when he brought the CodeSmart deal to AJ Discala in April 2013.
According to Discala, the only person to stay in the deal from the original capital raise group was an independent stock consulting named Joe Salvani; who had been charged by the SEC during the dot.com boom for selling securities to investors in mainstreetipo.com without being a registered broker.
New York State business registration records show Salvani owns or is affiliated with JFS Investments, Hudson Park Capital, and Draper Inc. All his LLC companies latter received free trading shares in CodeSmart, according to contracts and emails from company executives seen by this reporter. In the late 90's Forbes published a feature story on Salvani called the 'Master Tout'. Detailing how he gets discount stock in microcap companies to help market the stock to mainstreet investors and find access to capital. The article alluded to his uncanny ability to spread out his gifted stock into the markets as the price raises and sell these stocks before they crashed.
Salvani told this reporter, who saw him entertaining at a hot Wall Street hang out, called STK, in August that he works with a registered broker- named Dan Walsh who currently works in the capital markets group of Garden State Securities (a broker/dealer). Salvani will tell company CEO's he can help create an active market in their stock and get financing through Garden State Securities even though he doesn't work for the broker dealer. Dan Walsh, when asked by this reporter, if he works on advisory deals with Salvani did not respond for comment.
Walsh's bio touts his work as primarily helping micro-cap companies raise capital through PIPE deals and that he is an equities trader. An email on May 14th, 2013 from Codesmart's CEO Shapiro to Discala says Salvani and Walsh, "were asking the company for $6 million shares (which would have been 10% of the company's outstanding shares at the time) and they wanted the restricted shares to vest as soon as their 'consulting' contracts were executed". Meaning they wanted to get paid in deep discounted stock they could trade right away for a profit. This reporter saw Salvani sign a contract for 2.5 million CodeSmart shares that vested right away but no final contract was seen signed by Dan Walsh personally. Instead, contracts seen by this reporter, show Garden State Securities received 313,332 (post 2:1 split) shares in CodeSmart on June 6th 2013 that become unrestricted in January 2014 for financial advisory services. These shares were granted shortly after the reverse merger was completed when the stock was trading above $6.
By June 28th, 2013, within six weeks of the reverse merger, CodeSmart had run up to $6.90. At the time of the reverse merger on May 21st, 2013 the stock was trading around $2.30. The government's complaint alleged Wexler and Discala flooded the market with shares via the stockbroker's clients in May but fails to mention Joe Salvani also had 2.5 million unrestricted shares and a history of moving shares throughout his network of brokers. Wexler and Discala had signed lockup agreements to not offload more than 5% of the shares they held at a time. Discala also held unrestricted shares in a company he controlled called Fidelis. It is unclear if Discala had his LLC Fidelis sign a lockup agreement. Salvani was not arrested or charged by the SEC in the CodeSmart case.
Someone who controlled millions in shares was gifting them to stockbrokers or selling them on the secondary market with the intent of pumping the stock and creating an appearance of real market attraction to the stock. The DOJ complaint believes Discala was the ringleader in this move and his actions constitute a crime. A notion Discala's new top-dog attorney, Tom Sporkin of Buckley and Sandler, plans to debunk in court.
Salvani didn't just introduce CodeSmart to Garden State Securities he also worked to get an independent analyst, at Umbrella Research, to cover the stock. Joe Giamichael, of Umbrella, wrote an analyst report with a price target of $12 that was promoted on the CodeSmart website and sent around to main street investors immediately after the reverse merger was complete. At least two stockbrokers, who were arrested with Discala, used the report sell mom and pop investors on the stock. The brokers are Matthew Bell and Craig Josephberg (known as Jobo).
Discala says Salvani offered Umbrella $50,000 to write the research report but never paid the firm. Discala covered the bill after it went unpaid so Umbrella could get the report published. Checks seen by this reporter were then paid by Umbrella to three of Salvani's LLC's who had been gifted unrestricted stock as part of his investor relations/ marketing consulting agreement. The checks say they are buying CodeSmart shares in what appears to be a sale of stock via a secondary transaction by Salvani. Umbrella research told this reporter CodeSmart CEO Ira Shapiro told Umbrella to buy the shares from Salvani. It is unclear why CodeSmart didn't grant the shares directly to the research firm. Salvani's three firms (JFS Investments, Hudson Park Capital, and Draper Inc.) each received $583 for a total of around $1600 from Umbrella Research. Umbrella analyst, Joe Giamichael, told this reporter they willingly put a $12 buy rating on CodeSmart in their initial research report but were not informed a PIPE deal was planned to follow the reverse merger ,which would have changed their price target. According to emails, Salvani and Discala knew Shapiro had a plan to fund a PIPE transaction right after CodeSmart completed a reverse merger.
"Unfortunately immediately after our initiation, management chose to do a placement at a huge discount to market and did not want to entertain any of the capital formation suggestions we had. Our relationship with management drastically deteriorated after that," analyst Joe Giamichael told this reporter in an interview.
Umbrella also said on the record they did not work with AJ Discala or Joe Salvani in any way to prepare the research report. It took Umbrella until April 2014 to downgrade the stock after it was trading below $1 for months.
Discala was eventually fired as a financial consultant by Shapiro after he challenged the CEO about missing his revenue targets and wanted to put his own people on the board. Salvani continued working with the company and Garden State Securities became the lead advisor for CodeSmart. The company was hooked-up with Redwood Fund II who led a series of SPA (stock purchase agreement - a debt to equity vehicle) deals for small capital raises under $100,000. Redwood is run by Gary Rodgers and John DeNobile. These SPA's gutted the market with discounted free trading stock and the company CFO, Diego Roca, told this reporter it was the only financing they could get after the PIPE deal.
Discala and Roca told this reporter they were also seeing a short squeeze on the stock within months of the reverse merger. Discala believes the short action was mastermind by Salvani and his network of brokers including Dan Walsh / Garden State Securities. Without company trading records he can't confirm that notion.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.