CYNK CYNK Technology Corporation (GM)

A penny-stock promoter pleaded guilty Monday to conspiring to manipulate stocks and laundering more than $250 million in profits, in what prosecutors have described as one of the largest-ever "pump and dump" schemes.

Gregg R. Mulholland pleaded guilty in Brooklyn federal court to manipulating more than 40 publicly traded companies, including Cynk Technology Corp., whose stock's climb and subsequent collapse in 2014 briefly gave the social-network operator a $4 billion valuation even though it reported no assets, no revenue and just one employee.

Mr. Mulholland, 46 years old, could face up to 20 years in prison, according to the Brooklyn U.S. attorney's office, which brought the charges. A lawyer for Mr. Mulholland didn't immediately respond to a request for comment.

Prosecutors alleged Mr. Mulholland ran a broker-dealer called the Mulholland Group, which used shell companies in Belize and Nevis to conceal ownership in the stock of U.S. public companies. Between 2010 and 2014, Mr. Mulholland fraudulently promoted stocks to investors, while concealing his ownership of the companies, a practice commonly referred to as a pump-and-dump scheme. After driving up the value of the stocks, Mr. Mulholland would sell off his shares and launder the proceeds through a network of offshore entities, according to prosecutors.

The charges against Mr. Mulholland, who allegedly used aliases such as "Stamps" and "Charlie Wolf," grew out of a wider probe into manipulation of Cynk. One arm of the Cynk investigation has been focused on Belize, the offshore financial center that the company listed as its base, a person close to the probe previously told The Wall Street Journal. Prosecutors have mined evidence from a two-year sting operation in which an undercover agent posed as a crooked penny-stock promoter, the person said.

On Monday, prosecutors revealed that they captured Mr. Mulholland on court-authorized wiretaps acknowledging in May 2014 his ownership of "all the free trading," or unrestricted shares, of Cynk in a conversation with a trader at an offshore brokerage firm Mr. Mulholland secretly owned. Before the conversation, there had been no trading in Cynk stock for 24 trading days. Over the next two months, the stock of Cynk rose from 6 cents a share to $13.90 a share.

The Cynk probe comes amid efforts by U.S. authorities to clean up the penny-stock markets, where thousands of tiny "microcap" companies trade with few controls on their financial reporting and operations. Prosecutors are using an array of undercover operations to tackle what they call rampant fraud.

Brooklyn prosecutors have charged a handful of other individuals in connection with the probe, including Robert Bandfield, a U.S. citizen prosecutors allege set up the network of offshore entities used in the scheme by Mr. Mulholland and other co-conspirators. Mr. Mulholland's secretly owned offshore brokerage, Panama-based Legacy Global Markets SA, was set up by Mr. Bandfield, according to prosecutors.

Mr. Bandfield has pleaded not guilty and is scheduled to go to trial in Brooklyn federal court on May 31.

Write to Christopher M. Matthews at christopher.matthews@wsj.com

(END) Dow Jones Newswires

May 09, 2016 16:35 ET (20:35 GMT)

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