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Florida Pair Plead Guilty in HF Fraud

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MIAMI (–Two men who told investors they ran a hedge fund but who instead used investor assets for personal use and a stock price manipulation scheme pleaded guilty on Tuesday [Jan. 10] to charges of violating securities laws and wire fraud.

Anthony Giordano, 29, of Boca Raton, Fla., pleaded guilty to securities law and wire fraud charges, and agreed to pay US$3.25 million in restitution at the time of his sentencing, on March 20. According to a release from the U.S. Attorney’s Office for the Southern District of Florida, Mr. Giordano already has transferred US$2 million to the court to make restitution.

Joseph Zumwalt, 46, of Fort Lauderdale, pleaded guilty to mail fraud. He was listed in Securities and Exchange Commission filings as the managing member of the hedge fund.

According to the U.S. Attorney’s Office, Mr. Giordano raised money for a British Virgin Islands-domiciled hedge fund, EPG Limited Partners Ltd., that was managed by a Fort Lauderdale-based firm, EPG Capital Management Inc. But rather than investing the money raised in securities, Mr. Giordano admitted to using millions of dollars for other uses, including personal gain.

In pleading guilty, Mr. Giordano also admitted he ran a stock price manipulation scheme on a company named Weida Communications Inc., Fort Lauderdale, driving per-share price up to US$5 at one point in part to facilitate the sale of Weida stock in private transactions at about US$3 per share, according to the U.S. Attorney’s office. EPG investors lost about US$1.4 million as a result. In addition to EPG’s Weida holdings, in which Mr. Giordano had a 20% stake, Mr. Giordano personally owned 3 million Weida shares through a family trust. His wife owned another 360,000 shares, according to securities filings.

Mr. Zumwalt, the managing member at EPG, was Weida’s chief financial officer from June 2004, when Weida was formed through a joint venture between Laser Recording Systems Inc. and a British Virgin Islands-based venture group called SCL Ventures Ltd., until May 3, 2005, when Weida fired Mr. Zumwalt after learning federal law enforcement officials were looking into EPG’s dealings. Mr. Zumwalt reported owning 600,000 Weida shares in a June 2004 filing. He also mentioned in the filing the 6.2 million Weida shares owned by EPG, and disclosed he was the managing member of EPG Limited Partners Ltd.

According to SEC filings, EPG owned 6.2 million shares of Weida stock as of June 22, 2004. Mr. Giordano owned 20% of EPG, and thus controlled 1.4 million those shares directly. Additionally, a limited partnership called the A. Giordano Family Limited Partnership owned 7.6 million Weida shares as of June 2004. As Mr. Giordano had a 40% stake in the LP, he directly controlled 3 million of those shares.

Since Weida found out about the federal investigation into the actions of Messrs. Giordano and Zumwalt in late April, the company has fallen on hard times. In May, the company’s auditor, Deloitte Touche Tohmatsu, resigned, citing the arrest of Mr. Zumwalt and the arrest in China of the attorney retained to negotiate an agreement for SCL to acquire a 51% profit-sharing interest in Guangzhou Weida Communications Technology Co. Ltd., which at the time was owned by four Chinese shareholders. Weida PRC, as the company was known, had contracts to provide services in the Voice Over IP telephone service market and to provide phone operations in China.

The money earned in China was Weida’s only revenue. As it turned out, though, the complex profit-sharing agreement fell through because certain legal agreements weren’t executed properly and were found to be invalid under Chinese law. Subsequently, a Chinese bank moved to collect debt that had come due, resulting in the bank owning 95% of the Chinese entity’s stock.

In a filing with the SEC, Weida officials said without Weida PRC and its numerous Chinese contracts they had no viable business prospects and had been unable to secure further financing. As a result, they planned to file for Chapter 7 bankruptcy protection in early January.

Meanwhile, when Mr. Giordano goes to court for sentencing on March 20, he faces a maximum of 20 years in prison and a US$5 million fine for the securities fraud violations, plus another 20 years maximum and a US$250,000 fine for the mail fraud charge. Mr. Zumwalt faces a maximum 20 years in prison and US$250,000 fine for his mail fraud charge.

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Contact Bob Keane with questions or comments at [email protected].