Inside One of the U.S.'s Biggest-Ever Investment-Fraud Stings

[Disir]

The office, business cards and SeaFin Capital website—even a squishy plastic orca with the firm's logo on the bottom—were props in Operation Pennypincher, one of the biggest investment-fraud stings ever mounted by the U.S. government. The target was the murky world of penny stocks, a historical haven for con men and hustlers that the FBI says is "rife with fraud."
Microcaps are tiny companies, typically with share prices of a penny or less, and often trade on quotation systems that don't set minimum financial standards like the major stock exchanges do. Investors are buying such stocks at a record pace, recent trading data show. Even though the companies are small, scams involving them can run into tens of millions of dollars.

To expose these and other Wall Street frauds, government officials increasingly are turning to law-enforcement tools that for years were reserved for organized criminals such as drug dealers and the mafia. Wiretaps have proved the smoking gun in a string of recent insider-trading convictions, though white-collar stings have more of a mixed track-record in court.

Operation Pennypincher lasted more than a year and still has cases winding through the courts. To date, 22 people have been charged criminally, 18 of whom have pleaded guilty or been convicted after trial on various counts of fraud. The latest charges were filed in February.

The Wall Street Journal has pieced together this account based on thousands of pages of court documents, surveillance videos shown at trial and discussions with people familiar with the operation.

The sting began with a series of videotaped meetings starting in 2010. Mr. Keelan—posing as Mr. Kelly—found middlemen who would help him reel in executives of penny-stock companies willing to pay a huge kickback in return for an investment of up to $5 million by SeaFin.

The agent stressed that his employer was to be kept in the dark about the backroom deals, which effectively involved stealing millions of dollars from the fund's investors, prosecutors said.

"My hedge fund doesn't know…and they don't need to know," Mr. Kelly said in one of the meetings.

...FBI agents had worried they had made the terms of the scam so clearly illegal, to try to avoid claims they were unfairly entrapping people, that no one would be caught, according to people close to the operation. In fact, "we should have set up a turnstile," one of the people said.

Mr. Prange's appeal of his later conviction for fraud likens the sting's targeting of "down and out companies in desperate need of capital" to buying expensive drugs for "poor, homeless drug addicts."

Inside One of the U.S.'s Biggest-Ever Investment-Fraud Stings - WSJ

You might have to run a search to pull the whole article.

This is almost funny.