Long-time Bay Street financier Andrew DeFrancesco has settled civil fraud allegations with U.S. regulators, agreeing to pay more than US$3-million in returned profits and fines.
The Securities and Exchange Commission sued Mr. DeFrancesco and four others, including his former wife, in January. The SEC alleged they had participated in a fraudulent “pump-and-dump” scheme in 2018 with the shares of a small Nasdaq-listed tech company called Cool Holdings Inc.
Mr. DeFrancesco, who was accused of selling US$8-million of Cool Holdings stock, agreed to a ban from serving as a director or officer of a company registered with the SEC. He also agreed to pay US$1,034,051.52 of net profits that the SEC said he gained “as a result of the conduct alleged in the complaint,” as well as interest on the profits of US$242,018.97 and a civil penalty of US$1,737,224.52.
Mr. DeFrancesco must pay the US$3,013,295.01 total to the SEC within 30 days.
He settled without admitting to or denying the SEC’s allegations. Catherine DeFrancesco, his former wife, settled with the SEC earlier this month. She agreed to pay a civil penalty of US$122,782 and also did not admit to or deny the SEC’s allegations.
In a letter to United States District Judge Jed S. Rakoff, who is presiding over the case, the SEC requested approval of the settlement with Mr. DeFrancesco. “The proposed judgment is fair, reasonable, and, with respect to the injunctive relief, does not disserve the public interest,” it said.
Miami-based Cool Holdings, now known as Simply Inc., filed a voluntary petition for liquidation bankruptcy in June, 2022.
In a pump-and-dump, shareholders in a company hype a company’s prospects (pump), often by making false statements, then sell their shares (dump) at inflated prices to new, unsuspecting shareholders.
The Globe and Mail detailed the rise and fall of Cool Holdings in a February, 2019, article.
In 2017, Mr. DeFrancesco took a shell company with no business operations, named it Cooltech and then used it to acquire Latin American consumer-electronics companies in which his family had stakes. Cooltech then merged with a struggling Nasdaq-listed smartphone company and named itself Cool Holdings. Mr. DeFrancesco was chairman of the public company’s board.
In one week in mid-September, 2018, Cool Holdings stock caught fire, rising from US$5.18 to trade as high as US$22.61. At the time, the company was the subject of a series of promotional articles that appeared on various websites and on PR Newswire, a news-release service. The articles touted ties to Apple Inc. and its expansion plans. One claimed the company’s One Click stores “earn [US]$3,750 per square foot,” outperforming, it said, Kate Spade & Co., Lululemon Athletica Inc., Michael Kors and Tiffany & Co.
Cool Holdings, the article added, “plans to roll out 200 boutique stores by 2020″ with “a projected revenue stream worth [US]$900-million in Phase 1 alone.”
In a February, 2019, e-mailed statement, Mr. DeFrancesco told The Globe that the firm that authored the promotional articles was “a company we looked at briefly as an option to provide IR [investor relations] services for Cool Holdings. Ultimately the contract was not executed and the company made no payments.”
The allegations in the SEC’s lawsuit added new details to the company’s history. The SEC alleged Mr. DeFrancesco used a series of small companies, coupled with false statements by him and his wife, to conceal that he owned 32 per cent of Cool Holdings. He failed to file the required reports that would have divulged that ownership, the regulator alleged.
In the settlement disclosed Thursday, Mr. DeFrancesco agreed to file SEC-mandated share-ownership disclosures in a timely manner.
In a 2018 interview with The Globe regarding a controversial short-seller report about his role with cannabis company Aphria Inc., Mr. DeFrancesco flatly denied participating in pump-and-dump schemes.
“Show me a pump-and-dump. If some guys want to come up with a concoction that I’m a pump-and-dump, I can’t stop what people say at the Granite Club while they’re sipping their martinis,” he said. “I would say that I’m 100-per-cent against pump-and-dumps, but I’m not against promotion and public relations and investor relations.”
David Milstead