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Andy DeFrancesco, seen here in a handout photo, has been sued by the Securities and Exchange Commission.Andy DeFrancesco

U.S. regulators have sued long-time Bay Street financier Andrew DeFrancesco, alleging he orchestrated a fraudulent “pump-and-dump” scheme in 2018 with the shares of a small Nasdaq-listed tech company called Cool Holdings Inc.

The Securities and Exchange Commission’s civil suit also names Mr. DeFrancesco’s ex-wife Catherine, two former company executives, and Mr. DeFrancesco’s personal assistant at the time as defendants.

The SEC, which alleges Mr. DeFrancesco sold US$8-million worth of Cool Holdings stock, is seeking a return of profits, monetary penalties, and a permanent ban on Mr. DeFrancesco serving as the director or officer of a company registered with the SEC.

The evidence, contained in a lawsuit filed Friday, has not been tested in court. Attempts to reach Mr. DeFrancesco Friday afternoon were unsuccessful. Miami-based Cool Holdings, now known as Simply Inc., filed a voluntary petition for liquidation bankruptcy in June.

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 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, Cool Holdings was the subject of a series of promotional articles which appeared on various websites and on PR Newswire, a news-release service. The articles touted ties to Apple Inc. and its expansion plans. One article 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 the company 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.”

Cool Holdings disclosed in May, 2019, that it had received a subpoena from the SEC in March of that year.

The allegations in the lawsuit add new details to the company’s history. The SEC alleges 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. Mr. DeFrancesco failed to file the required reports that would have divulged that ownership, the SEC alleged.

In June, 2018, the SEC says, Mr. DeFrancesco hired a promoter of penny stocks to conduct a promotional campaign for Cool Holdings for US$350,000 in cash plus 150,000 shares in the company. The SEC says the promoter, which it did not name, shared a series of drafts with Mr. DeFrancesco, chief executive Marlio Mauricio Diaz Cardona, and chief marketing officer Carlos Felipe Rezk.

According to the SEC, at one point, the promoter sent an e-mail that said its lawyer asked for supporting evidence for the per-square-foot sales number and the store-expansion plans that led to the US$900-million headline number. “My lawyer really needs this to keep us all safe,” the promoter said in an e-mail, according to the SEC.

The SEC says the executives signed off on the text. However, the SEC alleged, “the [US]$900 million figure was derived by combining several false data points.”

Also, the SEC alleged, Apple had halted Cool’s Latin American expansion of its licensing in January, 2018, because of poor sales and an inability by Cool Holdings to pay its invoices. Yet the articles – as well as Cool Holdings’s securities filings – failed to reflect that. “Cool’s purported goal of expanding to 200 stores was unattainable and had no basis in reality, Cool had already failed to meet Apple’s performance requirements, and the existing stores were not operating profitably,” the SEC alleged.

The SEC says that on Sept. 19, 2018, “Apple’s Legal Director for Latin America spoke with Mr. Rezk and followed up by email attaching a link to one of the promotional articles, demanding ‘written confirmation from Cool Holdings that Cool Holdings and its affiliates will ... not do anything like this paid advertising again.’”

While the promoter’s invoice was addressed to Cool Holdings, it was paid by Delavaco Holdings Inc., a private company that that was purportedly owned and controlled by Catherine DeFrancesco. The SEC alleges that Mr. DeFrancesco had influence and control over Delavaco and he and Ms. DeFrancesco falsely provided written statements to Cool Holdings’s auditors that said he did not.

Mr. DeFrancesco “intentionally concealed that he was funding the articles because at the time of the articles he was Cool’s board chairman and he was planning to immediately sell a substantial number of Cool shares that he had surreptitiously acquired and secretly held,” the SEC alleged.

“By the end of 2018, DeFrancesco had sold more than 1.6 million shares, all through accounts nominally controlled by his ex-wife Catherine DeFrancesco and other family members, but really controlled by DeFrancesco, for proceeds of more than $8 million,” the SEC alleges.

By early 2019, the company’s stock traded around US$2. Friday, it closed at a little more than two-tenths of one U.S. cent.

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