California man arrested in alleged pump-and-dump penny stock scheme

San Diego Union-Tribune (CA)

A Carlsbad man has been arrested on a federal fraud charge for allegedly orchestrating a pump-and-dump penny stock scheme that netted about $7 million in illicit gains.

Joseph A. Padilla, 53, was taken into custody Thursday at San Diego International Airport, according to the U.S. Attorney for Massachusetts, which investigated the case. Padilla, who also has a residence in Cabo San Lucas, Mexico, made an initial appearance in San Diego federal court on Friday. He is expected to appear in Boston at a later date.

A message left at the law office that represented Padilla in his San Diego court appearance was not returned.

According to a court affidavit, the manipulative trading operation occurred between February and April 2021 and involved shares of microcap company Charlestowne Premium Beverages Inc., which traded on the over-the-counter pink sheets.

Based in South Carolina, Charlestowne makes CBD-infused spirits including Papa Vodka — its main product. The company had limited revenue and assets. During the fourth quarter of 2020, it reported sales of $8,180 and a loss of $20,725.

In early 2021, Charlestowne's trading volume averaged 600 shares per day with a price range of 36 cents to 58 cents. Starting in mid-February, however, trading volume soared, which prosecutors contend was choreographed by Padilla and involved a half-dozen others, as well as a Cayman Islands investment fund that controlled 97 percent of Charlestowne's free-trading shares.

At the same time, promotional emails and web posts touted the stock. Shares eventually traded as high as $8 on April 1, 2021. According to prosecutors, Padilla then facilitated the sale of millions of shares at artificially high prices to unsuspecting investors. Charlestowne's stock trades today at less than 1 cent per share.

In 2012, Padilla entered into a consent arrangement in a civil action brought by the U.S. Securities and Exchange Commission involving a separate pump-and-dump scheme in 2008. He worked for Scottsdale Capital Partners at the time. As part of that agreement, he was barred from associating with any broker-dealer for three years.

The securities fraud charge carries a sentence of up to 20 years in prison, three years of supervised release and a fine of $5 million. Rachael Rollins, U.S. Attorney for Massachusetts, and Joseph Bonavolonta, special agent in charge of the Federal Bureau of Investigation Boston Division, announced the arrest.

This story originally appeared in San Diego Union-Tribune.