DiScala et al.,

SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 26115 / September 20, 2024

Securities and Exchange Commission v. DiScala et al., No. 1:14-cv-04346 (E.D.N.Y. filed July 17, 2014; amended Jan. 19, 2016).

SEC Obtains Final Judgment Against Eighth Defendant in CodeSmart Fraud

On September 13, 2024, the U.S. District Court for the Eastern District of New York entered a final judgment against Abraxas (A.J.) DiScala, enjoining him from violating certain provisions of the federal securities laws and imposing other remedies.

According to the SEC’s complaint, filed in U.S. District Court for the Eastern District of New York, Discala, the CEO and president of a purported merchant banking firm, worked with certain of his co-defendants, including two registered representatives of different broker-dealers, to inflate the price of the stock of CodeSmart, Inc. (“CodeSmart”) and profit at the expense of the brokerage customers. Following CodeSmart’s reverse merger into a public shell company in 2013, DiScala and other defendants allegedly obtained control of three million purportedly “freely trading” shares of CodeSmart. However, contrary to an opinion letter provided to the transfer agent, these shares were allegedly restricted and sold in an illegal unregistered offering. As alleged, Discala and certain of his co-defendants engaged in a promotional campaign to hype CodeSmart stock with materially misleading press releases that were sometimes edited by Discala. According to the complaint, once DiScala and certain of his co-defendants dumped their own shares on the market, CodeSmart’s stock price crashed and the investors’ shares became worthless and investors collectively lost millions of dollars.

The SEC’s complaint charged DiScala with violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Sections 9(a) and 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder. On September 13, 2024, the Court entered a final consent judgment against DiScala in which he agreed to be permanently enjoined from violations of the charged provisions and to an officer-and-director and penny stock bar. DiScala further agreed to disgorge over $2.4 million in ill-gotten gains and prejudgment interest thereon, the payment of which was deemed satisfied by the restitution order in the parallel criminal proceeding, United States v. DiScala, et al., 1:14-cr-399 (E.D.N.Y.).

The SEC’s litigation was handled by Todd Brody and Lindsay S. Moilanen of the New York Regional Office was supervised by Preethi Krishnamurthy, Sheldon L. Pollock and Joseph Sansone.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of New York and the FBI.