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1/31/2015 Virtual Piggy: Company Developing Safe Payment System For Young People Has Dubious Funders Growth
Has Dubious Funders Growth Financial
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Virtual Piggy Inc.s (VPIG.OB) business is built
Bureaucrat
on a noble concept. Man Able To
The company Create Red Tape In Moments
is developing
an e-commerce system designed to give young
How Many Iphones Will Santa Deliver
people a safe way to make online purchases,
BP Still Safe
and to learn financial Even Afterby
management Oiltracking
Price Decline
their spending, saving and charitable giving.
Virtual Piggy said in a recent business update

that more than 400,000 people had registered to
use its system. The company also says it has
lined up more than 120 retail partners, including
mall mainstay Claires Stores Inc (CLRS).
But a Sharesleuth investigation found that some

of Virtual Piggys owners and funders are the
very sort of people its product is supposed to
DIA 171.45 2.45
guard against.
NYSE 10,537.23 154.40
Virtual Piggys biggest shareholder, Peter S. SPY 199.45 2.54
Pelullo, is the brother of two men who federal authorities have described as organized-crime Get Chart.. Go
RealTimefromBATS5:14:01AM
figures. One of them, Leonard A. Pelullo, is serving more than 20 years in prison for offenses FreeStockCharts.com
including fraud, embezzlement and money laundering.
The other, Salvatore L. Pelullo, is awaiting trial on charges including wire fraud, conspiracy to
commit securities fraud and conspiracy to commit bank fraud. Authorities allege that he played a
key role in the looting of FirstPlus Financial Group Inc. (formerly FPFX).
Securities and Exchange Commission filings show that Peter Pelullo owns 16 percent of Virtual
Piggys stock and got $150,000 as a company consultant last year. Court documents and
government reports say that he, too, has associated with organized crime figures in the past,
including jailed Philadelphia mob boss Nicodemo Little Nicky Scarfo.
We found that the companys original chief executive, Alfredo M. Villa, previously headed a global
pornography purveyor, Private Media Group Inc. (PRVT.PK). Villa was one of the Virtual Piggys
initial funders, and was among its biggest early shareholders.
Our investigation also found that barred brokerage executive Howard M. Appel, who served prison Learn
more
time in connection with a stock-manipulation scheme, has provided assistance to the company.
STOCK SURGE FREE GF REPORTS SUBSCRIBE TODAY!
Virtual Piggys stock tripled in the first five months of this year, lifting its market capitalization to high
of around $350 million not bad for a company that has booked less than $6,000 in revenue since
its formation in 2008.
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1/31/2015 Virtual Piggy: Company Developing Safe Payment System For Young People Has Dubious Funders Growth Financial
Although Virtual Piggy has produced little in the way of sales or earnings, its stock has generated Enter your email address:
plenty of trading activity. More than 23 million shares have changed hands this year, with much of
that volume coming in April and May, when the price peaked.
We believe that some of the people who got large amounts of low-priced stock in the companys Subscribe
early days, or who bought deeply discounted shares in a series of private placements, could have
used that surge to cash out some or all of their holdings. FEATURED VIDEO
OTHER QUESTIONABLE CONNECTIONS
Sharesleuth turned up a handful of other people whose involvement with Virtual Piggy might not be
in keeping with the companys image and mission.
We found that restaurant owner John S. Tripodi, who was listed in a 2009 Securities and Exchange
Commission filing as the holding more than 5 million shares and options, is the son of yet another
person linked to organized crime.
The other large shareholders listed in Virtual Piggys early SEC filings included:
Jacob der Hagopian. He was executive vice president of Leonard Pelullos real estate company,
Royale Group Ltd. Leonard Pelullo was convicted on multiple charges in connection with the
diversion of more than $2 million that Royale Group borrowed from a California bank, ostensibly for MOST RECENT POPULAR COMMENTS
a hotel project. Prosecutors said he used some of those funds to repay a loan shark who was
pressuring him. NBA Star Tim Duncan
EFM Associates. Its owners were identified in the filings as three partners in a now-defunct law
Sues His Financial Adviser
+ Zoom San Antonio Spurs 15-
firm. One of them, Gary J. McCarthy, was indicted along with Salvatore Pelullo in the FirstPlus
time All Star Tim...
Financial case.
January 31, 2015 0
Capital Growth Trust. The filings listed Capital Growths trustee as Vicki Appel. She is a close
relative of Howard Appel, who was co-owner of a Philadelphia brokerage firm called Bailey, Martin Weekly Trading Forecast:
& Appel Inc. He was barred by the National Association of Securities Dealers in the early 1990s NFPs And RBA Rate
after a series of regulatory infractions, including the manipulation of share prices. He then became a Decision Key FX Catalysts
stock promoter, and went to prison in 2008 after pleading guilty to charges in a second manipulation
This Week
case.
Monetary policy has proven the
Forex markets top driver...
FEQ Realty LLC and FEQ Gas LLC. Their president, Ernest A. Bartlett III, is a former stockbroker
January 31, 2015 0
who was barred by the NASD for abusing customers. The NASD (now the Financial Industry
Regulatory Authority) said Bartlett used high-pressure sales tactics, made misleading statements
and traded in client accounts without authorization. For the past decade, he has teamed with Appel
in the financing and promotion of small public companies. Regulators recently issued a cease-and-
desist order against the pair in connection with a failed oil and gas venture that cost investors
millions of dollars.
Its possible that those shareholders have disposed of much of their stock over the past few years.
But we think investors who are considering Virtual Piggys shares, or parents who are considering
signing up for its service, might want to know about those connections.
THE COMPANY
Virtual Piggy went public in 2009, under the name Moggle Inc. At the time, it was based in Bala Learn
Cynwyd, Pa. Its original plan was to develop an online gaming platform that would let users more
participate in large multiplayer games through their web browsers, without having to download
software. FREE GF REPORTS SUBSCRIBE TODAY!
The company abandoned that pursuit at the end of 2010 and shifted its focus to the creation of a Enter your email address:
secure-transaction system for young people, who according to some estimates have more than
$200 billion in annual buying power.
Subscribe
Its namesake product Virtual Piggy lets parents put money into their childrens online accounts
and then exert varying levels of control over their activity. Among other things, they can set
spending limits, vet merchants or approving individual purchases.
Virtual Piggy says its system empowers young people by letting them make their own spending
choices. It also gives them the ability to act independently, both online and in stores, through a
proprietary smart phone app.
Virtual Piggys system is set up to help retailers comply with the Childrens Online Privacy
Protection Act, which limits the types of personal information that a website operator can collect
from children under 13 without parental consent.
The payment system is free for users. The company says it expects to cover its operating costs by
collecting transaction fees from merchants. But according to SEC filings, it generated just $146 in
revenue in the six months that ended June 30.
The company posted a loss of $6.65 million for that period, bringing its cumulative deficit to more
than $25.5 million. Virtual Piggy says it is focusing on building its user base and retailer base this
year, and does not expect to generate significant revenue until next year.
Although Virtual Piggys stock rose from $1 at the start of January to a high of $3.38 on May 28, it
has been sinking ever since.
Virtual Piggy did not answer a list of questions that we submitted in late August. The company told
us on Sept. 3 that it wanted to respond but needed more time. More than two weeks later, it still has
not done so.
The decline in Virtual Piggys share price has accelerated in recent days. The stock fell 20 percent
from Monday to Wednesday, when it closed at $1.60. It dipped as low as $1.40 on Thursday but
ended the day at $1.53. That gave the company a market capitalization of $170 million.
(Disclosure: Mark Cuban, majority owner of Sharesleuth.com LLC, has no position in Virtual Piggys
shares. Chris Carey, editor of Sharesleuth.com, does not invest in individual stocks and has no
position in Virtual Piggys shares.)
PROGRESS OR PROMOTION?
Virtual Piggy has issued a steady stream of press releases this year announcing partnerships with
retailers, awards from industry groups and other developments that suggest the company is making
significant progress in commercializing its product.
In April, Virtual Piggy announced that it was chosen as a finalist in the Innotribe Startup Challenge
showcase in London. It presented its technology at the organizations global event in Dubai this
week, alongside finalists from other parts of the world.
In May, Virtual Piggy announced that it had received the National Parenting Councils seal of
approval, and that the Software & Information Industry Association had awarded it first place in the
Best Commerce Solution category of this years CODiE Awards.
Virtual Piggy also said that it extended its retail network to the United Kingdom, landing its first two
partners there. Virtual Piggy said in an investor presentation in June that more than 120 merchants
had agreed to join its network, up from 80 at the start of the year.
The companys website lists 20 retailers whose sites are currently linked to its payment system.
They include Claires Stores, a jewelry and accessories retailer; Ty Inc., the maker of Beanie
Babies; and Gaia Online, an anime-themed gaming and social networking site.
Virtual Piggys site lists 14 more partners under the heading coming soon. Among them are Active
Ride Shop, a skateboard, snowboard and clothing retailer; Nirve Sports Ltd., a bicycle maker; and
the American Society for the Prevention of Cruelty to Animals.
Sharesleuth checked out the web sites of roughly 30 other retailers that were announced as
partners in 2012 some more than a year ago. We found that most had yet to add the Virtual
Piggy payment button to their online purchase systems. Several of those retailers no longer had
active web sites, or no longer were selling products directly to consumers.
Although Virtual Piggy says it has signed up more than 400,000 users in recent months, we noted
that only one of the videos the company has posted on YouTube.com to explain its service has
recorded more than 10,000 views.
That one, an overview of the service featuring actress Sela Ward, shows that it has been viewed
nearly 119,000 times.
COMPANY FINANCES
According to its latest quarterly SEC filing, Virtual Piggy had $8.3 million in cash at the end of June,
enough to cover roughly eight months of operating expenses at its mid-2013 spending rate.
Virtual Piggys filing shows that it spent $433,482 on research and development in the six months
that ended June 30, on top of $1.2 million the two previous years. That made it the fifth-biggest line
item in the companys budget for the first half of 2013, after payroll ($2.4 million), consulting
($897,531), marketing ($574,728) and travel ($443,843).
Virtual Piggy hopes to attract 1 million registered users by the end of the year, and is projecting that
each user eventually will generate $30 or more per year in revenue for the company.
It has acknowledged, however, that it will need to raise additional capital to advance its business
plan.
SHARES AT A DISCOUNT
Virtual Piggy has been paying for its marketing and development activities by selling additional
stock. The company has issued roughly 36 million shares through private placements since late
2011, along with warrants for a further 13 million shares.
All of the stock was sold at a deep discount to the prevailing market price.
One SEC filing shows that an offshore entity called Fiordaliso Ltd. agreed in May 2012 to buy 2.5
million Virtual Piggy shares at 40 cents a share. That was more than 60 percent below the closing
price of the stock on the day the deal was signed.
Fiordaliso also got warrants for an additional 1.87 million shares, with two-thirds exercisable at 50
cents a share and the remainder exercisable at $1. At those prices, all of the warrants could have
been converted immediately for a healthy profit.
The stock that Fiordaliso bought for $1 million would have had a market value of more than $7
million when Virtual Piggys shares hit their peak in May, and would be worth $3.8 million today. The
warrants could be exercised for an additional $1.6 million in gains.
SEC filings show that Virtual Piggy sold almost 8 million shares in November to five undisclosed
investors, at a price of 70 cents a share. Its stock closed at $1.37 on the day of the transaction,
meaning the buyers got a discount of nearly 50 percent.
Their shares, which originally cost $5.6 million, would have a market value of around $12 million
today.
In May, as its stock was climbing, Virtual Piggy sold nearly 3 million shares in another placement.
The purchase price was $1.80 a share, or 45 percent below the prevailing market price. The buyers
were not identified in the companys SEC filings.
A BILLIONAIRE BUYS IN
SEC filings show that billionaire entrepreneur John Paul DeJoria, the co-founder of the John Paul
Mitchell hair products business and the Patron tequila empire, has been the biggest participant in
Virtual Piggys placements.
They show that a DeJoria family trust owns 7.8 million Virtual Piggy shares, making it the
companys second-biggest shareholder. It appears from the SEC filings that 4 million were acquired
for 35 cents each and 3.8 million were acquired for 70 cents each.
The trust has warrants for a further 1 million shares, exercisable at 50 cents each.
Shrillnesss investigation found that DeJoria or his family trust have put money into at least five
other public companies connected to Bartlett or Appel, including Cytomedix Inc. (CMXI.OB), a
biotech company, and Latitude Solutions Inc. (LATIQ), a wastewater-processing company that filed
for bankruptcy last year.
DeJoria did not respond to questions that Sharesleuth sent to the media-relations departments at
John Paul Mitchell and Patron.
Appels name does not appear in Virtual Piggys SEC filings. But a March court filing related to his
criminal case said he was a full-time employee of a company in Plymouth Meeting, Pa., called KWL
Exploration and Development LLC.
KWL Exploration has the same address as several of Peter Pelullos companies, including
International Corporate Management Inc. According to SEC filings, International Corporate
Management holds 11.7 million of Pelullos 16.6 million Virtual Piggy shares.
We also noted that International Corporate Managements web site lists McCarthy, the indicted
lawyer, as its counsel.
FROM PHYSICS TO FINANCE
Virtual Piggys chief executive, Jo Webber, was the co-founder and chairman of its predecessor
company, Moggle. She has a doctorate in quantum physics, and previously held senior
management positions at companies that supply software to the energy and pharmaceutical
industries.
Virtual Piggys chief technology officer, Pradeep Ittycheria, was the other co-founder. He and
Webber worked together at two companies in the Philadelphia area before teaming up to launch
what became Virtual Piggy.
Although Webber and Ittycheria provided the software expertise, SEC filings show that Pelullo and
Villa provided much of the initial capital, through a Hong Kong-domiciled entity called 3D Financial
Corporation Ltd. (Editors Note: For simplicity, we will refer to all incarnations of the company as
Virtual Piggy for the rest of this story).
3D Financial describes itself on its website as a consulting firm that helps companies tap public
equity markets, and also assists with deal structuring, investor relations and other concerns. In the
case of Virtual Piggy, its partners took an active role in the companys operations. Pelullo became
director of corporate development, a position he held until February 2010. Villa served as chief
executive until August 2010.
When Villa resigned from that position, he was succeeded by a longtime Pelullo associate named
Ernest J. Cimadamore. Cimadamore stepped down as CEO last year in favor of Webber, but
remains on Virtual Piggys board, and also is corporate secretary.
GONE WEST
Virtual Piggy moved its headquarters last year from the suburbs of Philadelphia to Hermosa Beach,
Calif., a coastal community about 20 miles southwest of Los Angeles.
Since the move, Virtual Piggy has significantly expanded its workforce and added several digital-
commerce experts to its management ranks. They include Joanne Wong, vice president of
marketing, who held high-level positions at Chatter Inc. and Activision Blizzard Inc.; and Iain Herd,
global mobile marketing director, who held a similar position at PayPal.
Virtual Piggy also has recruited a star-studded list of advisors. According to the company, they
include DeJoria, Ward and business consultant Stedman Graham, perhaps better known as Oprah
Winfreys longtime partner.
NEW DIRECTORS
In addition, Virtual Piggy overhauled its board of directors after moving west. It appointed four new
independent directors, all of whom have experience in the software industry.
We noted that one of them, Darr Aley, previously was executive vice president of Net Value
Holdings Inc., which Howard Appel helped to bring public through a reverse merger in the 1990s.
Litigation stemming from Net Value Holdings sudden decline focused partly on Appels hidden role
in eight such deals. According to court documents, he and certain associates got free or low-priced
stock in those reverse-merger companies, then cashed out at a substantial profit before their share
prices collapsed.
LITTLE REVENUE, BUT INCREASED TRADING VOLUME
Sharesleuths review of trading activity in Virtual Piggys stock showed that more than 65 million
shares have changed hands since the fall of 2010.
We found that the companys current or former officers and directors as well as other large
shareholders who would be required to disclose changes in their holdings have reported the sale
or transfer of fewer than 2 million shares.
That raises the question of who accounted for the rest of the trading volume, and who profited from
the surge in Virtual Piggys shares earlier this year.
SEC filings show that Virtual Piggy issued more than 30 million options or warrants in its early days,
many to non-employees. For example, registration statements show that Jacob der Hagopian got 3
million options exercisable at 4 cents. They show that he did not own any additional shares at the
time of the filing, which suggests that he was not among the people who participated in the
companys original capitalization.
The registration statements show that EFM Associates and Capital Growth Trust each held 1 million
shares, which they purchased for 3.5 cents a share in March 2008. Each had warrants for an
additional 2 million shares, exercisable at 4 cents a share.
The filings show that Discretionary Investment Trust, another entity that has invested in numerous
deals linked to Howard Appel, acquired 1 million shares at 3.5 cents a share on June 11, 2008.
Court records show that was the day before Appel was due to report to prison to begin serving his
sentence in the manipulation case.
SEC filings show that one of Ernest Bartletts companies, FEQ Gas, bought 714,286 shares in June
2008, for 3.5 cents each, and got warrants for an additional 71,498 shares, exercisable at 75 cents
each.
A more recent filing shows that another Bartlett company, FEQ Realty, got 285,714 shares in April
2012 in return for the cancellation of a $175,000 promissory note. It also got warrants to buy a
further 142,857 shares for 50 cents each.
At Thursdays closing price, the shares and warrants it got in return for the cancellation of the
$175,000 debt would be worth almost $600,000.
SHARES FOR CONSULTANTS
Virtual Piggys SEC filings show that the company has issued nearly 4.5 million shares, options and
warrants to various consultants since the start of 2012. For the most part, the filings do not say who
received those shares, or what they did to earn them.
The company said it issued 450,000 options to two unidentified consultants in January 2012. That
consisted of 250,000 options exercisable at 70 cents each, and 200,000 exercisable at 50 cents.
In April 2012, Virtual Piggy issued 250,000 options, exercisable at 70 cents a share, as part of a
settlement with a consultant who had been its manager of corporate development. Although the
consultant was not identified by name, that was the position that Peter Pelullo held with the
company.
Virtual Piggy said it issued 1.36 million shares to five unidentified consultants on May 21, 2012. At
Thursdays closing price, those shares would be worth $2 million.
In August 2012, The company issued two consultants options on 400,000 shares, exercisable at
prices ranging from 35 cents to $1.11. More recently in March it gave a pair of consultants
options on 1.13 million shares, with some exercisable at 75 cents a share and some exercisable at
$1.34. It said 130,000 options vested immediately, while the remaining 1 million were subject to the
achievement of certain milestones.
EARLY STOCKHOLDERS
Virtual Piggys initial investors got 33 million shares of stock for pennies a share or in some cases,
a fraction of a penny per share. SEC filings show that 3D Financial, owned by Pelullo and Villa, was
the companys original controlling shareholder. It got 19 million shares in return for $19,000.
The filings show that 3D Financial transferred 16.5 million of those shares to other parties between
July 2008, when the company filed its initial registration statement, and August 2008, when it filed
an amended version.
They show that 2.5 million of the shares went to Allevamento Cristal Sel, which operates a horse
farm in Italy. Virtual Piggy said in its SEC filings that a woman named Cristina Uccelli was the
beneficial owner of the shares.
We found that Villa and Uccelli were co-managers of the horse farm, a detail the filings did not
disclose. The filings said Uccelli owned an additional 1.6 million shares held by another entity,
Nadav BV. It has been a shareholder in other companies Villa created.
Virtual Piggys registration statements show that eight other people living in Italy or Switzerland
wound up with 12.4 million of the companys shares. That figure matches the remainder of the 16.5
million shares distributed by 3D Financial. Their shares were the only ones that Virtual Piggy initially
registered for resale to the public.
We found that three of the eight share recipients were young people who had been graduate
students in the Humanitarian Action program at the University of Geneva just prior to their
involvement with Virtual Piggy.
According to SEC filings, the three got 4.7 million shares. The filings offered no insight into why they
would have been given the chance to acquire such a large stake in the company. None of them
responded to inquiries from Sharesleuth.
Virtual Piggys filings said that Pelullo and Villa each personally acquired an additional 2 million
shares, for 3.5 cents a share. Plus, each got warrants to buy a further 2 million shares at 4 cents a
share.
Like Pelullo and Villa, Webber bought 2 million shares for 3.5 cents around the time of the
companys creation. She got warrants for 2 million additional shares at 4 cents each, and also got
options to buy 3 million more shares at 4 cents each.
SEC filings show that Webber exercised the 2 million warrants earlier this year. She now holds 3.95
million shares of Virtual Piggy, and has options or warrants to buy an additional 3.5 million shares.
PETER PELULLO
Pelullos first career was in the music business. In the mid-1980s, he developed and produced
recording artists, and also operated a small label, Philly World.
He teamed with another studio operator to form Sigma Alpha Entertainment Group Ltd. in 1988. The
company went public three years later, through a reverse merger. It got out of the music business in
1995 and turned its focus to telecommunications, shortening its name to Sigma Alpha Group.
SEC filings from that era show that Cimadamore was Sigma Alphas chief executive and corporate
secretary. They show that Scott McPherson, Virtual Piggys original chief financial officer, also was
Sigma Alphas principal financial officer.
Hagopian and EFM Associates, two of Virtual Piggys early shareholders, also were large Sigma
Alpha shareholders.
Sigma Alpha later changed its name to Clariti Telecommunications Ltd. Its offerings included a
wireless voicemail system and an Internet-based phone service. Claritis stock gained a listing on
the Nasdaq exchange, and the company reached a market capitalization of more than $400 million
during the tech boom.
But several of its acquisitions ended badly, and its share price collapsed along with its business
prospects. The company filed for bankruptcy protection in 2002.
PELULLO AND HIS BROTHERS
Pelulllos name came up in the criminal case involving his brother, Leonard. Court documents say
that he delivered $114,000 on Leonards behalf to a reputed loan shark, Anthony S. DiSalvo.
According to one document, that money was illegally diverted from Leonard Pelullos Miami-based
development company, Royale Group. Prosecutors said the money was wired from a business
account in Florida to a family account in Pennsvylania, then converted to cash by another Pelullo
brother, boxing promoter Arthur Pelullo. He gave the money to Peter Pelullo to drop off at DiSalvos
home.
DiSalvo later was charged and convicted of using extortionate means to collect the money owed
by Leonard Pelullo.
Our investigation also turned up a news story that said Peter Pelullo acted as a conduit in another
questionable financial transaction involving Salvatore and Leonard Pelullo.
Salvatore Pelullo once operated S.I.N.C.L.A.R.E. Group Inc., a publicly traded company that
purported to provide turnaround services to struggling businesses. Authorities alleged in 1999 that
he drained $1.1 million from the bank accounts of one of those businesses, using a series of shell
companies and sham transactions.
The story summarizing the indictment said that Salvatore Pelullo used $117,000 that was diverted
to one shell company to help cover his brother Leonards legal expenses.
The story said that another $62,000 was routed from the plastics company to a company controlled
by Peter Pelullo. It quoted a federal prosecutor as saying that the money was spent the same day
on Leonard Pelullos legal fees.
Salvatore Pelullo was convicted on some of the charges and sentenced to six months in prison.
PELULLOS CHARITY
Peter Pelullo also is the author of Betrayal and the Beast, a memoir in which he recounts his
history of childhood sexual abuse, addiction and recovery.
Pelullo founded a nonprofit group called Let Go, Let Peace Come In, for others who were sexually
abused as children. Webber sits on the board of that organization. So does Martha McGeary
Snider, who heads Virtual Piggys board of advisors and had been a company director.
The charitys web site includes a page thanking a group of initial supporters who provided $600,000
toward its $25 million fundraising goal. In addition to Webber, Snider and Cimadamore, that list
includes the Wiltomo Redemption Foundation, a second nonprofit organization that lists Howard
Appel as its tax responsible party.
Another donor, Stephen P. Harrington, once worked for Appels brokerage firm, and has invested
alongside him in a number of public companies. For example, SEC filings show that Appel and
Harrington provided funding in 2005 to TriMedia Entertainment Group Inc. (TMEG)
The filing show that International Corporate Management which is headed by Pelullo and is
Virtual Piggys biggest shareholder also was an investor in TriMedia. Cimadamore was
TriMedias corporate secretary, and was president of its Ruffnation Music Inc. unit.
Our investigation found that another company called Fenmore Consultants Ltd. paid a stock-
promotion site called HomeRun Stock Alert to tout TriMedias shares.
SEC filings show that Fenmore Consultants more recently invested in Rio Bravo Oil Inc. (RIOB)
alongside FEQ Realty, Wiltomo Redemption Foundation and an entity called Moggle Investors.
HOWARD APPEL
Appel was fined $50,000 and suspended by the NASD in 1989 after settling charges that the
brokerage manipulated the shares of a company called Northgate Industries Inc., which was a shell
with no assets.
Two years later, the NASD fined him $125,000 and barred him from association with any member
firm in connection with a number of additional infractions, including selling securities to the public at
unfair prices, selling unregistered stock, failing to maintain adequate books and records and filing
inaccurate financial reports.
Appel later was implicated in a second manipulation case. Prosecutors alleged that while working
as a stock promoter, he bribed brokers at two firms to induce them to sell shares of certain
companies to their customers.
Appel pleaded guilty in 2004 to conspiracy to commit securities fraud and money laundering, and
was sentenced to a year and a day in prison. He also was ordered to pay $2.9 million in restitution.
Appel began serving his sentence in June 2008, and was released in April 2009. His co-conspirator
in the manipulation case was a Canadian stock promoter named Myron Gushlak. According to
prosecutors, Gushlak had agreed to provide federal authorities with information on the involvement
of organized crime members in a massive pump-and-dump scheme in exchange for a shorter
sentence, but reneged at the last minute.
He was sentenced in 2010 to six years in prison.
As we noted previously, an entity called Capital Growth Trust initially controlled 3 million shares of
Virtual Piggy, or just under 8 percent of the company. A later filing listed that entity as holding 2.5
million shares or warrants, which indicates that it sold or transferred 500,000 of them.
However, it appears that Capital Growth Trust never filed anything with the SEC disclosing that
transaction, as required under federal securities law for investors owning 5 percent or more of a
companys stock. It is unclear what became of the trusts remaining shares.
By the fall of 2010, Virtual Piggy had more than 50 million shares outstanding, which meant that
Capital Growth Trust no longer was a 5 percent shareholder and was not required to report changes
in its ownership position.
NET VALUE HOLDINGS CASE
In 2001, an investment group that bought shares of a company called Net Value Holdings Inc. filed
a fraud suit against the company, alleging among other things that it concealed Appels
involvement.
The investment group said in court filings that Net Values president, Andrew Panzo, had
participated in eight reverse-merger deals that Appel orchestrated. It alleged that Panzo, who
previously worked for Appels brokerage firm, acted as his proxy at those companies, so that
Appels regulatory history would not have to be disclosed in SEC filings.
A federal appeals court, ruling on the case in 2003, described their methods like this:
Appel, through an affiliated company, would acquire control of a public shell corporation and
exercise that control to install Panzo as a director or a senior officer, because Appel himself, on
account of his past record, could not be a director of a public company. With Panzo in a top
management position, the company would transfer substantial quantities of stock or warrants to
Appel and Panzos affiliates, either in a sale transaction, or in payment for purported consulting or
investment banking services, or as a finders fee in anticipation of a merger. Then the two men
through extraordinarily complex corporate legal maneuvers, often by way of subsidiaries of the
companies of which they were principals, such as reverse mergers, stock exchanges between
public and private corporations, reverse stock splits, a bewildering list of corporate name changes,
and other corporate devices would end up with large amounts of stock or warrants to purchase
stock. Appel affiliates would then sell the securities at a relatively high price, generating large profits
for Appel and Panzo. Subsequently, these companies stock became virtually worthless.
The investment group and Net Value Holdings successor company, Stonepath Inc., settled the
case in 2005.
A NEW REGULATORY ORDER
In July, the Arkansas Securities Commissioner issued a cease-and-desist order against Appel and
Bartlett, saying that they had committed securities fraud in connection with the sale of $17 million
in debentures by an oil and gas operation called Bamco LLC.
Among other things, the commissioner found that Appel and Bartlett withheld key information from
investors, including the fact that both of them had been barred by the NASD. The order noted that
some of the oil and gas properties pledged as collateral also were pledged as collateral for
debentures issued by another entity, Striker Petroleum LLC.
The SEC brought fraud charges against the two men behind Striker, saying they inflated the
companys assets and defrauded investors of tens of millions of dollars.
SEC filings show that some of Bamcos assets were acquired by Red Mountain Resources, headed
by a man the Arkansas Securities Commissioner described as Ernest Bartletts stepson-in-law. As
we mentioned before, Red Mountain Resources shareholders and lenders included FEQ Realty;
Fiordaliso; Moonlight Investmehts and DIT Equity Holdings LLC, another entity with ties to Appel.
FIORDALISO
Some SEC filings list an address in Monaco for Fiordaliso; others list an address in Mauritius, an
island nation in the Indian Ocean.
Virtual Piggys filings list the director of Fiordaliso as a man named Diego Lissi. He heads North
Atlantic SAM, an asset management company in Monaco, and Guardian SA, a trust and fiduciary
services company in Switzerland.
We noted that SEC filings for two other U.S.-listed companies identified Lissi as a director of
another offshore entity, Moonlight Investments Ltd. Our research found that Fiordaliso, Moonlight
and/or another person connected to Moonlight Raffaele Ricci show up alongside Appel or
Bartlett in at least six other public companies.
They include Cytomedix, Latitude Solutions, Red Mountain Resources Inc. (RDMP), and LabStyle
Innovations Corp. (DRIO).
JOHN TRIPODI
Virtual Piggy said in an August 2009 filing that an investor named John Tripodi held 2.25 million of
its shares. It said he also had warrants for an additional 2.9 million shares, most of them exercisable
at 4 cents each.
The filing did not offer any background information on Tripodi, but it did list an address for him in
south Philadelphia. That address matched one of the former addresses of Luigi Gino Tripodi, a
restaurant owner who was tried three times in the 1990s on charges that he participated in various
criminal conspiracies as part of the organized crime ring headed by Giovanni John Stanfa.
Gino Tripodis first two trials ended in hung juries; he was acquitted in the third. He testified that
although he was friends with Stanfa, and even acted as his driver, he was not part of Stanfas
criminal organization.
Stanfa is currently serving five consecutive life sentences in federal prison. Of the 29 people
indicted in connection with the Justice Departments prosecution of Stanfas network, just three
were acquitted.
Sharesleuth noted that John Tripodi no longer was listed among Virtual Piggys top shareholders in
an SEC filing in September 2009. The filing showed that the number of warrants held by Peter
Pelullo had risen by the same number previously listed for Tripodi, indicating that he transferred
them to Pelullo. It is unclear what, if anything, happened to the 2.25 million shares of stock that
Tripodi also held.
Tripodi surfaced again in connection with Virtual Piggy in 2011. In February of that year, the
company put out a press release announcing that Tripodis restaurant, the Philly Pizza Pub, had
begun using the Virtual Piggy online payment system.
Now, with Virtual Piggy our customers can place orders from their laptops and mobile phones,
Tripodi was quoted as saying. This allows us to provide a safe and secure payment system to our
customers and their families.
We visited the restaurants web site and followed the steps for ordering pizza online. When we
reached the payment screen, we did not see Virtual Piggy among the options.
JACOB der HAGOPIAN
Virtual Piggys early SEC filings showed that Hagopian received warrants for 3 million shares of its
stock, exercisable at 4 cents each.
Hagopian was executive vice president of Royale Group Ltd. at the time that Leonard Pelullo
diverted some of its cash for his own purposes in the mid-1980s. However, he was not implicated in
any wrongdoing.
Leonard Pelullo was convicted on 47 counts of fraud and racketeering in connection with his
activities at that Miami-based company.
SEC filings show that Hagopian was a large shareholder of and consultant to one of Peter
Pelullos earlier public companies, Sigma Alpha Group Ltd. It became Clariti Telecommunications.
SEC filings show that EFM Associates also was a shareholder of Sigma Alpha and Clariti. EFM was
controlled by three attorneys who were partners in the Philadelphia firm of Eisen, Fineberg and
McCarthy PC.
GARY MCCARTHY
As we noted before, one of the partners, Gary McCarthy, was indicted along with Salvatore Pelullo
in the FirstPlus Financial case.
The indictment alleges that Salvatore Pelullo and others gained control of the company by
threatening its existing management, then siphoned millions from its accounts through sham
acquisitions and fraudulent consulting contracts.
The indictment alleges that McCarthy represented Salvatore Pelullo in three of those acquisitions,
which transferred $6 million and 2.3 million shares of stock to companies in which Pelullo had an
interest.
McCarthy has pleaded not guilty to the charges against him, and has claimed in court filings that he
did not represent Pelullo in the allegedly fraudulent transactions.
ALFREDO VILLA
Villa headed Private Media at the time it became a public company by merging with a U.S.-listed
shell. He played a key role in the acquisition of the companys operating businesses, and in
obtaining a listing for the company on the Nasdaq market.
Villa stepped aside as Private Medias chief executive in 1999 but remained corporate secretary and
a member of its board of directors. The companys stock, which peaked at $39 a share in March
2000, now trades for less than 10 cents.
SEC filings showed that Villa controlled 6.35 million shares of Virtual Piggy as of March 2011. That
consisted of 3 million shares he held personally, 2.5 million shares held by 3D Financial Corp. and
850,000 held by a company called Brainspark Plc.
Villa was not listed among Virtual Piggys major shareholders in the companys annual filing for
2012. He currently is chief executive officer Clear Leisure Plc, the successor to Brainspark. It is a
publicly held company that is listed on the London Stock Exchange.
A BLOCKED TRADE
Although the market for Virtual Piggys stock has been relatively liquid, not everyone has had an
easy time selling shares. Two investment funds that bought 1.6 million shares through private
placements said in a court filing last year that the company was interfering with its attempt to sell a
portion of its holdings.
Brookdale Asset Management L.P. and Brookdale Global Opportunity Fund took legal action
against Virtual Piggy last November, alleging that it was blocking their efforts to sell 1.1 million of
the million shares they had purchased in a private placement nine months earlier.
The Brookdale funds also named Peter Pellulo, Webber and Cimadamore as defendants.
The funds claimed that Virtual Piggy and Pelullo who was neither an officer nor a director told
the transfer agent not to lift the trading restrictions on the shares, even though the six-month holding
period had expired and the funds were free to sell.
Brookdale Asset Management and Brookdale Global had sold the shares to Credit Suisse Group in
a private transaction, rather than selling them on the open market. Virtual Piggy said in its response
to the filing that it suspected the investment funds had breached the terms of the placement
agreement deal by engaging in improper trading, using the discounted shares they bought in the
placement to over shorting transactions.
The Brookdale funds denied that assertion, and the judge hearing the case sided with them.
The resolution of the dispute is not clear from the court docket. But Virtual Piggy said in a
subsequent SEC filing that it entered into a settlement agreement with an unidentified investor,
which called for the company to pay the investor $450,000 in return for warrants it had previously
issued.
The timing of that agreement coincided with the court ruling in the Brookdale case.
Sharesleuth will continue to monitor Virtual Piggy and report on any interesting developments.
Gregory Stevens provided fact-checking services for this report
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions
within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not
receiving compensation for it. I have no business relationship with any company whose stock is
mentioned in this article. (More)
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1/31/2015 Virtual Piggy: Company Developing Safe Payment System For Young People Has Dubious Funders Growth

Has Dubious Funders Growth Financial

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JACOB der HAGOPIAN

Gregory Stevens provided fact-checking services for this report

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