Maybe Not So Smart, After All

When Smart Online said its C.E.O., Dennis Michael Nouri, had quit, it didn't bother with the old chestnut about spending time with his family. That's because he'll be spending time with his lawyer.

Nouri and his brother, Reeza Eric Nouri—who was also employed at the Durham, North Carolina, company, which sells online accounting and personnel software services to small businesses—were arrested Tuesday night.

Four stock brokers were also arrested, all at the behest of Michael Garcia, the United States Attorney in Manhattan. The men were charged with securities fraud and conspiracy. The Securities and Exchange Commission layered on multiple civil charges along the same lines today.

The feds contend that the Nouri brothers paid cash bribes to the brokers— Ruben Serrano, Anthony Martin, James Doolan, and Alain Lustig—to sell Smart Online stock and thus create the appearance of legitimate investor demand for the securities. The goal was to help Smart Online to qualify for a full listing on the Nasdaq Stock Market.

Martin and Doolan both worked until 2006 at Maxim Group, a New York broker-dealer. Serrano has worked at Maxim since 2003. Lustig has worked since 2003 at Jesup & Lamont Securities, a New York broker-dealer. None of the men or their lawyers could be reached for comment immediately.

Investigators assert a month after Smart Online stock began trading publicly on the OTC Bulletin Board in April 2005, Michael Nouri bribed several stock brokers to press their customers to buy the stock. The idea was to pump up the issues' trading volume enough to meet Nasdaq's listing requirements.

Over the next seven months, Michael Nouri paid the brokers more than $170,000, according to the complaint. The brokers, in turn, sold more than 267,000 Smart Online shares to unwitting investors. That was about 10 percent of all trading volume in Smart Online stock during the period, the authorities said.

At no time did the brokers tell their customers that they were being bribed to recommend Smart Online stock, federal officials said. They added that and that Michael Nouri understood

The complaint adds that Eric Nouri assisted his brother, that they knew the brokers were concealing the bribes from their customers, and that the Nouris tried to hide the bribes as "consulting fees" paid for what the authorities described as "sham consulting agreements."

It almost worked, too. By late 2005, Smart Online had qualified to be traded on Nasdaq, which could have made its shares more valuable. But on January 17, 2006—the very day the stock was scheduled to debut on the electronic exchange—the S.E.C. stepped in. Smart Online stock never did actually make it to the Nasdaq.

by Mark Stein