Case 5:22-cr-00161-EJD Document 21 Filed 10/17/22 Page 1 of 9

STEPHANIE M. HINDS (CABN 154284)

1 United States Attorney

2 THOMAS A. COLTHURST (CABN 99493)

Chief, Criminal Division
3
JACOB FOSTER (CABN 250785)
4 Acting Principal Assistant Chief, Fraud Section
LAURA CONNELLY (DCBN 241537)
5 Trial Attorney, Fraud Section

6 U.S. Department of Justice, Fraud Section

1400 New York Avenue NW
7 Washington, DC 20005
Telephone: (202) 262-3520
8 jacob.foster@usdoj.gov
laura.connelly@usdoj.gov
9
LLOYD FARNHAM (CABN 202231)
10 Assistant United States Attorney

11 450 Golden Gate Avenue, Box 36055

San Francisco, CA 94102-3495
12 Telephone: (415) 436-7200
lloyd.farnham@usdoj.gov
13
Attorneys for United States of America
14
UNITED STATES DISTRICT COURT
15
NORTHERN DISTRICT OF CALIFORNIA
16
SAN JOSE DIVISION
17
UNITED STATES OF AMERICA, ) NO. 22-CR-161
18 )
Plaintiff, ) UNITED STATES’ SENTENCING
19 ) MEMORANDUM
v. )
20 ) Sentencing Date: October 24, 2022
JASON NIELSEN, ) Sentencing Time: 1:00 p.m.
21 )
Defendant. )
22 )
23

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U.S. SENTENCING MEMORANDUM

 Case 5:22-cr-00161-EJD Document 21 Filed 10/17/22 Page 2 of 9

1 The United States of America, by and through its undersigned attorneys, respectfully submits the
2 following Sentencing Memorandum to assist the Court in sentencing defendant Jason Nielsen.

3 Defendant Nielsen engaged in a “scalping” and “spoofing” scheme to manipulate the stock of Arrayit

4 Corporation, a publicly traded allergy testing company based in Sunnyvale, California. Nielsen

5 conducted his scheme by posting false and misleading statements about his financial position in Arrayit

6 on an internet forum. The misleading statements were designed to encourage other investors to buy

7 Arrayit stock and drive up the price of the stock, allowing Nielsen to sell stock at an inflated price. In

8 light of the factors in 18 U.S.C. § 3553 and for the reasons set forth below, the United States respectfully
9 requests that this Court impose a sentence of 12 months imprisonment, two years of supervised release,

10 and a $100 mandatory special assessment. 1

11 I. BACKGROUND
12 On June 9, 2022, Jason Nielsen waived indictment and pleaded guilty pursuant to a Fed. R.
13 Crim. P. 11(c)(1)(B) plea agreement to Securities Fraud under 15 U.S.C. §§ 77q(a) & 77x . Case No.

14 22-CR-161, Dkt. 18. Below is a summary of the evidence, from the Presentence Report, which

15 supported those charges.

16 Nielsen was an individual investor who owned approximately 10% of the common stock of
17 Arrayit Corporation. Arrayit was a publicly-traded medical technology company that described itself as

18 “a world leader in microarray technology empowering researchers and doctors in the life sciences,

19 wellness and healthcare testing markets.” Shares of Arrayit were traded “over-the-counter” (“OTC”)

20 using the ticker symbol “ARYC.”

21 Nielsen, using the username “PennyStockAlert,” frequently posted about Arrayit on an investor
22 focused message board called Investors Hub or “iHub.” Beginning in 2019 and continuing through

23 2020, Nielsen posted false and misleading statements about Arrayit securities and his position in Arrayit

24 securities. 2 Nielsen engaged in a practice known as “scalping” by making false and misleading

25 1
As discussed further below, the United States will request that the Court order Nielsen to pay
restitution in this case. The United States seeks an additional ninety days from the date of sentencing for
26 victims to notify probation of their losses. See 18 U.S.C. § 3664(d)(5).
2
27 This case is a related case to United States v. Mark Schena, 20-CR-425-EJD. On September 1,
2022, Mark Schena, the former president of Arrayit Corporation, was convicted of securities fraud for a
28 separate scheme to defraud Arrayit investors by making false statements about Arrayit’s allergy and
COVID-19 test orders, its financial condition, and its future prospect.
US SENTENCING MEMORANDUM 1
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1 statements on the Arrayit iHub message board about the nature and timing of Nielsen’s own financial

2 interest in Arrayit securities, at times representing that he was purchasing or holding shares of Arrayit

3 securities he was promoting on iHub when, in fact, he was secretly selling Arrayit securities. For

4 example, on February 26, 2020, Nielsen posted on iHub: “My ARYC shares are also locked up. No one

5 can shake them from my bulletproof safe .” This statement was a lie. On the same day, Nielsen sold
6 300,000 Arrayit shares.

7 In addition, Nielsen employed a deceptive technique, similar to “spoofing,” in which he placed –

8 and subsequently cancelled – large orders of Arrayit stock to give the false appearance of a high demand
9 for the security. Nielsen then posted statements on an internet forum that falsely attributed these

10 purported large bids and purchases of Arrayit stock to other investors. Nielsen then sold his shares of

11 Arrayit stock at the artificially-inflated price and reaped the profit.

12 Nielsen also posted false information about Arrayit through his scheme. On October 6, 2019,
13 Nielsen sent private messages to other Arrayit investors through iHub stating “I found out financials are

14 getting released a week from Friday.” The message referenced that Arrayit would be releasing its long-

15 delayed public financial statements with the Securities and Exchange Commission. This was false.

16 Nielsen admitted to investigators that he made that information up. Nielsen stated that he did so in order

17 to combat negative posts on the Arrayit iHub board.

18 In February 2020, as the COVID-19 pandemic began spreading, Arrayit announced that it had a
19 COVID-19 test. During this time, Nielsen repeatedly posted about Arrayit’s COVID test and repeated

20 the company’s messages about the test, including that Arrayit’s COVID-19 test was pending Emergency

21 Use Authorization from the FDA and that Arrayit had received approval for its COVID-19 test. Nielsen

22 falsely claimed that he was buying Arrayit stock because of these purported COVID-19 test

23 developments, when in fact he was primarily selling.

24 For example, on March 18, 2020, Nielsen posted the same link to Arrayit’s website with COVID
25 test information repeatedly on iHub. With these posts, he stated his view that the stock was destined for

26 high prices because of the test, including “Give it time. 10% gainer tomorrow...easy.” During this time

27 he was promoting the stock on iHub, Nielsen sold over 3,000,000 shares of Arrayit stock. On days that

28 he was selling shares, Nielsen would also post that he was buying the stock. For example, on March 23,

US SENTENCING MEMORANDUM 2
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1 2020, Nielsen posted “I’m a buyer at this level,” despite selling shares.

2 As a result of his scheme, Nielsen made $137,000.

3 II. The Guideline Calculations and The Plea Agreement
4 The parties agreed to the following advisory Guidelines calculation in the Plea Agreement:
5 a. Base Offense Level, U.S.S.G. § 2B1.1(a)(1): 6
6 b. Specific offense characteristic – U.S.S.G. § 2B1.1(b)(1)(I) + 8
7 (amount of loss more than $95,000) 3
8 c. Specific offense characteristic – U.S.S.G. § 2B1.1(b)(2)(A) + 2
9 (offense involving 10 or more victims)
10 d. Acceptance of Responsibility: -3
11 e. Adjusted offense level: 13
12 Probation agrees with the parties’ calculation of the advisory Guidelines and has determined that
13 the defendant has no criminal history points and falls within Criminal History Category I. (PSR ¶¶ 44-

14 50.) With an Adjusted Offense Level of 13 and Criminal History Category of I, the defendant’s

15 advisory Guidelines range is 12 to 18 months’ imprisonment.

16 III. DISCUSSION
17 A. Legal Standards
18 The Court should impose a sentence sufficient but not greater than necessary to reflect the
19 seriousness of the offense, promote respect for the law, and provide just punishment; to afford adequate

20 deterrence; to protect the public; and to provide the defendant with needed educational or vocational

21 training, medical care, or other correctional treatment. United States v. Carty, 520 F.3d 984, 991 (9th

22 Cir. 2008); see also 18 U.S.C. § 3553(a).

23 The Sentencing Guidelines discussed above are advisory in nature. United States v. Booker, 543
24 U.S. 220 (2005). However, they are one of the statutory factors that sentencing courts must consider

25 when imposing a sentence. See 18 U.S.C. § 3553(a)(4); United States v. Rita, 551 U.S. 338 (2007).

26 They serve as “the starting point and the initial benchmark” in every sentencing proceeding, Gall v.

27
3
28 The loss from the offense cannot be reasonably determined, and therefore eight levels are added
because the gain to Nielsen exceeded $95,000 but was less than $150,000.
US SENTENCING MEMORANDUM 3
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1 United States, 552 U.S. 38, 39 (2007), and “reflect a rough approximation of sentences that might

2 achieve § 3553(a)’s objectives.” Rita, 551 U.S. at 350. The other factors that 18 U.S.C. § 3553(a)

3 identifies as relevant include: (1) the nature of circumstances of the offense; (2) the history and

4 characteristics of the defendant; (3) the need for the sentence to reflect the seriousness of the offense, to

5 promote respect for the law, and to provide just punishment for the offense; (4) the need for the sentence

6 to afford adequate deterrence to criminal conduct; (5) the need for the sentence to protect the public

7 from further crimes of the defendant; (6) the need to provide the defendant with educational and

8 vocational training, medical care, or other correctional treatment in the most effective manner; (7) the
9 kinds of sentences available; (8) the need to provide restitution to victims; and (9) the need to avoid

10 unwarranted sentencing disparity among defendants involved in similar conduct who have similar

11 records. 18 U.S.C. § 3553(a).

12 B. Sentencing Recommendation
13 The United States recommends that the Court impose a sentence of 12 months’ imprisonment,
14 followed by two years of supervised release, restitution, and a $100 special assessment. Such a sentence

15 would reflect the seriousness of the offense and provide just punishment, and send a powerful deterrent

16 message to anyone contemplating similar criminal conduct. The § 3553(a) factors do not support the

17 sentence recommended by the Probation Office of no custodial time and a fine. See Sentencing

18 Recommendation.

19 Nature and Seriousness of the Offense

20 Nielsen participated in serious criminal conduct and deserves to be punished for his choices.
21 Nielsen disseminated false information to the markets in order to artificially change the trading price of

22 a stock and allow himself to fraudulently profit. Nielsen posted repeatedly on iHub about Arrayit, up to

23 hundreds of times a day in some instances. He became a source of information for investors who

24 viewed the message board, and took advantage of that set up to lie to those who frequented the board.

25 And he told these lies in order to increase the stock price so that he could profit. This type of conduct is

26 harmful to both the integrity of the securities markets and investors. It is particularly so in the situation

27 presented here where the company had provided very little information: Arrayit did not disclose its

28 financial information in formal SEC filings. And, as can be seen in the victim impact statements

US SENTENCING MEMORANDUM 4
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1 submitted by certain victims in this case, Nielsen’s lies caused people to make investing decisions that

2 were not in their best interest.

3 History and Characteristics of Nielsen

4 Nielsen is a 56-year-old man who is in good health. (PSR ¶ 52.) After attending college,
5 Nielsen joined the U.S. Army. (Id. ¶ 59.) After leaving the Army, Nielsen joined the police academy.

6 (Id.) After working for both the Santa Cruz Sheriff’s Office and the Sunnyvale Department of Public

7 Health, Nielsen retired in 2017. (Id. ¶¶ 74, 75.)

8 The PSR also details Nielsen’s difficult upbringing. While it is admirable that Nielsen overcame
9 these struggles, they do not excuse his conduct. And today, as described in the PSR, Nielsen has a

10 marriage of over 20 years, good relationships with his two children, and significant assets and no

11 liabilities. (Id. ¶¶ 60-61, 77.) This makes it clear that Nielsen’s actions were motivated by greed – he

12 was not driven to fraud by a need to provide for his family.

13 The Probation Office recommends a non-custodial sentence in part because Nielsen “is a combat
14 veteran with a lengthy law enforcement career.” See Sentencing Recommendation. While the United

15 States does not discount Nielsen’s service, it is not a mitigating factor warranting a non-custodial

16 sentence. To the contrary: Nielsen has been in a position of trust for the vast majority of his career,

17 which makes his conduct in this case more troubling. The fact that Nielsen was in the military and law

18 enforcement before his retirement and yet still chose to engage in a scheme to defraud retail investors in

19 Arrayit stock make his crime more serious. Nielsen was charged with enforcing the laws throughout his

20 career; he chose to engage in fraudulent and illegal behavior in spite of this background.

21 While Nielsen’s crime was serious, the fact that he accepted responsibility pre-indictment, saving
22 the government considerable resources, should be considered when fashioning an appropriate sentence.

23 Deterrence
24 The sentence in this case should also send a clear message to Nielsen and other offenders that
25 there are serious consequences for manipulating securities markets, even using social media and internet

26 forums.

27 Deterrence is an important consideration when sentencing a defendant convicted of white collar

28 crime. See S. Rep. No. 98–225, at 76 (1983), as reprinted in 1984 U.S.C.C.A.N. 3182, 3259 (“The

US SENTENCING MEMORANDUM 5
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1 second purpose of sentencing is to deter others from committing the offense. This is particularly

2 important in the area of white collar crime.”); see also United States v. Livesay, 587 F.3d 1274, 1279

3 (11th Cir. 2009) (Congress “viewed deterrence as particularly important in the area of white collar

4 crime.”); United States v. Edwards, 95 F.3d 1004, 1021 (9th Cir. 2010) (Bea, J., concurring in part and

5 dissenting in part) (“White collar crime . . . usually requires a well-schooled, intelligent criminal,

6 capable of gauging the upside of how others will be gulled by his well-honed fables. This ability to

7 foresee extends also to the possible downside of his fraud: apprehension, conviction, and punishment.”).

8 As one district court noted, “[p]ersons who commit white-collar crimes like defendant’s are capable of
9 calculating the costs and benefits of their illegal activities relative to the severity of the punishments that

10 may be imposed. A serious sentence is required to discourage such crimes.” United States v. Stein, 2010

11 WL 678122, at *3 (E.D.N.Y. Feb. 25, 2010), corrected, 2010 WL 3023527 (E.D.N.Y. July 27, 2010).

12 Here, the United States respectfully submits that a term of incarceration is needed to send a
13 strong message to other individuals who believe that they can manipulate penny stocks and defraud

14 retail investors using internet forums that this conduct will be met with serious punishment. In these

15 circumstances, any other kind of sentence would simply incentivize others to commit similar crimes.

16 See United States v. Khan, No. 12-CR-0860 YGR, 2014 WL 2930656, at *5 (N.D. Cal. June 27, 2014)

17 (noting “the circumstances of [the defendant’s] white collar offenses, the need for a

18 custodial sentence of sufficient length was appropriate to reflect the seriousness of the offense, promote

19 respect for the law, and, quite importantly, afford deterrence to further and similar criminal conduct”).

20 Message boards can have outsize influence in the penny stock market, and it is important to send a

21 message that lying about the stock market will be punished – whether in person, on social media, or on

22 the internet.

23 Avoiding Unwarranted Sentencing Disparities

24 The Sentencing Guidelines support a 12-month sentence, which is the low end of the applicable
25 range. Consistent application of the Guidelines avoids unwarranted disparities in cases involving similar

26 conduct. While there can be valid reasons to depart from the applicable Guidelines, no such reasons

27 apply in this case.

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US SENTENCING MEMORANDUM 6
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1 C. Restitution and Forfeiture

2 As part of his plea agreement, Nielsen agreed “to pay full restitution for all losses caused by all
3 the schemes or offenses with which I am charged in this case.” 18 U.S.C. § 3663(b)(3). The United

4 States has taken steps to notify Arrayit investors that they may be victims and entitled to restitution if

5 they suffered losses as a result of Nielsen’s conduct. These steps included: publishing the notice of the

6 plea and case on the Department’s website at https://www.justice.gov/criminal-vns/case/united-states-v-

7 jason-nielsen and contacting potential victims by mail where it had contact information. To date, the

8 United States has received four victim impact statements and restitution requests, which it has provided
9 to the Probation Office. However, the United States is still seeking more information from some of

10 these potential victims. Therefore, the United States seeks an additional ninety days from the date of

11 sentencing for victims to notify probation of their losses. See 18 U.S.C. § 3664(d)(5).

12 The United States does not seek an order of forfeiture as part of the sentence.
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US SENTENCING MEMORANDUM 7
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1 CONCLUSION
2 The Guidelines punish offenses like the one committed by Nielsen harshly because they are
3 serious, hard to detect, and difficult to prosecute. The United States respectfully requests that this Court

4 sentence Mr. Nielsen to a term of imprisonment of 12 months and two-years’ supervised release. The

5 government believes that such a sentence is sufficient but not greater than necessary to meet the

6 objectives of 18 U.S.C. § 3553(a).

8 DATED: October 17, 2022 Respectfully submitted,

9
STEPHANIE M. HINDS
10 United States Attorney

11
__/s/______________________
12 JACOB FOSTER
Acting Principal Assistant Chief
13
LAURA CONNELLY
14 Trial Attorney
Fraud Section, U.S. Department of Justice
15

16 __/s/______________________
LLOYD FARNHAM
17
Assistant United States Attorney
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US SENTENCING MEMORANDUM 8