Regulators Charge 13 Over Securities Kickback Schemes
The Securities and Exchange Commission, U.S. Attorney for the District of Massachusetts, and Federal Bureau of Investigation have filed parallel cases in federal court against several corporate officers, lawyers and a stock promoter for allegedly using kickbacks and other schemes to trigger investments in various thinly-traded stocks.
The criminal case charged 13 defendants who engaged in criminal activity in the midst of an undercover FBI operation. The defendants include Kelly Black-White, James Prange, Michael Lee, Edward Henderson, Paul DesJourdy, James Wheeler, Steve Berman, Richard Kranitz, JC Jordan, Karen Person, Albert Reda, Steve Stuart, and Muhammad Shaheed.
According to the charges filed in U.S. District Court, the schemes involved secret kickbacks to an investment fund representative in exchange for having the investment fund buy stock in certain companies, which were to be concealed through the use of sham consulting agreements. What the insiders and promoters did not know was that the purported investment fund representative was actually an undercover agent.
The charges follow a year-long investigation focusing on preventing fraud in the micro-cap stock markets. Microcap companies are small publicly traded companies whose stock often trades at pennies per share. Fraud in the microcap stock markets is of increasing concern to regulators as such markets have proven to be fertile grounds for fraud and abuse.
This is, in part, because accurate information about microcap stocks may be difficult for the average investor to find, since many microcap companies do not file financial reports with the SEC.
The SEC suspended trading in seven microcap companies involved in the kickback-for-investment schemes, including 1st Global Financial Inc. (FGFB) based in Las Vegas; Augrid Global Holdings Corp. (AGHD) based in Houston; ComCam International, Inc. (CMCJ) based in West Chester, Pa.; MicroHoldings US, Inc. (MCHU) based in Vancouver, Wash.; Outfront Companies (OTFT) based in Fla.; Symbollon Corp./Symbollon Pharmaceuticals, Inc. (SYMBA) based in Medfield, Mass.; ZipGlobal Holdings Inc. (ZIPG) based in Hingham, Mass.; and MicroHoldings and ZipGlobal are also charged civilly by the SEC with fraud.
These latest charges follow a series of similar cases filed by the SEC in October 2010 and June 2011 in which more than a dozen companies and penny stock promoters were charged in similar kickback-for-investment schemes.
“Because the nation’s economic security is intertwined with our overall national security, the Boston division of the FBI places a substantial emphasis on investigating white collar crimes,” said Richard DesLauriers, Special Agent in Charge of the FBI in Boston.
“During these difficult economic times, now, more than ever, the well-being of the global economy rests on the diligent enforcement of laws designed to ensure the fair and orderly operation of the capital markets.
“The FBI will continue to use undercover operations and other sophisticated investigative tools at its disposal to protect the integrity and transparency of financial markets.”
Similarly, the SEC also filed civil charges of securities fraud against Desjourdy, Henderson, Lee and Wheeler alleging they defrauded investors through the use of kickbacks in financing transactions.
If convicted, the defendants charged with mail fraud and wire fraud each face up to 20 years in prison, to be followed by three years of supervised release and a $250,000 fine on each count. If convicted on the conspiracy to commit securities fraud charges, the defendants each face up to five years in prison, to be followed by three years of supervised release and a $250,000 fine on each count.
The criminal case is being prosecuted by Assistant U.S. Attorneys Vassili Thomadakis and Sarah E. Walters of Ortiz’s Economic Crimes Unit. The SEC’s case was investigated by Michelle Giard Draeger, Ellen Moynihan, and Marty Healey of the Boston Regional Office.