Stock Transfer Agent Pleads Guilty to Racketeering Conspiracy
Las Vegas, Nev. - One of five defendants charged in August 2003 with participating in an elaborate corporate and securities fraud scheme in Nevada and elsewhere pleaded guilty today before U.S. District Judge James C. Mahan, announced Daniel G. Bogden, United States Attorney for the District of Nevada.
JAMES FARRELL, age 56, of Sandy, Utah, pleaded guilty to one count of Racketeering Conspiracy and one count of Criminal Forfeiture, admitting that he was involved in a conspiratorial agreement with co-defendants Daniel Chapman, Sean Flanagan, Herbert Jacobi, and others to commit securities fraud, launder the proceeds, evade income taxes, and engage in racketeering activities.
From at least 1994, it is alleged that members of the conspiracy engaged in the business of manufacturing fraudulent public shell corporations and causing their securities to be sold in public markets. A significant part of the scheme was to conceal from potential investors and regulatory authorities the fact that the officers, directors, and shareholders were nominees, and that the corporations and all of the shares of stock were secretly controlled by the defendants and co-conspirators. This scheme, commonly known as a "box job," reflects the fact that the stocks are not widely dispersed among real public investors, but are instead all held in a "box" by a promoter and his associates.
Once the fraudulent public shell corporations were created, the conspirators would arrange to sell the shell corporations to promoters for mergers with private companies. After the public shell companies merged with the private companies, the schemers would sell shares of stock that they had held back, often reaping millions of dollars in illicit proceeds while driving down the market price of shares held by other real investors. On occasion, they gave their nominees token amounts of cash or stock as payment for the use of their names and to entice them to continue in the scheme.
Attorneys were used in the scheme to issue false and misleading legal opinions that the stocks of the shell corporations were freely tradable pursuant to federal securities laws, when in fact they were not. Stock transfer agents, including Alpha Tech Stock Transfer, owned and operated by JAMES FARRELL, were needed to transfer the stocks that were secretly controlled by members of the conspiracy. FARRELL admitted that he fully knew the nature of the "boxed" shell corporations, and that he was compensated for his role in the scheme in part by receiving stock in many of a co-conspirator's fraudulent companies. FARRELL transferred the shares out of the names of the co-conspirators nominees into the name of "The Amazing Family Trust", an entity he controlled, and kept them for himself.
The plea agreement states that JAMES FARRELL has agreed to provided complete and truthful information and testimony concerning his knowledge of all other persons who are committing or have committed offenses against the United States or any state, and to cooperate fully in the investigation and prosecution of such persons. The parties have agreed that FARRELL was a minor participant in the criminal activity. FARRELL has agreed to file all federal income tax returns for the last six years for himself and his immediate family, and for Alpha Tech Stock Transfer company and the Amazing Family Trust, before sentencing.
Co-defendants Sean Flanagan, Daniel Chapman, and Herbert Jacobi are currently scheduled for trial on January 23, 2006. Co-defendant Sean Hackman pleaded guilty to racketeering conspiracy and is currently scheduled for sentencing on March 27, 2006.
Under federal statutes, JAMES FARRELL is facing up to 20 years in prison and a $250,000 fine on the racketeering conspiracy count. Sentencing is scheduled for April 14, 2006, at 9:00 a.m. before Judge Mahan. He is released on a personal recognizance bond pending sentencing.
This case is being investigated by Internal Revenue Service-Criminal Investigation and the FBI's Organized Crime Squad, and is being prosecuted by Assistant U.S. Attorneys J. Gregory Damm and Kimberly M. Frayn.