South Florida Attorney Charged With Securities Fraud and Money Laundering in Relation to Fraudulent Sale of Shell Companies and Secretly Controlled Stock
A South Florida attorney was charged with securities fraud, wire fraud, and money laundering offenses in connection with a scheme to fraudulently register shell companies with the U.S. Securities and Exchange Commission (SEC), issue a class of unrestricted or “free-trading” shares in the companies that they secretly controlled, and sell the shares to the investing public at a profit. To date, nine defendants have been charged and convicted in connection with the ongoing prosecution of the Shell Factory Fraud investigation.
Randy A. Hummel, Executive Assistant United States Attorney, U.S. Attorney’s Office for the Southern District of Florida, and Timothy R. Langan, Acting Special Agent in Charge, Federal Bureau of Investigation (FBI), Miami Field Office, made the announcement.
James M. Schneider, 76, of Hillsboro Beach, Florida, was charged by indictment with one count of conspiracy to commit securities and wire fraud, in violation of Title 18, United States Code, Section 1349; five counts of securities fraud, in violation of Title 18, United States Code, Section 1348; six counts of wire fraud, in violation of Title 18, United States Code, Section 1343; conspiracy to commit money laundering, in violation of Title 18, United States Code, Section 1956(h), and twenty counts of money laundering, in violation of Title 18, United States Code, Section 1957. Schneider faces a maximum statutory sentence of twenty-five years for the securities fraud conspiracy count, twenty-five years each for the securities fraud counts, and ten years each for the conspiracy to commit money laundering and money laundering counts, as well as a fine up to $250,000 or double the proceeds as to each. The case is No. 17-20712-CR-FAM and is assigned to U.S. District Judge Federico A. Moreno in Miami.
In related cases, seven defendants have been charged to date: Daniel McKelvey, 49, of Foster City, California, and Jeffrey L. Lamson, 51, of El Dorado Hills, California, were charged in Case No. 16-20546-CR-RNS; Steven Sanders, 73, of Lake Worth, Florida, and Alvin S. Mirman, 78, of Sarasota, Florida, were charged in Case No. 16-20572-CR-CMA; Sheldon Rose, 77, of Sarasota, and Ian Kass, 45, of Ft. Lauderdale, in Case No. 16-20707-CR-JEM, and David Lubin, 52, of West Hempstead, New York, in Case No. 17-20508-CR-MGC. All seven of these defendants were convicted. Six of the seven have already been sentenced, and sentencing for Lubin is scheduled for November 2, 2017, before U.S. District Judge Marcia G. Cooke in Miami. In an additional related case, Myron Gushlak and Yelena Furman were also indicted on October 10, 2017, in Case No. 17-20713-CR-CMA.
According to the indictment, from approximately March 2008 through approximately May 2015, Schneider conspired with Sanders, McKelvey, Mirman, Lamson, Lubin and others in a scheme to fraudulently create shell companies and file documents with the SEC indicating that the companies were controlled by a nominee chief executive officer (CEO). The straw CEO would be listed as the owner of the control block of shares but in reality the companies were controlled by the principals. The control block of shares listed in the name of the officer were deemed restricted and could not be sold to the public. The principals would also list in SEC filings the a description of various shareholders to make it appear that these shares were owned by persons other than the conspirators. These shares would later become unrestricted, or “free trading” and secretly sold to shell buyers. Using false and fraudulent documentation describing the companies’ business purpose and share ownership, the principals would then obtain approval for the shares of the companies to be sold publicly over the counter. Thereafter, the principals would sell the companies to shell buyers who would secretly obtain both the control shares and the purported “free trading” shares without disclosure of this common control and simultaneous sale to the SEC or the investing public. This would allow the shell buyers to engage in stock manipulation or pump and dump schemes using the “free trading” shares.
Schneider, according to the indictment, was an attorney licensed to practice in Florida who authored false and fraudulent legal opinion letters indicating that shares of the companies were owned by persons who were not “affiliates,” when in truth and in fact the shares were owned and controlled by the conspirators. Schneider also created false billing records to make it appear like he was performing work for, and taking direction from, the straw CEOs. In reality, he took his direction from Sanders and McKelvey, who would keep their names off of documents. Schneider also performed so-called escrow services for the sale of the shell entities, including the illegal sale of the purported free trading shares, and wired more than $5.6 million in proceeds to bank accounts controlled by the conspirators. Schneider did this, according to the indictment, even though he had no authorization from the named shareholders or verification that the persons whose names were listed on the escrow agreements authorized or approved these transfers.
The SEC today announced a parallel civil enforcement action against Schneider.
Mr. Hummel commended the investigative efforts of the FBI’s Miami Field Office. Mr. Hummel also thanked the SEC’s Washington Home Office and Miami Regional Office for their assistance with the ongoing Shell Factory Fraud investigation. The SEC previously filed civil enforcement actions against McKelvey, Sanders, Mirman, Rose, Kass, Lamson, and Lubin. This matter is being prosecuted by Assistant U.S. Attorney Jerrob Duffy.
An indictment merely contains allegations and a defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.