Two Additional Stock Promoters Charged With Securities Fraud In Connection With Scheme To Fraudulently Register Shell Companies and Secretly Sell Stock
Two additional stock promoters were charged with conspiracy to commit securities fraud in connection with a scheme to fraudulently register shell companies with the U.S. Securities and Exchange Commision (SEC), issue shares in the companies that they and other conspirators secretly controlled, and sell the shares to the investing public at a profit.
Wifredo A. Ferrer, United States Attorney for the Southern District of Florida, George Piro, Special Agent in Charge, Federal Bureau of Investigation (FBI), Miami Field Office, and Eric I. Bustillo, Director, U.S. Securities and Exchange Commission (SEC), Miami Regional Office, made the announcement.
Steven Sanders, 73, of Lake Worth, Florida, and Alvin S. Mirman, 78, of Sarasota, Florida, were charged by criminal information with one count of conspiracy to commit securities fraud, in violation of Title 18, United States Code, Sections 1348 and 1350. Sanders and Mirman face a maximum statutory sentence of five years in prison and a fine up to $250,000. The case is assigned to U.S. District Judge Cecilia M. Altonaga in Miami (Case No. 16-20572-CMA).
Previously, on July 20, 2016, Daniel McKelvey, 49, of Foster City, California, and Jeffrey L. Lamson, 51, formerly of El Dorado Hills, California, were charged by criminal information in connection with the same scheme, in Case No. 16-20546-CR-RNS. That case is assigned to U.S. District Judge Robert N. Scola Jr. in Miami. On July 22, 2016, McKelvey entered a guilty plea to the Information before U.S. Magistrate Judge Barry L. Garber. Sentencing for McKelvey is scheduled for October 7, 2016 before Judge Scola.
According to court documents, Sanders, Mirman, McKelvey, Lamson and other conspirators, would recruit individuals to serve as straw chief executive officers (CEOs) for shell companies. The conspirators would inform the straw CEO that they would have no further role with the company and would only be paid when the business was later sold. Sanders, Mirman, McKelvey, Lamson and other conspirators would prepare corporate documents for the shell companies, such as board meeting minutes, stock certificates and shareholder lists, all of which were false and fraudulent. The conspirators would submit these documents, as well as other false information, to the SEC on Form S-1 in order to register securities offerings in the name of the shell companies. The false filings would include representations as to the role of the straw CEO in the company and the intent and purpose of the company itself.
Once a company’s registration was effective, Sanders, Mirman, McKelvey, Lamson and other conspirators would recruit individuals to serve as nominee shareholders, to make it appear that there was a group of shareholders that were unaffiliated with the company. This was done in order to create a class of unrestricted shares that could later be publicly traded. In reality, these nominee shareholders were promised a fixed amount of money once the company was ready to be sold, in exchange for allowing their names to be used as shareholders on subscription agreements. By obtaining control of all or nearly all of the purportedly unrestricted shares of the company without disclosure to the SEC or the public, the conspirators were in a position to subsequently sell or transfer the shares to others, or to the investing public, while avoiding the SEC’s prohibitions against insider trading or undisclosed trading by persons who exercise control over a public company.
The conspirators would also solicit broker-dealers to submit false information to the Financial Industry Regulatory Authority (FINRA) to obtain authorization for the company’s shares to be publicly traded (traded “over the counter”). In forms and other materials submitted to FINRA, the conspirators would falsely describe and conceal their own role with, the companies and conceal the roles of the conspirators. Once FINRA gave authorization for the shares to be traded over the counter in the penny stock markets, the conspirators would transfer control of the unrestricted, or publicly tradeable shares, into accounts they controlled.
The conspirators would then seek buyers who would acquire control of the shell companies as well as the secretly controlled unrestricted shares. The buyer’s acquisition of the company would typically take the form of a “reverse merger,” and be publicly disclosed. The secretly controlled unrestricted shares would typically be transferred to a third party or other account designated by the buyer, and would not be disclosed to the SEC or the public. In this way, the buyer would be in a position immediately to engage in stock swindles or other manipulation schemes. According to court documents, Sanders, Mirman, McKelvey and Lamson collectively reaped more than $6 million in proceeds from the scheme.
Mr. Ferrer commended the investigative efforts of the FBI. Mr. Ferrer also thanked the U.S. Securities and Exchange Commission’s Miami Regional Office for their assistance, which previously filed a civil enforcement action against Sanders, Mirman, McKelvey and Lamson. The matter is being prosecuted by Assistant U.S. Attorney Jerrob Duffy.
An Information is merely an allegation and a defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.