A Boca Raton securities attorney was convicted by a federal jury last week after a two-week trial in Miami of one count conspiracy to commit securities and wire fraud, five counts of securities fraud, six counts of wire fraud, conspiracy to commit money laundering, and 20 counts of money laundering in connection with a scheme to fraudulently register shell companies with the U.S. Securities and Exchange Commission (SEC), issue a class of free-trading shares in the companies that were secretly controlled, and sell these shares as part of pump-and-dump stock swindles.
According to evidence introduced at trial, from approximately March 2008 through at least May 2015, the defendant participated in a scheme to operate a fraudulent shell factory in which the conspirators created approximately 20 shell companies and filed numerous false documents with the SEC. The filings falsely stated 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 undisclosed principals. The control block of shares listed in the name of the sole officer were deemed restricted and could not be sold to the public. The principals would also list in SEC filings the names of various shareholders for each company to make it appear that these shares were owned by persons unaffiliated with the company. These shares would later become “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 to sell the companies’ shares publicly in the open market. 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 to the SEC or the investing public. These buyers would then use the shares to conduct pump-and-dump stock swindles and other securities manipulation schemes. Evidence at trial showed that the shares of the fake companies were then sold to investors for millions of dollars.
The attorney was been a member of the Florida bar for over 41 years. His role in the scheme was to provide credibility to their offerings. He would draw up fake billing statements alluding that he worked for the CEOs. He also “authored false and fraudulent legal opinion letters indicating that shares of the companies were owned by persons who were not ‘affiliates,’ when in truth … the shares were owned and controlled by the conspirators.” His involvement included “escrow services” during the sale of the shell companies, wiring over $5.6 million to the bank accounts of the other men.
Eleven other defendants from Florida, California and New York have been convicted in the Southern District of Florida in connection with the scheme, including two additional securities attorneys, a registered securities representative, a stock transfer agent, a securities broker-dealer, an accountant, and four stock promoters.
The defendant faces a maximum 25 years in prison for the fraud conspiracy, 25 years for each securities and wire fraud count, and 10 years for each conspiracy to commit money laundering and money laundering counts. There is also a fine of up to $250,000 or double the proceeds from each charge. He is scheduled to be sentenced by U.S. District Judge Federico A. Moreno on February 14, 2019.