One of the co-defendants named in the U.S. Securities and Exchange Commission lawsuit against Caledonian Bank and Caledonian Securities was also charged with securities fraud and conspiracy last year.
Other non-defendant parties named in the Caledonian suit were previously accused of involvement in the sale of unregistered penny stocks in the open market – the same charges the SEC has levied against Caledonian Bank and Caledonian Securities.
Offshore brokerage Legacy Global Markets and its president Brian De Wit, a Canadian citizen, were among six individuals and corporate defendants indicted in September 2014 for allegedly orchestrating a $500 million offshore asset protection scheme, securities fraud and money laundering. The indictment also alleges that Legacy’s De Wit actively manipulated the share price of penny stock Cannabis-Rx, Inc.
The accused companies are all based in Belize and include IPC Management Services, LLC; IPC Corporate Services Inc.; IPC Corporate Services LLC; Titan International Securities, Inc.; Legacy Global Markets S.A. and Unicorn International Securities LLC.
The six individual defendants are Robert Bandfield, a U.S. citizen, Andrew Godfrey, a citizen of Belize, Kelvin Leach and Rohn Knowles, both citizens of the Bahamas; and Canadian citizens De Wit and Cem Can.
According to the criminal indictment, which was unsealed Sept. 9, 2014, an undercover FBI agent posing as a penny stock promoter was referred to Legacy and Titan, both offshore brokerages in Belize, by a former employee of now defunct Bahamas-based Gibraltar Global Securities.
He contacted Bandfield, founder of IPC, and Godfrey, an IPC employee, to set up an offshore account that would hide his identity and stock ownership, as well as protect him from IRS scrutiny.
Titan’s Kelvin Leach allegedly told the undercover agent that by creating a Limited Liability Company (LLC) which owns an international business company, which in turn is linked to a Titan brokerage account, the agent’s stock holding and identity would be protected.
By March 2014, IPC had set up six international business companies (IBCs) and two LLCs for the undercover agent to conceal ownership of brokerage accounts at Titan, Legacy, Unicorn and two other brokers.
Bandfield explained that this “slick” structure was specifically designed to counter U.S. President Barack Obama’s new laws, a reference to the Foreign Account Tax Compliance Act, the writ said. He also allegedly told the agent that he had created Titan and Legacy and had incorporated more than 5,000 sham companies.
Bandfield assured the agent that he had designated nominees who would sign any stock purchase agreements on behalf of the IBCs at the undercover agent’s direction, the writ said.
The International Financial Services Commission of Belize announced on Feb. 2, 2015 that Legacy Global Markets is no longer licensed to carry out securities trading and other financial services.
Scottsdale and Alpine
In October 2014, Titan and Unicorn were named in
a Cayman Islands Grand Court application in which Cayman Securities Trading and
Clearing Ltd. SEZC and its beneficial owner John Joseph Hurry sought the
permission of the court to disclose certain unspecified, confidential
information to the Financial Industry Regulatory Authority. [*]
In January 2012, Scottsdale Capital settled with the U.S. Financial Industry Regulatory Authority (FINRA) and was fined $125,000, which included the disgorgement of $18,000 in commissions earned in connection with sales of unregistered securities and failure to implement anti-money laundering procedures. Hurry’s wife Justine Hurry, also a director, was fined $7,500.
In September 2014, FINRA launched an investigation against Hurry. According to FINRA’s BrokerCheck Report, FINRA made a preliminary determination to recommend disciplinary action against Hurry for potential violations of FINRA Rule 2010 and for aiding and abetting violations of Section 5 of the U.S. Securities Act of 1933, charges that are similar to the ones levied against Caledonian and its co-defendants.
Neither Hurry, Scottsdale nor Alpine is accused of any wrongdoing in the Caledonian lawsuit.
Clear Water Securities
The SEC action against Legacy, IPC, Titan and Unicorn was the second time last year that U.S. authorities took action against Belize-based operators in the penny stock market.
In July 2014, shares of Cynk Technology Corp. rose from 6 cents to $21.95 before the SEC halted trading. At that time, the self-styled social networking company had no assets, no sales, only a few employees and frequently changing CEOs, yet reached a market capitalization of $6 billion. When trading resumed, the share price dropped to $0.25.
Although Cynk is not named in the Legacy law suit, the company claims to have the same business address in Belize as IPC, Legacy and the other defendants.
CYNK was founded in 2008 in Nevada by businessman John Kueber, the brother of Phil Kueber, who is named in the lawsuit against Caledonian as the president of co-defendant Clear Water Securities, another Belize brokerage. John Kueber asserts he sold the business years ago to a friend of his brother Phil, Business Insider reported in July 2014.
The SEC accuses Phil Kueber’s Clear Water, like Caledonian, of selling unregistered penny stocks in the open market.
Empire Stock Transfer
Other non-defendants in the Caledonian lawsuit have also been connected to penny stock fraud or have run afoul of other laws. Empire Stock Transfer, the transfer agent for all four penny stocks named in the Caledonian lawsuit, settled cease-and-desist proceedings with the SEC in April 2014. Its officials, president Patrick Mokros and Matthew Blevins who oversaw the company’s finances, were fined $50,000 and $25,000, respectively, for failing to disclose financial information with the SEC.
This information included that attorney Markus Luna was an undisclosed control person of Empire. The SEC had filed an action against Luna in December 2010, and he was convicted in June 2014 with three other individuals and their businesses for their roles in a multimillion-dollar pump-and-dump scheme to sell shares of Axis Technologies Group, Inc. in a public distribution without registration with the SEC.
The court imposed disgorgement and prejudgment interest of $4.98 million against Luna and St. Paul Venture Fund, as well as a civil penalty of $2.03 million.
Luis Carillo, the lawyer for Swingplane, one of the penny stocks mentioned in the lawsuit against Caledonian, was also sued by the SEC for alleged securities violations in 2014.
The SEC alleges that Carillo, together with his law firm partner Wade Huettel of Carillo Huettel LLP were central participants in the pump-and-dump schemes involving U.S. companies Tradeshow and Pacific Blue.
The writ stated that Carillo and Huettel drafted Pacific Blue’s misleading public filings, provided misleading legal opinions, and allowed the promoters to funnel sales proceeds through their firm’s attorney-client trust account. Carrillo and Huettel also allegedly helped the promoters mask their ownership and control of Pacific Blue by transferring blocks of shares through a complex web of dozens of offshore nominee entities, the SEC said.
Carrillo and Huettel further allegedly received proceeds from sales of Pacific Blue stock that they arranged to be transferred to Carrillo’s father, named in the suit as Dr. Carillo. The Pacific Blue shares held in Dr. Carrillo’s name were liquidated at the height of the pump for more than $1 million, of which more than $300,000 was transferred to Carrillo and Huettel, partially as a sham “loan” to Carrillo Huettel LLP, according to the writ. The San Diego, California-based law firm is currently winding down. The case has not gone to trial.
The same lawsuit names Gibraltar Securities Services, whose representative referred the undercover FBI agent to Legacy and Titan in the Belize case, as a defendant alleging Gibraltar provided false affidavits and misleading representations to brokerage firms in the United States that concealed the shares’ true beneficial ownership so that Gibraltar’s client could secretly sell those shares into the artificially increased demand.
Awesome Penny Stocks
John Babikian, owner of Awesome Penny Stocks, the stock promotion company that aggressively touted the Swingplane, Goff and other stocks named in the Caledonian suit, has been linked to numerous penny stock pump-and-dump schemes.
He is a fugitive currently being pursued by Canadian tax authorities for allegedly owing $15 million in back taxes.
In July 2014, Babikian settled SEC charges that he allegedly defrauded investors in coal mining company America West Resources Inc., another pump-and-dump scheme, and agreed to pay $3.73 million. Awesome Penny Stocks has since closed down.
Gary O’Flynn, the onetime CEO of Goff, one of the pumped penny stocks named in the suit, pleaded guilty this month before Cork Circuit Criminal Court in Ireland to soliciting a man to murder a policeman, an accountant and a revenue commissioner.
Three days after he was charged in March 2013, O’Flynn’s shares were taken over by new CEO Warwick Calasse, and the promotional activity surrounding the company gathered pace. Goff’s headquarters were moved to Medellin, Colombia, and the company purported in SEC filings to have bought an option on gold mining concessions in the country. On the first day of trading on March 18, 2013, the stock price reached $0.28 on a volume of 263.9 million shares. The share price peaked on April 5, 2013 at $0.58 per share on a volume of 22 million shares, but by June 4 the share price had plummeted to $0.01.
[*] Editor’s note: Story edited on March 10, 2015 to provide further clarity.