A joint task force of the the Securities and Exchange Commission, U.S. Attorney for the District of Massachusetts, and Federal Bureau of Investigation on Thursday filed charges against a group of 13 corporate officers, lawyers and a stock promoter, alleging they used kickbacks and other schemes to trigger investments in thinly-traded stocks.
According to the charges filed in U.S. District Court in Washington, D.C., the schemes involved kickbacks to an investment fund representative in exchange for having the investment fund buy stock in certain companies. The SEC claims that the kickbacks were to be concealed through the use of sham consulting agreements. What the insiders and promoters did not know was that the purported investment fund representative was actually an undercover agent.
The SEC reported that criminal defendants include Kelly Black-White and James Prange, both in the business of finding capital for emerging companies. The civil case names some of the individuals who were charged criminally, and the SEC also issued trading suspensions in the stocks of a number of the companies involved in the criminal cases.
The charges follow a year-long investigation of uncovering fraud in the micro-cap stock markets. Microcap companies are small publicly traded companies whose stock often trades at pennies per share.
Government officials say fraud in the microcap stock markets is of increasing concern to regulators with such markets fertile grounds for fraud and abuse-in part, because accurate information about microcap stocks may be difficult for the average investor to find, since many microcap companies do not file financial reports with the SEC.
The SEC suspended trading in seven microcap companies involved in the kickback-for-investment schemes:
1st Global Financial Inc., Las Vegas
Augrid Global Holdings Corp., Houston
ComCam International Inc., West Chester, Pa.
MicroHoldings US Inc., Vancouver, Wash.
Outfront Companies, DeerField Beach, Fla.
Symbollon Corp./Symbollon Pharmaceuticals Inc., Medfield, Mass.
ZipGlobal Holdings Inc., Hingham, Mass.
MicroHoldings and ZipGlobal also face civil fraud charges filed by the SEC.
These latest charges follow a series of similar cases filed by the SEC in October 2010 and last June when more than a dozen companies and penny stock promoters were charged in similar kickback-for-investment schemes.
"The public has a right to invest in an honest and fair market,'' said U.S. Attorney Carmen Ortiz. ''Companies that agree to pay illegal kickbacks harm investors and undermine fair competition in the markets. Hard working Americans who invest their savings should not be subjected to backroom deals like those alleged today."
The following individuals were criminally charged with mail and wire fraud. If convicted, each could face up to 20 years in prison, followed by three years of supervised release and a $250,000 fine on each count. If convicted on the conspiracy to commit securities fraud charges, each defendant faces up to five years in prison, to be followed by three years of supervised release and a $250,000 fine on each count.
Kelly Black-White, 51, Mesa, Ariz. (operator of Premier Funding and Premiere Services), charged with wire fraud; James Prange, 60, Greenbush, Wis. (Northern Equity); wire fraud; Michael Lee, 51, Hingham, Mass. (CEO of ZipGlobal); mail fraud and conspiracy to commit securities fraud; Edward Henderson, 69, Lincoln, R.I.; wire fraud; Paul DesJourdy, 50, Medfield, Mass. (CEO of Symbollon Pharmaceuticals), charged with mail fraud and conspiracy to commit securities fraud; James Wheeler, 51, Camas, Wash. (CEO of MicroHoldings), charged with mail fraud and conspiracy to commit securities fraud; Steve Berman, 49, Hillsboro, Ohio (CEO of China Wi-Max Communications), charged with mail and wire fraud; Richard Kranitz, 68, Grafton, Wis. (board member of China Wi-Max Communications), charged with mail and wire fraud; JC Jordan, 60, Cameron Park, Calif. (CEO of Vida Life International), charged with mail and wire fraud; Karen Person, 61, Naperville, Ill. (president of Small Business Company in Naperville, Ill.), charged with mail and wire fraud; Albert Reda, 65, Tustin, Calif. (treasurer of 1st Global Financial), charged with mail and wire fraud; Steve Stuart, 48, Monrovia, Md. (major shareholder in ComCam International), charged with mail and wire fraud; Muhammad ("M.J.") Shaheed, 44, Houston (CEO of Augrid Global Holdings Corporation), charged with mail and wire fraud.
In addition, the SEC has filed civil charges of securities fraud against DesJourdy, Henderson, Lee and Wheeler, alleging they defrauded investors through the use of kickbacks in financing transactions.