Loretta Lynch, U.S. attorney for New York, says that where other people saw citizens of the world, the alleged perpetrators of an international penny stock fraud scheme saw only potential marks. (John Minchillo/Associated Press)
Stock fraud scams tough to combat in internet ageCanadians arrested in penny stock scheme that allegedly saw global investors lose $140MA penny stock fraud scheme that bilked investors in 35 countries out of more than $140 million is raising questions about how authorities can combat such financial scams in the internet age.
Four Canadians
carried out the purported fraud with the help of five Americans, the U.S. Department of Justice alleges. One of the Canadians was arrested in Ontario. Another was among six suspects arrested in the U.S., authorities said.
Two other Canadians are being sought in what the department is calling one of the largest international penny stock frauds in history. Authorities say Sandy Winick, 55,
remains at large in Thailand and Gregory Curry, 63, has yet to be located.
Paul Davis, a securities lawyer with McMillan in Toronto, said the scale and sophistication of the alleged scam shows how complicated it’s becoming for authorities to combat financial fraud schemes when victims live in many different countries.
“As the Department of Justice and FBI indictment shows, you need the co-operation of regulatory authorities around the world,” he said. “Money’s moving through different accounts, all the way to Lebanon.”
The U.S. attorney’s office says a number of law enforcement and other government agencies in Canada, the U.S. and Britain were involved in the investigation, as well as the U.S. embassies in Bangkok and Beijing. Proceeds from the alleged scheme were funneled through a bank account in Beirut.
According to the indictment filed in court, the defendants used throwaway cellphones and call centres in Thailand and Canada.
Targeting 'citizens of the world'
The penny stocks involved included companies such as Resource Group International, a Wyoming corporation based in Thailand that says it developed a revolutionary fertilizer, and Rain Earth Inc., a Nevada corporation based in Beijing that says it is in the mineral exploration business and developing a specialized fibre, according to prosecutors.
As Loretta Lynch, U.S. attorney for New York, put it: “Where others looked at the globe and saw citizens of the world, Winick and his co-conspirators saw only potential marks.”
An investigation used wiretaps and video surveillance to uncover the so-called pump and dump scheme.
'You need the co-operation of regulatory authorities around the world. Money’s moving through different accounts, all the way to Lebanon.'—Paul Davis, securities lawyer
The U.S. Securities and Exchange Commission (SEC) says that such arrangements typically involve artificially inflating the price of a modestly priced stock by issuing “false or misleading statements.”
The fraudsters eventually sell off the share of the stock they own, reaping profits. However, once they stop issuing false statements about the value of the stock its price typically falls and other investors suffer losses.
Public education campaigns have been touted as one way to help combat pump-and-dump schemes. But Davis says the international nature of the banking and financial industries today make that a tall order.
“It’s not just educating investors in Toronto or Ontario or Canada, because you can have people in Canada or in the U.S. who are perpetrating fraud around the world. So the education part is difficult.”
Alleged fraudsters used social media, emails
Penny stocks are lightly traded and can easily be manipulated through sales pitches to investors and false rumours posted on message boards. Most trade over-the-counter, rather than on major exchanges.
The indictment alleges that the nine people involved in the scheme promoted the stocks through phone calls, artificially inflating their value by promoting them in emails, social media messages and news releases.
Sometimes they would hit their victims a second time, helping them offload the worthless stocks or join lawsuits to reclaim their losses for an advance fee.
Al Rosen, a forensic accountant, says he wasn’t surprised so much by the scale of the alleged fraud, but that Canadian authorities were involved in the investigation.
“We keep on pretending that we’re OK up here, but we’re not. Prosecutions originating in Canada are very few,” he told CBC News.
Rosen says he wants to see Canadian officials centralize information about financial scams so that fraudsters can’t operate the same scam across different jurisdictions.
“We’ve had attempts at a national securities commission but not a national prosecutor, so data is not then collected across the provinces,” he said. “We’ve seen people start in British Columbia, then pull the same dirty trick in Alberta, then they skip over to Ontario and maybe Quebec. It’s the same characters doing the same thing.”With files from The Canadian Press and The Associated Press
CBC News Posted: Aug 15, 2013
Source:
http://www.cbc.ca/news/world/story/2013/08/14/penny-stock-fraud-investigation.html
4 Canadians charged in $140M international penny stock fraud
Five Americans also charged in investigation led by the RCMP and FBILast Updated: Aug 14, 2013 1:44 PM ET
A massive penny stock fraud scheme that bilked Canadian and foreign investors of more than $140 million was masterminded by four Canadians and carried out with the help of five Americans, the U.S. Department of Justice said Tuesday.
One of the Canadians was arrested in Ontario and another one was among six suspects arrested in the U.S., authorities said.
Two other Canadians are being sought in what the department is calling one of the largest international penny stock frauds in history.
Gregory Ellis, 46, and Kolt Curry, 38, are in custody but authorities said Sandy Winick, 55, remains at large in Thailand and Gregory Curry, 63, has yet to be located.
Ellis, who lived in Canada at the time of his arrest, acted as president of several of the companies that issued the stocks, according to the indictment.
Sandy Winick, of Stoney Creek, Ont., "orchestrated" the schemes and had lived in Canada, the U.S., China, Thailand and Vietnam over the years, the document said. He allegedly was recruiting staff to open new call centres to expand the operation in New York City and Toronto.
Gregory Curry helped manage the existing call centres in Canada, Vietnam and Thailand, where he lived, the document said. He worked with Kolt Curry, who split his time between Canada and Thailand, it said.
The two Curry men — whom the department identified as father and son — also prepared letters and email accounts to promote the con, the indictment said.
'They cheated, lied and swindled investors into buying billions of shares of worthless stock, then turned around and used a second scam to cheat those investors again.'— U.S. Attorney Loretta Lynch
The arrests were the result of a multi-year investigation involving the FBI and the RCMP, the department said, adding it relied on wiretaps in the U.S. and undercover agents abroad. The RCMP declined to comment on the investigation.
The indictment alleges that the defendants were involved in a massive "pump and dump" scheme — buying controlling interests in sketchy start-up companies, then artificially inflating their value by promoting them in fictitious emails, social media messages and news releases.
The fraudulent sales campaign generated more than $120 million in investments by tens of thousands of people in the United States, Canada and 33 other countries, authorities said.
Working out of boiler room phone centres in Canada, Thailand and Britain, the defendants again victimized the same investors by convincing them to pay $20 million in advance fees in return for helping them sell their securities or join lawsuits to reclaim their losses, court papers said.
In some cases, it's alleged the accused pretended to work for the U.S. Internal Revenue Service.
The list of victims included several hundred Canadians, Justice Department spokesman Zugiel Soto said in an email to The Canadian Press.
"Where others saw citizens of the world, the defendants saw a pool of potential marks," U.S. Attorney Loretta Lynch said in a statement.
"They cheated, lied and swindled investors into buying billions of shares of worthless stock, then turned around and used a second scam to cheat those investors again."Heath Rodgirs, a senior fraud investigator with Prince-Langevin and Associates in Edmonton, said "pump and dump" schemes are very common and penny stocks — which often trade outside the major market exchanges — are particularly vulnerable.
"Because they're so cheap and there's so many of them, it gives a fraudster an opportunity," he said.
"It doesn't take much to set up a company and make it look like something. So just by the nature of penny stocks, there's a greater ability for fraud in it."
One of the companies cited in the indictment, Liquid Gold International Corp., was named in a case that came before the Ontario Securities Commission and also involves Winick and both Currys.
The matter was split into two cases, one involving Gregory Curry, Winick, Liquid Gold and another company named BFM Industries Inc.
In a ruling issued last week, the commission found the BFM and Liquid Gold schemes to be "entirely fraudulent."
"The activities of those involved in the schemes include unregistered trading and illegal distributions," OSC adjudicator James D. Carnwath wrote in the decision.
The other file involved Kolt Curry, another person and two companies — one in Ontario and one in Nevada.
An agreed statement of facts in that case found Curry, the other person and the two companies "contravened Ontario securities law" and acted in a way that is "contrary to the public interest."
Sanctions expected
Sanctions in both cases are expected to be laid out later this month and in September.
The American suspects in the penny stocks scheme are Gary Kershner, 72; Joseph Manfredonia, 45; Cort Poyner, 44; Songkram Roy Sahachaisere, 43; and William Seals, 51.
The charges include conspiracy to commit securities fraud, conspiracy to commit wire fraud, wire fraud, securities fraud and false personation of an officer of the United States.
If convicted, the accused could face up to 20 years of imprisonment for each count of conspiracy to commit wire fraud, wire fraud and securities fraud, as well as up to five years for conspiracy to commit securities fraud.
The false personation charge could carry a three-year prison sentence.© The Canadian Press, 2013
Source:
http://www.cbc.ca/news/business/story/2013/08/14/business-stock-fraud.html
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