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Timber! SEC Chops Down $85M Ponzi Scheme: Enforcement

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The Securities and Exchange Commission unsealed fraud charges against a Mississippi timber company and its principal who allegedly bilked at least 150 investors in an $85 million Ponzi scheme.

The SEC’s complaint alleges that Arthur Lamar Adams lied to investors by telling them that their money would be used by his company, Madison Timber Properties, to secure and harvest timber from various land owners located in Alabama, Florida and Mississippi. He also promised annual returns of 12% to 15%.

However, the SEC says that Madison Timber never obtained any harvesting rights. Rather, Adams allegedly forged deeds and cutting agreements as well as documents purportedly reflecting the value of the timber on the land. Adams also allegedly paid early investors with later investors’ funds and persuaded investors to roll over their investments.

According to the complaint, Adams used investors’ money for personal expenses and to develop an unrelated real estate project.

“Investors should be wary anytime they are promised high or consistently positive returns,” Richard Best, director of the SEC’s Atlanta Regional office, said in a statement. “We acted quickly in this case to protect the victims of the alleged Ponzi scheme by obtaining immediate injunctive relief and an asset freeze.”

The SEC’s complaint charges Adams and Madison Timber Properties with violating the antifraud provisions of the federal securities laws.

The court granted the SEC’s request for an asset freeze, permanently enjoined Madison Timber and Adams from violating the antifraud provisions of the federal securities laws, and ordered Adams to surrender his passport. Adams and Madison Timber consented to the entry of the court order.

In a parallel action, the U.S. Attorney’s Office for the Southern District of Mississippi announced criminal charges against Adams.

SEC Charges Lawyer and 2 Others in Microcap Fraud Schemes

The SEC filed a civil injunctive action against a lawyer and two other individuals relating to two microcap schemes involving undisclosed “blank check” companies.

The SEC’s complaint alleges that attorney Diane Harrison and her husband, Michael Daniels, manufactured at least five microcap issuers with the undisclosed intent to sell them based on their status as public companies with purportedly unrestricted shares available for resale in the public markets.

According to the complaint, Daniels and Harrison created the false appearance that the companies were pursuing specific business plans with independent management and shareholders by installing friends and family (including defendant Catherine Bradaick-Zolla, who also provided other assistance to the fraud) as purported officers and shareholders. In reality, Daniels and Harrison controlled the shares.

According to the complaint, Daniels and Harrison sold four of the five companies to Andy Z. Fan of Las Vegas and, along with Bradaick-Zolla, continued to provide support to Fan.

For example, the SEC alleges that Daniels, Harrison and Bradaick-Zolla prepared false SEC filings, Harrison submitted false legal opinion letters, and Daniels and Bradaick-Zolla entered manipulative trades to artificially set the price of the stocks in the public market. The SEC previously issued a stop order on the public offering of the fifth company in Daniels and Harrison’s pipeline.

The SEC’s complaint also alleges that Harrison participated in a separate fraudulent scheme involving at least 11 undisclosed blank check companies secretly controlled by Alvin Mirman and Sheldon Rose. The SEC previously filed enforcement actions against Mirman and Rose, who were also convicted of criminal charges and sentenced to prison based on the same alleged conduct. According to the SEC’s complaint, Harrison provided at least 21 false legal opinion letters in furtherance of Mirman and Rose’s scheme.

The complaint seeks permanent injunctions, disgorgement with prejudgment interest, civil penalties, penny stock bars, and officer-and-director bars against each defendant.

2 South Florida Men Barred From Penny Stock Offerings for Microcap Pump-and-Dump Scheme

Two South Florida men have agreed to lifetime bars from the penny stock business to settle charges that they orchestrated a pump-and-dump scheme involving shares of Valentine Beauty Inc., a Sunrise, Florida, company that purported to be in the beauty products business.

The SEC alleges that Eddy Marin secretly gained control of the publicly traded shares of Valentine Beauty and then issued the stock to himself, stock promoter Shane Spierdowis, and others.

Marin, who is a convicted felon, and Spierdowis orchestrated a marketing campaign touting Valentine’s purported operations and Spierdowis paid other promoters to tout the company. Once the promotional campaign increased the liquidity of Valentine’s stock, Marin and Spierdowis sold a significant portion of their shares, collectively reaping more than $250,000 in stock sale proceeds.

Marin and Spierdowis agreed to settle the SEC’s charges and be barred from the penny stock industry. The settlement with the SEC is subject to court approval, and the court will decide the amounts of disgorgement, interest and civil penalties at a later date.

In a parallel action, the U.S. Attorney’s Office for the Southern District of Florida announced criminal charges against Marin and Spierdowis.

SEC Charges Microcap Company, CEO and Others in Scheme to Defraud Investors

The SEC charged a Charlotte, North Carolina-based microcap public company, the company’s CEO, and other individuals in connection with an alleged scheme to defraud investors.

The SEC’s complaint alleges that Revolutionary Concepts Inc. (REVO) and its CEO/director, Solomon RC Ali (also known as Richard Carter), violated antifraud and reporting provisions of the federal securities laws.

According to the complaint, REVO — under Ali’s direction — entered into transactions that involved persons with close, but undisclosed, relationships to Ali, and then made false and misleading statements about the transactions in press releases and public filings with the SEC.

The SEC’s complaint also alleges that Rainco Industries and Nicole Singletary, who have close ties to Ali, aided and abetted the fraud.

According to the SEC’s complaint, Ali, Rainco, Singletary and Atlanta attorney Earnest DeLong Jr. violated beneficial ownership reporting requirements of the federal securities laws.

Subject to court approval, REVO, Rainco, Singletary and DeLong have agreed to settle the action. The litigation against Ali is ongoing. The SEC’s complaint against Ali seeks an injunction, disgorgement of ill-gotten gains plus interest, civil penalties, a penny stock bar, and an officer and director bar.

REVO, Rainco, Singletary and DeLong consented to final judgments, without admitting or denying the allegations. Each agreed to pay $25,000 in civil penalties.

— Check out Senate Democrats Blast CFPB Response to Equifax Breach on ThinkAdvisor.


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