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Regulation and Compliance > Federal Regulation > SEC

SEC Stops Broker's Ongoing Theft From Retirees: Enforcement

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The Securities and Exchange Commission obtained a court order halting an ongoing fraud perpetrated by a registered broker and several companies he controlled.

The SEC’s complaint alleges that Sean Kelly used his companies, Lion’s Share Financial of East Cobb, Inc., Lion’s Share & Associates Inc., and Lionsshare Tax Services LLC, to raise at least $1 million from 12 investors, including elderly retirees, promising that he would invest their funds in a variety of investment products including private placements and real estate funds.

Rather than investing the money, Kelly spent it on personal expenses including Super Bowl tickets, luxury vacations and cash withdrawals.

“Kelly treats Lion’s Share as his personal piggy bank, and he has transferred hundreds of thousands of dollars of investor money to bank accounts he controls to support his lifestyle,” the complaint states. “He has also withdrawn large quantities of investor money in cash throughout the course of the scheme, and the disposition of those funds is unknown.”

As alleged, Kelly continued to steal money from investors even after having received an SEC subpoena, and did not show up for his scheduled testimony after informing the SEC’s staff that he would show up and “come clean.”

Many of Kelly’s victims are elderly retirees, and his victims include widows, veterans and people with disabilities.

The SEC’s complaint charges Kelly’s companies with violating certain of those same statutes, or aiding and abetting certain of Kelly’s (or his other companies’) underlying violations.

On Oct. 26, the court granted the SEC’s request for an asset freeze, temporary restraining order, and an accounting.

The SEC seeks preliminary and permanent injunctions, disgorgement of allegedly ill-gotten gains plus interest, and civil penalties against Kelly.

In a parallel action, the U.S. Attorney’s Office for the Northern District of Georgia filed criminal charges against Kelly and arrested him.

Microcap Fraud Mastermind Gets Permanent Bars

A U.S. District Court for the Eastern District of New York entered a final judgment on consent against Philip Kueber, who was charged with orchestrating a fraudulent investment scheme using microcap issuer Cynk Technology Corp.

The final consent judgment against Kueber imposes a permanent officer and director bar and a permanent bar from participating in an offering of penny stock.

The SEC’s complaint, filed in 2015, alleged that Kueber concealed his control of Cynk and its purportedly non-restricted shares through nominees and straw shareholders. Although Cynk’s stock surged on July 10, 2014, to a high of more than $21 per share (despite having no assets or operations), Kueber was thwarted from profiting from his scheme when SEC’s July 11, 2014 order suspended trading in the securities of Cynk.

Kueber was also charged criminally for related misconduct. In the criminal case, Kueber pleaded guilty, forfeited $1.2 million, and was sentenced to three years of supervised release.

SEC Obtains Preliminary Injunction in International Microcap Fraud Scheme

The SEC obtained a preliminary injunction and continued asset freeze against two individuals and their companies involved in a scheme that generated more than $165 million of illegal sales of stock in at least 50 microcap companies.

The court originally entered a temporary restraining order and asset freeze on Oct. 2.

The preliminary injunction and continued asset freeze order, which were entered by a federal district court in Massachusetts on Oct. 26, preliminarily enjoined U.K. citizen Roger Knox and his Swiss-based company, Wintercap SA, from violating offering, antifraud, and registration provisions of the federal securities laws. It also preliminarily enjoined German citizen Michael Gastauer and six of his entities from aiding and abetting Knox and Wintercap’s violations of the same provisions.

The court’s preliminary injunctions will remain in effect until the litigation of this matter is concluded.

According to the SEC’s complaint, Knox and Wintercap helped microcap securities holders evade federal securities laws that restrict sales by large shareholders. The complaint charges that Knox and Wintercap helped sellers conceal their stock ownership and provided anonymous access to brokerage accounts to sell the shares in the U.S. market.

Gastauer allegedly aided and abetted the fraud by establishing several U.S. corporations and allowing Knox to use their bank accounts to disburse the proceeds of his illegal stock sales. The complaint also names as relief defendants two family members of Gastauer and a U.K. entity Gastauer controlled.

In a parallel criminal action, a federal grand jury in the District of Massachusetts indicted Knox on one count of securities fraud and one count of conspiracy to commit securities fraud.

SEC Charges Beverage Company and Former CEO With Fraud

The SEC charged Bebida Beverage Co. and its former CEO and president, Brian Weber, with employing a fraudulent scheme to generate cash for his own benefit and to support Bebida’s failing business operations.

According to the SEC’s complaint, Weber devised and operated a multi-pronged scheme. He created a fictitious convertible note and then, by deceiving Bebida’s transfer agent, had the note converted into common shares that were sold to the public with the proceeds transferred back to Bebida.

Weber also used sham transactions to fraudulently inflate the number of outstanding Bebida shares, which he subsequently retired. Weber then issued false press releases touting the retirement of the shares as a buyback, artificially inflating the company’s share price. Finally, Weber sold other sham convertible debt and altered the checks that he had received as payment so that he could deposit them into bank accounts that he controlled.

The SEC’s complaint seeks permanent injunctions, disgorgement plus prejudgment interest, and civil monetary penalties against the defendants, and, additionally, officer-and-director and penny stock bars against Weber.

Without admitting or denying the SEC’s allegations, Weber consented to the entry of a judgment. The courts entered a final judgment permanently enjoining Weber from similar violations in the future, ordering him to pay $208,000 in disgorgement, $23,436 in prejudgment interest and a $160,000 civil penalty, and imposing a permanent officer-and-director bar and penny stock bar.

— Check out SEC’s Clayton: Advice Standards Package Done by September, ‘if Not Sooner’ on ThinkAdvisor.


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