A Colorado registered stock transfer agent and a California securities attorney were charged with conspiracy to unlawfully sell unregistered securities in connection with a scheme to fraudulently register shell companies with the U.S. Securities and Exchange Commission (SEC), issue a class of free-trading shares in the companies that the conspirators secretly controlled, and sell the shares to the investing public at a profit. To date, twelve defendants have been charged in connection with the Shell Factory Fraud investigation.
Randy A. Hummel, Executive Assistant United States Attorney, U.S. Attorney’s Office for the Southern District of Florida, Andrew W. Vale, Assistant Director in Charge, Federal Bureau of Investigation (FBI), Washington Field Office, and Robert F. Lasky, Special Agent in Charge, FBI Miami Field Office, made the announcement.
John Ahearn, 56, of Erie, Colorado and formerly of Miller Place, New York, and Andrew H. Wilson, 69, of Nevada City, California, were charged by criminal information with one count of conspiracy to unlawfully sell unregistered securities, in violation of Title 15, United States Code, Sections 77e(a)(1), 77e(a)(2), and 77x, and Title 17, Code of Federal Regulations, Section 230.144, all in violation of 18 U.S.C. § 371, in Case No. 17-20883-CR-KMW. The case is assigned to U.S. District Judge Kathleen M. Williams in Miami. Each defendant faces a maximum statutory sentence of five years in prison and a fine up to $250,000 or double the proceeds of the offense.
Ten defendants were previously charged in connection with the Shell Factory Fraud investigation: James Schneider, Case No. 17-20712-CR-FAM; Myron Gushlak and Yelena Furman, Case No. 17-20713-CMA; David Lubin, Case No. 17-20508-CR-MGC; Sheldon Rose and Ian Kass, Case No. 16-20706-CR-JEM; Steven Sanders and Alvin Mirman, Case No. 16-20572-CR-CMA; and Daniel McKelvey and Jeffrey Lamson, Case No. 16-20546-CR-RNS.
According to court documents, from early 2007 through at least 2014, Sanders, McKelvey, Lubin and other conspirators would fraudulently create public companies, known as issuers, by filing documents with the SEC that falsely described the the companies and their share ownership. These documents would indicate that the companies were controlled by a nominee, or straw chief executive officer (CEO). The straw CEO would be listed as the owner of the control block, or restricted shares, but in reality the companies were controlled by the principals. The principals would also create documents with the names of various shareholders for each company, to make it appear that these shares were owned by persons unaffiliated with the company. These shares would later be classified as unrestricted or “free trading.” Thereafter, the principals would sell the companies to criminal actors who would secretly obtain the control shares and the purported “free trading” shares, without disclosure to the SEC or the investing public. This would allow the buyers to engage in stock manipulation schemes using the purported “free trading” shares. According to the information, Ahearn and Wilson, both securities industry professionals, joined in the conspiracy in order to unlawfully obtain fees and future business from the issuers.
According to the information, Ahearn was the owner of Manhattan Transfer Registrar Co. (“Manhattan Transfer”), a stock transfer agent with offices in New York and Colorado. Ahearn specialized in penny stock transfer services, and was responsible for keeping track of the status of shares (restricted or free trading) as well as share ownership. Ahearn and Manhattan Transfer became the stock transfer agent for Entertainment Art, Inc. (“EERT”) in 2008, and became aware that the shares were listed in the names of straw shareholders but were in fact controlled by the principals. During the conspiracy, according to the information, Ahearn agreed to assist Sanders, McKelvey and Lubin with transferring the shares of issuers they controlled, knowing that these shares were unlawfully classified as unrestricted. By 2012, EERT was secretly controlled by Myron Gushlak, who was serving a federal prison sentence for a separate pump and dump scheme. In approximately October 2012, Ahearn assisted with the unlawful transfer of the EERT shares to certain shell buyers, who changed the name to Biozoom, Inc. (“BIZM”) and, in May 2013, used the BIZM shares for a massive pump and dump stock swindle. Ahearn assisted Sanders and McKelvey with stock transfer services with other issuers as well, for shares that Ahearn knew were secretly controlled by Sanders and McKelvey but were listed in the names of various nominee shareholders.
Wilson, according to the information, was an attorney licensed to practice law in California who authored false and fraudulent legal opinion letters for EERT, as well as certain other issuers at the request of Sanders and McKelvey. These letters falsely stated that shares of the companies were owned by persons who were not “affiliates,” and were used by persons who acquired the shares to deposit them with brokers and unlawfully them to the investing public. In reality, Wilson took his direction from Sanders and McKelvey, whom Wilson came to learn secretly controlled the companies. In certain instances, Wilson performed so-called escrow services for the sale of shares, knowing that these share sales were part of the unlawful sale of all or nearly all of the shares of the companies but without the required disclosure to the SEC and the investing public. The actions of Ahearn and Wilson, along with their conspirators, allowed the shares of the companies to be utilized for pump and dump stock swindles or other manipulation schemes.
Mr. Hummel commended the investigative efforts and coordination of the FBI’s Washington Field Office and Miami Field Office. Mr. Hummel also thanked the SEC’s Miami Regional Office and Washington Home Office for their assistance. The SEC previously filed parallel civil enforcement actions against McKelvey, Sanders, Mirman, Rose, Kass, Lubin, Schneider, Lamson and Wilson. This matter is being prosecuted by Assistant U.S. Attorney Jerrob Duffy.
An criminal information merely contains allegations and a defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.
Related court documents and information may be found on the website of the District Court for the Southern District of Florida at www.flsd.uscourts.gov or on http://pacer.flsd.uscourts.gov.