Washington, D.C., Dec. 1, 2011 — The Securities and Exchange Commission, U.S. Attorney for the District of Massachusetts, and Federal Bureau of Investigation today announced parallel cases filed in federal court against several corporate officers, lawyers and a stock promoter alleging they used kickbacks and other schemes to trigger investments in various thinly-traded stocks.
The criminal case charged 13 defendants who engaged in criminal activity in the midst of an undercover FBI operation. According to the charges filed in U.S. District Court, the schemes involved secret kickbacks to an investment fund representative in exchange for having the investment fund buy stock in certain companies; 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 criminal defendants include Kelly Black-White and James Prange, both of whom were 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 focusing on preventing fraud in the micro-cap stock markets. Microcap companies are small publicly traded companies whose stock often trades at pennies per share. Fraud in the microcap stock markets is of increasing concern to regulators as such markets have proven to be fertile grounds for fraud and abuse. This is, 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. (FGFB) based in Las Vegas
- Augrid Global Holdings Corp. (AGHD) based in Houston
- ComCam International, Inc. (CMCJ) based in West Chester, Pa.
- MicroHoldings US, Inc. (MCHU) based in Vancouver, Wash.
- Outfront Companies (OTFT) based in Fla.
- Symbollon Corp./Symbollon Pharmaceuticals, Inc. (SYMBA) based in Medfield, Mass.
- ZipGlobal Holdings Inc. (ZIPG) based in Hingham, Mass.
MicroHoldings and ZipGlobal are also charged civilly by the SEC with fraud.
These latest charges follow a series of similar cases filed by the SEC in October 2010 and June 2011 in which 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. Companies that agree to pay illegal kickbacks harm investors and undermine fair competition in the markets,” said United States Attorney Carmen Ortiz. “Hard working Americans who invest their savings should not be subjected to backroom deals like those alleged today.”
“We are committed to working with our law enforcement partners here in Massachusetts and around the country to stop abuses in the microcap sector and hold the perpetrators responsible,” said David Bergers, Director of the SEC’s Boston Regional Office. “Kickbacks and phony consulting agreements have no place in the financial strategies of any public company, and executives who engage in this kind of fraud are just selling out their own investors.”
The following individuals were charged today:
- Kelly Black-White, 51, of Mesa, Ariz. (Operator of Premier Funding, Inc. and Premiere Services, Inc.), charged with wire fraud.
- James Prange, 60, of Greenbush, Wis. (Northern Equity, Inc.), charged with wire fraud.
- Michael Lee, 51, of Hingham, Mass. (CEO of ZipGlobal), charged with mail fraud and conspiracy to commit securities fraud.
- Edward Henderson, 69, of Lincoln, R.I., charged with wire fraud.
- Paul DesJourdy, 50, of Medfield, Mass. (CEO of Symbollon Pharmaceuticals), charged with mail fraud and conspiracy to commit securities fraud.
- James Wheeler, 51, of Camas, Wash. (CEO MicroHoldings, Inc.), charged with mail fraud and conspiracy to commit securities fraud.
- Steve Berman, 49, of Hillsboro, Ohio (CEO of China Wi-Max Communications), charged with mail and wire fraud.
- Richard Kranitz, 68, of Grafton, Wis. (Board Member of China Wi-Max Communications), charged with mail and wire fraud.
- JC Jordan, 60, of Cameron Park, Calif. (CEO of Vida Life International, LTD), charged with mail and wire fraud.
- Karen Person, 61, of Naperville, Ill. (President of Small Business Company, Inc.), charged with mail and wire fraud.
- Albert Reda, 65, of Tustin, Calif. (Treasurer of 1st Global Financial), charged with mail and wire fraud.
- Steve Stuart, 48, of Monrovia, Md. (Major Shareholder in ComCam International, Inc.), charged with mail and wire fraud.
- Muhammad (“M.J.”) Shaheed, 44, of Houston, Texas (CEO of Augrid Global Holdings Corporation), charged with mail and wire fraud.
Today, the SEC also filed civil charges of securities fraud against Desjourdy, Henderson, Lee and Wheeler alleging they defrauded investors through the use of kickbacks in financing transactions.
If convicted, the defendants charged with mail fraud and wire fraud each face up to 20 years in prison, to be 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, the defendants each face up to five years in prison, to be followed by three years of supervised release and a $250,000 fine on each count.
U.S. Attorney Ortiz; SAC DesLauriers; and Director Bergers made the announcement today. The criminal case is being prosecuted by Assistant U.S. Attorneys Vassili Thomadakis and Sarah E. Walters of Ortiz’s Economic Crimes Unit. The SEC’s case was investigated by Michelle Giard Draeger, Ellen Moynihan, and Marty Healey of the Boston Regional Office.