SEC Charges Five With Dozens of Fraudulent Corporate Hijackings and Unregistered Offerings of Securities and Names Two Relief Defendants
Litigation Release No. 21243 / October 8, 2009
SEC v. Irwin Boock, Stanton B. J. DeFreitas, Nicolette D. Loisel, Roger L. Shoss, and Jason C. Wong, Birte Boock, and 1621566 Ontario, Inc., Civil Action No. 09 CV 8261 (S.D.N.Y) (DLC)
SEC Charges Five With Dozens of Fraudulent Corporate Hijackings and Unregistered Offerings of Securities and Names Two Relief Defendants
On September 29, 2009, the United States Securities and Exchange Commission filed a civil injunctive action against Irwin Boock, Stanton B. J. DeFreitas, and Jason C. Wong, all of Ontario, Canada, and two Houston-based attorneys, Roger L. Shoss and Nicolette D. Loisel, charging them with having violated the antifraud and registration provisions of the federal securities laws by effecting dozens of corporate hijackings and making unregistered offerings and sales of shares. The complaint also names as relief defendants Boock's wife, Birte Boock, and a company of which she allegedly was the sole officer and director during the relevant period, 1621566 Ontario, Inc.
The Commission's complaint alleges that the hijackings were effected by identifying inactive or defunct publicly-traded corporations which were no longer operating and either illicitly revivifying the corporations by falsely representing that the defendants were duly authorized officers, directors, or agents of the corporations or by incorporating new corporations using the names of the void corporation. Once an inactive corporation was revivified or a new corporation formed, the complaint alleges that the defendants immediately effected a name change in the corporation and requested from third parties responsible for assigning unique identifiers to each class of securities issued by a publicly-traded corporation a new identifying number known as a CUSIP number and ticker symbol. According to the complaint, these identifiers were obtained by falsely representing that the companies seeking new CUSIPs and ticker symbols were the same companies to which CUSIP numbers and ticker symbols had previously been issued and that the name changes triggering the need for new identifiers were duly authorized corporate actions.
The complaint alleges that Boock recruited Shoss and Loisel in late 2003 to handle the paperwork required to effect hijackings, including submitting false documentation to Secretaries of State, the Standard & Poor's CUSIP Service Bureau, transfer agents, and Nasdaq Corporate Data Operations which, during the relevant period, processed requests for ticker symbols. The complaint further alleges that from November 2003 through March 2006, Boock, Shoss, and Loisel effected at least 22 corporate hijackings. From November 2003 through June 2007, Boock, Wong, and DeFreitas allegedly effected at least another 21 corporate hijackings.
With respect to at least 19 of those corporations hijacked with Shoss and Loisel's involvement, the complaint alleges that Shoss and Loisel were tasked to provide 28 opinion letters falsely representing that offerings of approximately 223 million shares were exempt from the registration requirements of the federal securities laws. The complaint alleges that Boock dispensed with the need for obtaining legal opinion letters concerning the issuance of shares by the 21 hijacking corporations involving Wong and DeFreitas by incorporating his own transfer agency, Select American Transfer Company, which Wong and DeFreitas operated. With respect to these 21 companies, the complaint further alleges that the three men effected the unregistered offerings of up to seven billion shares.
The complaint also alleges that DeFreitas effected unregistered sales in the securities of at least 30 of the hijacked or hijacking entities, generating at least $2.2 million in illicit proceeds. Boock allegedly effected unregistered sales of securities in at least five of the hijacked or hijacking entities, generating at least $267,625 in illicit proceeds. Wong allegedly effected unregistered sales of securities in at least 11 of the hijacked or hijacking entities.
The complaint alleges that each of the defendant received illicit proceeds in the form of remuneration for services, proceeds from the sale of the shell companies to buyers, and/or from the sale of shares in purported private placements or into the secondary market.
Based on the foregoing, the Commission's complaint alleges that the five defendants violated Sections 5(a) and (c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint further alleges that Boock violated a penny stock bar instituted against him in 2002 in a settled administrative proceeding (see In the Matter of Birte Boock and Irwin Boock, Admin. Proc. File No. 3-10960 (Ex. Act Rel. No. 46952)), thereby violating Exchange Act Section 15(b)(6)(B)(i). With respect to each of the five defendants, the Commission is seeking a permanent injunction, a judicial penny stock bar, disgorgement with prejudgment interest, and civil penalties. The Commission is also seeking officer and director bars against Boock and Wong.
On September 23, 2009, the Commission issued an order suspending trading in the securities of 17 of the above-mentioned issuers pursuant to Exchange Act Section 12(k). See Ex. Act Rel. No. 60707. The Commission previously instituted a trading suspension on March 13, 2008 with respect 26 issuers, 11 of which are identified in the Commission's complaint as having been newly incorporated by Boock, Shoss and Loisel and used in the scheme. See Release No. 57486 (March 13, 2008).
Any person with information relating to this matter should contact John Polise, Assistant Director, Division of Enforcement of the Securities and Exchange Commission by calling 202-551-4600 or by sending an email to ENFemail@example.com.
The Commission acknowledges the assistance and cooperation of the Royal Canadian Mounted Police, the Ontario Securities Commission, the U.S. Attorney's Office for the Middle District of Florida in Tampa, the U.S. Attorney's Office for the District of New Jersey in Newark, the Newark and Tampa Field Offices of the U.S. Secret Service, U.S. Immigration and Customs Enforcement (ICE), and the Financial Industry Regulatory Authority (FINRA).
Old ibox for future reference:
A nice refresher as to what happened here
OSC sets hearing date for nexus of pink sheets players
2007-05-31 20:34 ET - Street Wire
Also Street Wire (U-BHUB) BigHub.com Inc
by Lee M. Webb
The Ontario Securities Commission (OSC) has issued a notice of hearing against Toronto-based transfer agent Select American Transfer Co., six allegedly associated individuals and 10 companies traded on the wild, wooly and largely unregulated U.S. pink sheets. The Ontario regulator has penciled in a hearing date of June 1.
Among the individual respondents named in the OSC action are Amy Giles, Nathan Rogers, David Watson and Jason Wong, identified as principals or former principals of Select American.
The regulator also identifies Kervin Findlay and John Sparrow as participants in the allegedly fraudulent scheme involving a number of previously dormant or inactive pink sheet companies that might be the victims of a relatively new scam, corporate identity theft.
The companies named in the OSC proceeding include The Bighub.Com Inc., Advanced Growing Systems Inc., LeaseSmart Inc., Cambridge Resources Corp., NutriOne Corp., International Energy Ltd., Universal Seismic Associates Inc., Pocketop Corp., Asia Telecom Ltd. and Pharm Control Ltd.
The notice of hearing comes in the wake of temporary orders effectively cease trading the respondents that were issued by the OSC on May 18 and May 22.
Given Canada's patchwork of provincial securities regulators, of course, the OSC's temporary orders only carry any weight in Ontario and trading in most of the named securities continues largely unabated on the mighty pinks.
According to the OSC allegations, the corporate identities of the 10 pink sheet companies were assumed with the help of Select American, its principals, former principals and others including Mr. Findlay and Mr. Sparrow.
The regulator says that Select American, "acting as the transfer agent to these companies, may have issued false certificates for trading in securities of these issuers" on the pink sheets.
The OSC further claims that it appears that Select American and the individual respondents may have breached Ontario securities law and engaged in "acts, practices or courses of conduct" that "resulted in or contributed to a misleading appearance of trading activity in, or an artificial price for, the securities."
As noted above, alleged security fraud involving corporate identity theft is a relatively new scam to hit the scandal-plagued pink sheets.
In its temporary orders and subsequent notice of hearing, the OSC provides nothing in the way of details regarding the mechanics of the alleged scheme involving Select American and the associated respondents.
In fact, apart from vaguely claiming that the 10 named companies "assumed the corporate identities of dormant or inactive companies" previously quoted for trading on the pink sheets, the regulator does not even offer a general account of how the scam allegedly worked.
Stockwatch's early review of the scheme, however, indicates that, in at least some cases, the allegedly fraudulent activity may have turned in part on the filing of incorporation documents and subsequent amendments to those documents in states such as Florida and Nevada, which are popular jurisdictions for pink sheet and OTC Bulletin Board promotions.
Stockwatch will continue its examination of the alleged scheme in future articles, but will open with a review of BigHub, which appears to be a major spoke in the OSC identity theft probe.
While the OSC's temporary orders and notice of hearing are short on details regarding the allegedly fraudulent scheme, it seems likely that recent shenanigans involving BigHub.com and Select American played a significant role in precipitating the regulatory action.
BigHub's colourful corporate history, which undoubtedly deserves a more extensive review than can be offered in this opening article, traces back to February of 1995 when it was incorporated in Florida as Coordinated Health Care Inc.
After a money-losing stint as a physician management outfit that operated medical clinics in Florida, the company gravitated to the Internet and amended its articles of incorporation to reflect a name change to iSleuth.com in July of 1998.
In April of 1999, the company changed its name again, settling on BigHub and catching the tail end of the Internet bubble as an OTC-BB promotion.
Along the way, BigHub hooked up with touted venture capitalist and self-described "deal pimp" Sanjay Sabnani, who helped promote a number of Internet players.
(Readers may recall one of Mr. Sabnani's subsequent stints as the U.S. investors relations representative for Imagis Technologies Inc., a ballyhooed Vancouver-based biometric outfit with a large OTC-BB following that imploded amid Stockwatch's extensive coverage of the overblown promotion beginning in early 2002.)
In any event, after the switch from iSleuth to BigHub, the fluffy OTC-BB promotion ramped up in early 1999. In May of that year, the stock hit its all-time high of $15.50 per share before quickly going into a nosedive. (All amounts are in U.S. dollars.)
Coincidentally, and perhaps of at least some passing interest, BigHub and its predecessor iSleuth were touted on an Internet site reportedly owned by Meir Lehmann and Alain Chalem, a pair of stock promoters with some regulatory baggage and purported ties to the Mob.
In October of 1999, 41-year-old Mr. Chalem and 37-year-old Mr. Lehmann met with a rather grisly death in a mansion in Colts Neck, N.J., apparently victims of a Mob-style execution.
Mr. Chalem was shot in the eyes, ears and mouth while Mr. Lehman was reportedly shot several times in the back of the head. The murders remain unsolved.
By May of 2000, just a year into the promotion, BigHub was struggling to stay above $1 per share and before the year was out shares were changing hands for just a few pennies.
On Sept. 22, 2000, Florida's Division of Corporations administratively dissolved BigHub for failing to file its annual report with the state.
On Jan. 26, 2001, BigHub filed a notice with the U.S. Securities and Exchange Commission (SEC) advising that its annual report for the year ending Oct. 31, 2000, would be late.
That notice marked the company's last SEC filing, and the annual report with the necessary audited financial statements never materialized.
By the end of 2001, BigHub was just another subpenny Internet promotional bust that went on to eke out a few trades at tenths of a cent on the pink sheets.
On July 8, 2005, more than five years after BigHub had issued its last news release and just shy of five years after the company was administratively dissolved, OSC target Mr. Wong filed incorporation documents for a new BigHub.com in Florida.
Another respondent in the OSC action, Mr. Sparrow, was identified as the only director of the allegedly bogus incarnation of BigHub.
On Oct. 21, 2005, Mr. Sparrow's doppelganger BigHub issued its only news release, announcing preparations for the launch of an online automobile auction site and planned diversification into related services such as vehicle financing.
Nothing came of the planned website and, at least in the early days, relatively little came of the planned promotion.
While the trading volume increased somewhat through the end of November and into December of 2005, with a few million shares changing hands on some days, the price dropped from tenths of a penny to hundredths of a penny.
The relatively modest interest in BigHub waned in early 2006, with only a few thousand shares changing hands on some days through the first few months of the year. In fact, on several days no trades at all were registered.
As will be discussed in more detail in a future article, the allegedly bogus BigHub's articles of incorporation were amended in March of 2006 to reflect a name change to a completely different corporate identity.
In June of 2006, the trading volume increased dramatically, with tens of millions of shares regularly changing hands at one-100th of a penny. Before the year was out, BigHub notched several days when more than 100 million subpenny shares traded.
The trading volume tailed off somewhat in January and February of this year, then exploded in March.
On March 8, BigHub recorded a whopping volume of more than 1.3 billion shares and went on to tally a monthly trading total of more than 7.3 billion shares.
Evidently the remarkable March trading volume rather belatedly caught the attention of an early original BigHub stakeholder, Yucatan Holding Company.
On March 28, Darrell Peterson of Yucatan Holding, which was identified as "holder of the majority of shares to be received pursuant to a certain Voting Agreement and Irrevocable Trust dated April 1999," reported that the company was concerned about the trading activity inasmuch as it seemed "to be excessive considering the current share structure."
Some Internet followers of the unfolding brouhaha interpreted that news release to mean that Yucatan Holding was actually the majority shareholder of BigHub. However, there is no evidence to suggest that is the case.
According to a Nov. 17, 2000, SEC filing, the voting agreement and irrevocable trust mentioned in the March 28 news release originally covered approximately 1.9 million BigHub shares owned by Yucatan Holding and another aggregate 125,000 shares owned by two individuals.
Under the terms of the agreement executed with iSleuth player Robert McNulty, well known to securities regulators, Yucatan Holding and the two smaller shareholders, collectively known as the Yucatan Group, granted Mr. McNulty a proxy to vote their shares for a period of three years.
In return for the proxy covering approximately 2.1 million shares, the Yucatan Group obtained a guarantee that the shares would have a minimum value of $6-million.
In the event the aggregate value of the shares, taking into consideration the gross proceeds of any shares sold and the market value of the remaining shares, fell below $6-million after two years, the company was supposed to make up the difference by issuing additional shares to Yucatan Holding and the two smaller shareholders.
If Yucatan Holding had held on to the approximately 1.9 million shares originally covered by the agreement, it would have been entitled to another 938 million shares based on the formula for calculating the minimum guaranteed value of $6-million, given that BigHub was trading at six-10ths of a cent in April of 2001.
It is not clear what became of the voting agreement and irrevocable proxy or, for that matter, the peculiar minimum valuation guarantee. However, there is nothing to indicate that BigHub ever issued shares to Yucatan Holding pursuant to the $6-million minimum valuation guarantee.
In any event, on April 2 of this year, Jayme Dorrough, Yucatan Holding's signatory to the peculiar eight-year-old voting agreement with Mr. McNulty, was appointed to BigHub's board of directors.
At the same time, Mr. Peterson assumed the role of interim president of BigHub. Given that the "real" BigHub was administratively dissolved in 2000, the legal basis for these appointments is far from clear.
On April 5, Mr. Peterson reported that the company had filed the previously delinquent annual reports required by Florida. The administrative dissolution of the original BigHub was reversed on April 6.
Within a few days of those developments, a dispute with the doppelganger BigHub's transfer agent spilled into the open.
Select American spat
On April 10, BigHub's interim president Mr. Peterson announced that Select American had advised the company that there were more than 1.58 billion shares issued, a staggering increase over the approximately 21.6 million shares reported in one of the company's last SEC filings in 2000.
According to Mr. Peterson, that figure exceeded the number of shares the company was legally authorized to issue by more than 1.53 billion shares.
Moreover, Mr. Peterson claimed that it represented approximately 1.56 billion shares more than indicated by BigHub's corporate records.
Adding another wrinkle to the imbroglio, Mr. Peterson went on to suggest that the excess shares were actually connected to a Delaware corporation unaffiliated with the real BigHub.
In fact, yet another BigHub had been incorporated in Delaware in 1999, but had been delinquent with its annual reports since 2001.
It appears that the Delaware BigHub had a brief revival in August of 2006, but its resident agent resigned in November of last year and its corporate status was forfeited on Dec. 17, 2006.
It is still not clear what role, if any, the Delaware doppelganger played in the BigHub morass.
In any case, Mr. Peterson reported that BigHub intended to hire lawyers in Florida and Toronto to have the unregistered shares issued by Select American between Sept. 8, 2005, and Oct. 25, 2006, cancelled and action taken against the parties who received the shares.
The interim president went on to say that BigHub would be seeking damages of more than $6.6-million in connection with the share issuances.
On April 11, Toronto-based Select American fired back with its own press release, claiming that BigHub's news release was false or misleading.
According to Mr. Rogers, then president of Select American and now a respondent in the OSC action, his company had resigned as BigHub's transfer agent "months ago."
Mr. Rogers said that the information that Select American had recently provided to BigHub "was unverified and required further review and verification before making such information public."
OSC target Mr. Rogers went on to say that Select American wanted to set the record straight "as such misinformation could harm our reputation and it could force us to seek damages from those who maliciously harm our corporate name and image."
With that, the battle heated up.
On the heels of Mr. Rogers's news release, Mr. Peterson followed up with his own April 11 release disputing many of Select American's claims and publicly lamenting that the transfer agent's leader had not returned a March 28 call.
Among other things, Mr. Peterson said that Select American's shareholder activity list showed that shares had been issued to Cede & Co. as late as March 20, which seemed to contradict the transfer agent's claim that it had resigned months ago.
BigHub's interim president went on to claim that, based on information provided by Select American, more than 1.5 billion unregistered shares had been issued to 30 individuals and entities in Toronto.
Mr. Peterson added that the records showed that Select American had also issued 10 million unregistered and free trading shares to Mr. Sparrow.
"It appears that Select is trying to cover-up misdeeds in the issuance of shares," Mr. Peterson claimed.
"The current management and directors of the company will continue to state the facts as received and to bring full disclosure to the investors and shareholders of the company as soon as possible," BigHub's interim president said in closing out his April 11 news release.
The following day, Select American's Mr. Rogers let loose another salvo.
According to the April 12 blast, Select American did not provide BigHub with a certified shareholders list, but a preliminary list that required further review had been forwarded to the interim management of the company "as a courtesy."
Mr. Rogers insisted that Select American had resigned as transfer agent months earlier and, at the same time, sent the transfer records back to the company.
"Select American Transfer Co. only issues shares after receiving DIRECT INSTRUCTIONS from company officers and or directors and the The BigHub.com Inc. was no exception," Mr. Rogers proclaimed. "All shares have been issued after receipt of written instructions from previous management."
Select American's leader went on to hint at the possibility that Mr. Peterson had improperly usurped control of BigHub.
"To the best of our knowledge, US tax legislation and or regulation clearly defines a time period for a person and or entity to convert outstanding debt into shares," Mr. Rogers remarked. "We believe that the interim management has lost its right to do so if this is their approach in assuming control over The BigHub.com Inc."
Select American went on to deliver a few more shots at BigHub's new management.
"It is our belief that the interim management is attempting to manipulate share price through its actions at the expense of a former Transfer Agent," the April 12 news release continued. "We hope this assertion will draw the necessary attention of all shareholders as such actions can harm them as well."
Mr. Rogers closed out the news release with a final volley.
"Mr. Peterson has not been called back by me personally because he has already misused and manipulated unverified information given by our staff to him in good faith," Mr. Rogers remarked. "His PR's clearly demonstrate an attempt to distort the facts in order to mislead BHUB shareholders and manipulate share price.
"We are not going to waste any more time or resources with this matter but we are so disturbed by his actions that we will contact the SEC through our attorneys to let them know about his actions."
As BigHub and Select American were blasting away at each other, the Depository Trust Company (DTC), the U.S. behemoth with subsidiaries that provide essential market services such as clearing, lumbered into action.
On April 11, the DTC issued a notice that it was suspending all services with the exception of custody services for BigHub and warned its participants "to take whatever precautions are necessary to protect themselves and their customers."
That effectively brought an end to trading in BigHub shares, but the National Association of Securities Dealers (NASD) followed up with its own trading halt on April 12.
While the trading at least temporarily stopped on April 11, the BigHub drama continued.
On April 13, Yucatan Holdings announced that it had brokered a deal in principle between BigHub and Techlabs Inc., a company then trading on the OTC-BB.
Under the peculiar "deal in principle," Techlabs planned to "forward split its shares one hundred to one and to tender for all unregistered shares issued to investors of BHUB on a one for one basis."
"Techlabs Inc. plans to assume the rights and privileges of the shares and intends to pursue all available legal remedies, with The BigHub.com Inc., against unnamed parties that were in receipt or responsible for the issuance of the unregistered shares attached to BHUB," the April 13 news release advised.
Just why any company would want to acquire more than 1.5 billion shares that were allegedly issued improperly remains a mystery. In any event, that proposed deal may have collapsed.
Techlabs was subsequently booted down to the pink sheets for failing to file timely reports with the SEC.
On May 16, Techlabs announced a 10-for-1 forward split of its stock, but no mention of any deal with BigHub has been made since April 13.
Meanwhile, on April 18, BigHub reported that it had received a position report from the DTC "confirming the 'uncertified' share position" provided by Select American.
"Any illusion created by Select by virtue of their previous press releases that we were misleading or false in our reporting to shareholders should now be put to rest," Mr. Peterson remarked.
BigHub's interim president went on to say that the company was working quickly to file actions against parties believed to have acted in a reckless and illegal manner to the detriment of the corporation and its shareholders.
"Based on the information received and investigated by the Company we are proceeding with our goal to file an action in Federal Court against all parties involved in the scheme," Mr. Peterson declared.
Intriguingly, a spreadsheet of shares purportedly issued by Select American has been posted to Investors Hub, a popular Internet stock discussion site, by a poster who has been closely following the controversy.
According to the rather detailed information, which includes the amount of shares issued, dates of issuance, as well as names and addresses, hundreds of millions of shares were issued to Ontario residents.
BigHub shares appear to have been quite popular among people with Russian or eastern European surnames living in Vauhan and Richmond Hill, Ont., who account for several hundred million shares. Interestingly, a surprising number of those share issuances to several individuals with different surnames are recorded under a single address.
In another development, on May 7, Select American announced the "corporate restructure of its ownership and executive management following recent allegations involving a former client of the firm."
Select American was reportedly acquired by FJ Consultants Inc., a company owned by Jacqueline Rossel.
Ms. Rossel has taken on the role of president and Mr. Rogers has resigned from all offices at the transfer agent.
According to Ms. Rossel, Select American is changing its name to Fairross Stock Transfer and relocating its offices to the TD Canada Trust Tower in Toronto.
It remains to be seen just how all that will play out.
It also remains to be seen exactly what will come of the OSC action and whether it will shed any light on muddles such as BigHub.
Stockwatch will pick up its review of other corporate respondents and associated players in future articles.
Apart from 10,000 shares that apparently managed to squeak through at one-100th of a penny on April 26, BigHub last traded on April 11 when more than 948 million shares changed hands as the stock closed at 26-100ths of a cent.
Comments regarding this article may be sent to firstname.lastname@example.org.
Reader Comments - Comments are open and unmoderated, although libelous remarks may be deleted. Opinions expressed do not necessarily reflect the views of Stockwatch.
Regarding Fairross Stock Transfer; Why does the SEC have no record of any FORM TA-1 filings, and regarding Select Transfer, they were out of compliance regarding their annual FORM TA-2 filings, and they filed no Form TA-W to withdraw from being a transfer agent, and to name Fairross as a successor transfer agent.
TA-1 Uniform form for registration as a transfer agent and for amendment to registration SEC1528 12/2006 http://www.sec.gov/about/forms/formta-1.pdf --------------------------------------------------------------------------------
TA-2 Form for reporting activities of transfer agents SEC2113 12/2006 http://www.sec.gov/about/forms/formta-2.pdf --------------------------------------------------------------------------------
TA-W Notice of withdrawal from registration as transfer agent SEC1669 12/2006 http://www.sec.gov/about/forms/formta-w.pdf
Posted by Art Gecko @ 2007-06-01 06:14
Message boards following the Select American saga and related companies:
Select American Transfer http://www.investorshub.com/boards/board.asp?board_id=8969
Posted by Art Gecko @ 2007-06-01 06:23