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SEC target Sheptycki's co-defendants to go on trial

2010-02-18 14:29 ET - Street Wire
by Mike Caswell
http://www.stockwatch.com/newsit/newsit_newsit.aspx?bid=Z-C:*SEC-1689827&symbol=*SEC&news_region=C

The criminal fraud trial for a pump-and-dump that included former Vancouver broker Dean Sheptycki has been scheduled for March 29, 2010. At that trial, prosecutors will argue that Mr. Sheptycki and others touted four pink sheets listings with misleading faxes and e-mails, and dumped millions of dollars in shares. The government is seeking asset forfeitures totalling $39.1-million from the men. (All figures are in U.S. dollars.)

The case has been pending since Feb. 11, 2009, when police in the United States arrested three U.S. men for the scheme and Bahamian police arrested Mr. Sheptycki. Prosecutors charged them with pumping and dumping four stocks from 2004 to 2006. The promotions included National Storm Management Group Inc., a purported construction company the men said was poised for a "massive run up" in the wake of Hurricane Katrina.

While three of Mr. Sheptycki's co-defendants go on trial on March 29, it is not clear when, or if, Mr. Sheptycki will be tried for his role in the case. At the time of his arrest, he was living in the Bahamas, where police took him into custody on the U.S. warrant, intending to extradite him. Initially, he appeared before a Bahamian judge who ordered him jailed, as he represented a flight risk and his permission to live in the Bahamas had expired two weeks prior to his arrest.

Unfortunately for prosecutors, the remainder of his extradition did not go as well. In May, 2009, a magistrate judge in the Bahamas ordered him released because the government had not filed its paperwork on time. In Bahamian extradition proceedings, the Foreign Affairs Minister must file an authority to proceed within 60 days. Since the government did not file such a document, Mr. Sheptycki was allowed to go free. It is not clear where is is now.

Sheptycki's indictment

Prosecutors indicted Mr. Sheptycki and others on Jan. 15, 2009, in the Northern District of Oklahoma. The indictment named his co-defendants as George Gordon and Richard Clark of Oklahoma; Joshua Lankford of Texas; and James Reskin of Kentucky. Prosecutors identified the four stocks the men pumped and dumped as National Storm, Deep Rock Oil and Gas Inc., Global Beverage Solutions Inc. and International Power Group Ltd.

The pump-and-dumps each followed a similar script, according to the indictment. With National Storm, the men took the company public through a reverse takeover with a shell called 18th Letter Inc. The men held a block of National Storm shares that became tradable upon the takeover based on a false opinion letter that Mr. Gordon obtained, prosecutors said.

Mr. Sheptycki's role was sending out the fax and e-mail spams, the indictment stated. Between Aug. 31 and Sept. 15, 2005, he sent out multiple fax and e-mail blasts touting National Storm. The spam came in the two weeks immediately following Hurricane Katrina, the storm that devastated New Orleans. While the indictment did not say exactly what was in the spam, a parallel civil suit filed by the U.S. Securities and Exchange Commission did contain some quotes. One e-mail stated, "Katrina means National Storm (NLST) is poised for a massive run up as demand to repair homes skyrockets." Trading records show that the stock rose from 53 cents to $2.50 in the wake of the spam.

According to the indictment, Mr. Gordon sold $278,815 worth of National Storm shares in the two weeks after the hurricane. He wired $50,000 to Mr. Sheptycki to pay for the faxes and e-mails.

The indictment contained similar allegations for the other companies. In all, the indictment listed share sales totalling $3.03-million during the four pump-and-dumps. Prosecutors said Mr. Sheptycki received $162,500 for sending faxes and e-mails touting the companies. (It is not clear if the $3.03-million figure represented all the share sales, as prosecutors are seeking $39.1-million in disgorgement from the men.)

Prosecutors also claimed that the men hid their roles with the companies during a subsequent investigation launched by the U.S. Securities and Exchange Commission. In a Sept. 20, 2005, interview with the SEC, Mr. Gordon denied knowing about fax blasts that promoted Deep Rock, according to the indictment. In addition, Mr. Clarke testified falsely under oath about selling Deep Rock shares.

The upcoming trial will be for three of the five defendants, Mr. Gordon, Mr. Clark and Mr. Reskin, who have all pleaded not guilty. Warrants remain outstanding against Mr. Sheptycki and Mr. Lankford, who are both fugitives.

SEC case

In addition to the criminal case, Mr. Gordon, Mr. Lankford and Mr. Sheptycki are facing a parallel civil suit filed by the SEC. The regulator claims that they made $20-million dumping National Storm, Deep Rock and Global Beverage. The regulator is seeking permanent penny stock bans, disgorgement of ill-gotten gains and appropriate civil penalties. As with the criminal case, Mr. Sheptycki has not answered or appeared in the SEC case.

http://www.stockwatch.com/newsit/newsit_newsit.aspx?bid=Z-C:*SEC-1689827&symbol=*SEC&news_region=C