The U.S. government has successfully extradited former Texas stock broker Joshua Lankford from Costa Rica to face criminal charges for the fraudulent promotion of pink sheets listing National Storm Management Inc. He made his first U.S. court appearance on Friday, May 25, during which he pleaded not guilty before Tulsa Judge Frank McCarthy.
Mr. Lankford's return to the U.S. comes over two years after prosecutors charged him and four others for a $41.8-million pump-and-dump scheme in which they touted National Storm and three other companies with misleading faxes and e-mails. (All figures are in U.S. dollars.) His co-defendants include former Calgary broker Dean Sheptycki, who remains a fugitive.
Mr. Lankford, a former broker from Dallas, fled the U.S. after the charges became public, despite having a young family. According to a Financial Times story from March, 2012, he remained a fugitive until the FBI traced him to Costa Rica in 2011. He was arrested by authorities in that country in September, 2011, at the request of the U.S., and was eventually handed over to the U.S. Marshals Service.
At his initial appearance on Friday, the judge ordered Mr. Lankford detained until a preliminary hearing to determine his release pending trial. (Prosecutors have filed a motion opposing any such release, citing a flight risk.) The judge also appointed a public defender to represent Mr. Lankford.
With Mr. Lankford's capture, the only outstanding defendant in the case is Mr. Sheptycki. He was initially arrested on the charges on Feb. 11, 2009, in the Bahamas, where he had been living. The U.S. attempted to have him extradited, but the attempt failed when government lawyers did not file necessary paperwork on time. A Bahamian judge then threw out the extradition case and released Mr. Sheptycki. It is not clear where he is now.
Two others indicted in the case are already in jail. These include Oklahoma lawyer George David Gordon, who is serving a 15-year sentence at the Federal Correctional Institution Texarkana, a low-security jail in Texas. He and another defendant, Oklahoma resident Richard Clark, were convicted after a jury trial in April, 2010. Mr. Clark received 12 years in jail. Both men are appealing.
Pump-and-dump charges
The charges against the men are best described in a parallel civil complaint that the U.S. Securities and Exchange Commission filed against them on Feb. 10, 2009, in the Northern District of Oklahoma. The complaint identified Mr. Lankford as the former vice-president of Dallas brokerage Barron Moore, from which he resigned in the fall of 2005. The SEC said he aided the scheme by carrying out a series of manipulative trades that boosted National Storm and other companies the men manipulated.
The National Storm promotion took place almost immediately after hurricane Katrina, the storm that devastated New Orleans in September, 2005. The men promoted the company as a storm reconstruction outfit. According to the SEC, Mr. Gordon and Mr. Lankford had used fraudulent opinion letters to remove the restrictions on millions of shares ahead of the promotion. They then hired Mr. Sheptycki to send out mass faxes and e-mails touting the stock.
The faxes and e-mails stated that the company "is posed for a massive run up as demand to repair homes skyrockets." The stock went from 50 cents to a $2.80 high. (It was last at 0.02 cent.)
As the promotional materials went out, Mr. Gordon and Mr. Lankford were able to manipulate the company using their control over the vast majority of its shares, while gradually liquidating their holdings. "To ensure that the market price remained artificially elevated, Gordon and Lankford coordinated their trading so as to not dump too much stock into the market during the promotions and provided buy-side support when there were too many other retail investors selling stock," the complaint read.
The other pump-and-dumps that the SEC accused the men of orchestrating were those of Deep Rock Oil and Gas Inc. and Global Beverage Solutions Inc. The men promoted Deep Rock as an oil and gas producer and Global Beverage as a "business development company." Potential investors received spam and glossy magazine-like publications predicting substantial price increases for the stocks. Deep Rock went from 12 cents to $1.13 during the promotion (and was last at 0.05 cent).
The SEC sought orders permanently barring the men from penny stocks. It also sought disgorgement of ill-gotten gains and civil penalties.
Unlike prosecutors in the criminal matter, SEC lawyers were able to proceed against all the defendants, even those who ignored the case. This resulted in a $94.3-million penalty for Mr. Lankford and a $98.7-million penalty for Mr. Sheptycki. Both were default judgments, which means the men did not answer the case despite being deemed to have received notice of it. Unlike the others, Mr. Gordon contested the SEC charges, but still received a $50-million (U.S.) penalty.
Prior to his trouble in the U.S., Mr. Sheptycki worked at the Calgary branch of C.M. Oliver & Company Ltd. His brokerage career ended in 1998, when the Alberta Securities Commission sanctioned him for unauthorized trading. The ASC said he used a client's account to buy $95,472 worth of shares in Timbuktu Gold Corp., an Alberta Stock Exchange listing. The transaction left the client with a debt that was beyond his means. The ASC suspended Mr. Sheptycki for 18 months, and he never returned to the brokerage industry.
News 
Market Data 
Discover 
