SEC wins $32.3M (U.S.) in fines for Belizean firms
by Mike Caswell
The U.S. Securities and Exchange Commission has won $32.3-million in civil sanctions against a pair of offshore brokerages that were part of a scheme to sell millions of improperly issued shares. (All figures are in U.S. dollars.) The SEC said that the two firms, Clear Water Securities Inc. and Legacy Global Markets SA, unloaded the shares during "aggressive and extensive" promotional campaigns of four Canadian-linked companies. The two firms did not contest the penalties.
The sanctions come as part of a case in which the SEC cited a group of offshore brokerages, including Vancouver-linked Verdmont Capital SA, for their roles in four questionable promotions from 2013. The SEC said that the brokerages sold $75-million worth of shares while campaigns were under way to tout the stocks as active oil and gas or mining issuers. Of the companies, three had links to Surrey, B.C., and the other had a Montreal man as its president.
The penalties for Clear Water and Legacy are contained in a judgment entered on July 31, 2017, in New York. Clear Water must disgorge $11.44-million in gains, plus interest, and pay a $5.08-million fine. Legacy Global must disgorge $11.75-million, plus interest, and pay a $2.29-million fine. Neither firm opposed the penalties (or otherwise appeared in the case).
For the SEC, the sanctions are in addition to a $38.5-million order that it previously won against Verdmont Capital. That firm, which was run by two former Vancouver brokers, initially fought the case, claiming that it was only acting on behalf of clients. It later stopped defending the matter and the judge ordered it to pay the $38.5-million, a small portion of which was satisfied with money in frozen accounts.
(That ruling eclipsed an earlier penalty that the B.C. Securities Commission imposed on Verdmont. The local regulator had accused the firm of allowing B.C. residents to improperly sell $31-million worth of shares over a period of 3-1/2 years. To settle that case, Verdmont agreed to pay $350,000 (Canadian). As part of the deal, Verdmont founders Glynn David Fisher and Taylor Housser escaped any personal liability.)
The other defendants in the case were Caledonian Bank Ltd. and Caledonian Securities Ltd., both of the Cayman Islands. They agreed to pay $25-million to settle the case. Both entities had been in receivership prior to the sanctions.
The fines bring an end to a case that began on Feb. 6, 2015, when the SEC filed a civil complaint in the Southern District of New York against the brokerages. The SEC described the promotions of four stocks, the largest being a purported Chilean copper miner called Swingplane ventures Inc. The stock went to a 90-cent high on Feb. 20,2013, as now-defunct Montreal tout service Awesome Penny Stocks boosted it with spam. Among other things, the spam predicted that Swingplane would hit $7 and called the company the "monster pick of the month." (Six weeks later, the company was trading at six cents.) Meanwhile Legacy and Clear Water sold 122.49 million unregistered shares, the SEC claimed.
The SEC cited a similar sequence of events with Goff Corp., a purported Colombian explorer. It owned a mining project that was supposedly "six times as large" as nearby producers. A tout sheet (named the Penny Stock Pillager) said that investors "could be on the verge of true wealth!" As this nonsense bombarded investors, the stock went to a 58-cent high. At the same time, Caledonian, Clear Water and Legacy Global sold 95.75 million shares, generating $17.9-million in proceeds, according to the SEC. Within weeks the stock had collapsed, falling to a penny on June 4, 2013.
The SEC said little else about the stocks in the case, but it did identify them as having a Vancouver connection. Three were associated with a private entity in Surrey, B.C., named Celtic Consultants. The SEC did not name Celtic as a defendant, but it did say that Celtic was involved in share transfers.
Another name that appeared in the complaint was Luis Carrillo, a Vancouver-linked securities lawyer who worked in San Diego. The SEC said that he held share certificates and sent them by courier on the instructions of others. Mr. Carrillo was not a defendant in the case, but he was the subject of a separate, unrelated civil prosecution by the SEC. The regulator said that he aided a group of Surrey and Calgary men who realized $11-million in a pump-and-dump of two pink sheets companies. Mr. Carrillo received a $6.7-million penalty in that case.
One of the tout services that the SEC identified, Awesome Penny Stocks, was run by Montreal's John Babikian. He was not a defendant, but he was charged in an unrelated scalping case that the SEC filed on March 13, 2014. The regulator accused him of fraudulently touting a Utah coal miner and then selling $1.91-million worth of stock without making proper disclosures. Mr. Babikian later paid $3.73-million to settle the case, without admitting any wrongdoing.