U.S. Department of Justice
United States Attorney
District of Nevada
Daniel G. Bogden
United States Attorney
333 Las Vegas Blvd. South
Suite 5000
Las Vegas, NV 89101
Telephone (702) 388-6336
FAX (702) 388-6296
ALLEGES LOCAL MEN PARTICIPATED IN "BOX JOB"
SECURITIES FRAUD SCHEME
LAS VEGAS - - Daniel G. Bogden, United States Attorney for the District of Nevada, Byram Tichenor, Special Agent-in-Charge of Internal Revenue Service-Criminal Investigation (IRS-CI) for Nevada and Utah, and Ellen B. Knowlton, Special Agent-in-Charge of the Federal Bureau of Investigation (FBI) for Nevada, announce that the Grand Jury sitting in U.S. District Court in Las Vegas has returned a 64-count Indictment against five men, three of whom are Las Vegas residents, for allegedly participating in an elaborate corporate and securities fraud operation which netted them millions of dollars. The Indictment, handed up yesterday afternoon, charges 50 counts of Conspiracy, Racketeering, Conspiracy to Defraud the IRS, Securities Fraud, Wire Fraud, Mail Fraud, Money Laundering, Interstate Transportation of Stolen Securities, and False Statements and 14 counts of Forfeiture. The case involves an illegal conspiratorial agreement between the defendants to commit securities fraud and launder the proceeds. The criminal forfeitures of all proceeds of the scheme are estimated to be in excess of $14 million.
The defendants charged in the Indictment are: DANIEL CHAPMAN, age 49, of Las Vegas, Nevada; JAMES FARRELL, age 54, of Sandy, Utah; SEAN FLANAGAN, age 35, of Las Vegas, Nevada; SHAWN HACKMAN, age 35, of Las Vegas, Nevada; and HERBERT JACOBI, age 63, of Dix Hills, New York.
According to the court documents, the defendants are alleged to have facilitated the manufacture of fraudulent shell corporations. These shell corporations were fraudulent because promoters obtained hidden control of the entire supply of a public company's securities creating a a secret monopoly. Control of the shell corporation and its stock was concealed by the use of nominee officers, directors and shareholders, who held their stock in their own names, but were secretly controlled by the promoter. This type of company is known in the securities industry as a "box job," a term that originally referred to the controlling individuals actually having the stock certificates in a box. The securities of that corporation are then registered for sale on public securities markets. Hidden control of a public "boxed" shell company is a very valuable commodity, one that can be sold to unscrupulous individuals who use this hidden control to manipulate the company's stock price. Such fraudulent activities harm not only the purchasers of these stocks, but undermine investor confidence in the integrity of the markets and thwart legitimate capital formation efforts as well.
The indictment announced today is the culmination of a series of investigations dating back to 1994 that centered on the creation and sale of box jobs. To date, these investigations have resulted in the indictment of 20 individuals involved in these schemes, including today's five defendants and Las Vegas resident Peter Berney.
The investigation of Peter Berney uncovered a large group of people led by Berney, who, between 1994 and 1999, created and/or sold more than 60 boxed shell companies for proceeds in excess of $35 million. Corrupt accountants, attorneys, stock transfer agents and others assisted Berney in his scheme. Among these were New York resident HERBERT JACOBI and Las Vegas residents SHAWN HACKMAN, SEAN FLANAGAN and DANIEL CHAPMAN, all attorneys, as well as Salt Lake City resident JAMES FARRELL, a stock transfer agent. Another of Berney's co-conspirators was Las Vegas resident Robert Potter, who was indicted in 2001 for his involvement in Berney's scheme.
In June 1999, Berney fled the United States to avoid criminal charges related to his fraudulent securities scheme. He was indicted in the District of Nevada in August 1999. He left behind the securities of many boxed shell companies he had previously created and sold, as well as several complete boxed shell companies that he had not yet sold. JACOBI, FLANAGAN, CHAPMAN, and Potter then took these securities and boxed shell companies that Berney left behind and sold them for their own benefit. They were assisted in these activities by HACKMAN and FARRELL.
In June 2001, during the investigation of these activities, JACOBI and Potter were arrested and later pleaded guilty to charges that they conspired to steal FBI records pertaining to this investigation.
An arrest warrant has been issued for JAMES FARRELL; Summons have been issued for the other four defendants.
This case is being investigated by Internal Revenue Service-Criminal Investigation and the FBI's Organized Crime Squad, and is being prosecuted by Assistant U.S. Attorney J. Gregory Damm of the U.S. Attorney's Office Organized Crime Strike Force.
The public is reminded that an indictment contains only charges and is not evidence of guilt. The defendants are presumed innocent and are entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.
# # # #
