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SEC target Carrillo consents to permanent ban


2015-09-04 11:54 ET - Street Wire

Also Street Wire (U-*SEC) U S Securities and Exchange Commission
Also Street Wire (U-PBEC) Pacific Blue Energy Corp
Also Street Wire (U-TSHO) Tradeshow Marketing Company Ltd

by Mike Caswell

San Diego securities lawyer Luis Carrillo has consented to a permanent restraining order and penny stock ban for his role in an $11-million pump-and-dump run from Surrey, B.C. (All figures are in U.S. dollars.) He accepted the ban as part of a case he faces from the U.S. Securities and Exchange Commission, which claims he aided a boiler room scheme that touted two pink sheets listings. The SEC says that Mr. Carrillo was a central participant in the scheme, drafting misleading regulatory filings and providing false legal opinions.

Mr. Carrillo's consent comes in a somewhat unusual letter his lawyer wrote to the judge on Wednesday, Sept. 2. The letter states that Mr. Carrillo will accept the permanent ban as well as a restraining order barring future violations. He will also stop defending the case "with regret" and accepts the fact that the SEC may win a default judgment against him. The letter is unusual because such offers are ordinarily part of settlement negotiations, with successful efforts resulting in both sides agreeing on a court order for the judge to accept (and unsuccessful ones resulting in further litigation).

The case against Mr. Carrillo stems from a role he had with a group of Canadians, operating from White Rock and Calgary. The SEC claimed that the group ran boiler rooms that improperly touted a pair of pink sheets companies, Pacific Blue Energy Corp. and Tradeshow Marketing Ltd. Both stocks went to well over $1 before falling under a penny.

The regulator said that Mr. Carrillo and another lawyer, Wade Huettel, provided considerable assistance to the scheme. Under the guise of providing legal services, they drafted false and misleading opinion letters that allowed others to sell millions of shares, the SEC claimed. Those others made $11-million in gains, according to the SEC. Mr. Carrillo and Mr. Huettel also designed a share structure that concealed the vast number of shares that the others held, the SEC said.

Mr. Carrillo previously denied that he did anything wrong, saying he was merely a lawyer performing "transactional work." In a motion to dismiss filed July 22, 2013, he claimed that he sold no shares and received none of the gains from share sales. He said his work amounted to the standard, transactional work that lawyers perform every day.

He also contended that the scheme the SEC complained of was the work of others. Those others were alleged to have masterminded the pump-and-dumps and realized the profits, he claimed. He called the case against him a "radical effort to demonize counsel."

It is not clear what effect, if any, the restraining order and ban would have on Mr. Carrillo's ability to practise law. The California Bar still lists him as an active member with no disciplinary actions. It is possible the SEC could seek to bar him from practising securities law, but the regulator has not yet taken any such measure.

Details of the case are contained in a civil complaint that the SEC filed on March 15, 2013, in the Southern District of New York. The SEC cited a group of men, mostly Canadian, for a scheme that ran from 2007 to 2011. The Canadian defendants were John Kirk, 40, of Surrey; Benjamin Kirk, 34, of Calgary; Dylan Boyle, 34, of Calgary; and James Hinton, 42, of White Rock.

The SEC claimed that the men ran boiler rooms in Calgary and Surrey that touted Pacific Blue and Tradeshow Marketing, mostly in 2010. Employees called between 100 and 200 potential investors daily to tout the stocks, the SEC claimed. According to the complaint, callers provided investors unrealistic information, telling them that Pacific Blue Energy would have $33-million in annual earnings, among other things. The employee training, as described by the SEC, included instructions to watch the movie "Boiler Room" to learn how to promote stocks.

At the same time the men arranged for spam e-mails to tout the stocks, the complaint stated. The e-mails, as described by the SEC, contained unreasonable price targets, in one instance saying Tradeshow could go to over $30 when it was at 70 cents. Meanwhile the Kirks, Mr. Boyle and Mr. Hinton were selling shares of the companies, realizing $11-million in gains, according to the complaint. (During the scheme Pacific Blue Energy went to a $1.36 high, and was last at 0.1 cent. Tradeshow Marketing went to $1.62, and was last at 0.001 cent.)

The SEC is seeking penny stock bans, disgorgement of ill-gotten gains and appropriate fines. In filing the case, the SEC acknowledged the assistance of the B.C. Securities Commission.

Most of the defendants have settled the case out of court, accepting bans and fines. John Kirk agreed to a permanent penny stock ban and a permanent officer and director ban. He also agreed to disgorge profits in an amount that the judge still must determine. He did not admit to any wrongdoing. Mr. Boyle settled on identical terms. Also settling out of court was Mr. Hinton. His settlement has not yet been approved by the SEC, so the details are not yet available.

Benjamin Kirk is still fighting the case. He denies any wrongdoing, and previously called the allegations against him "sparse and vague." For Benjamin Kirk, the SEC's case is only one of his legal problems. In October, 2009, he was criminally charged in Philadelphia for an unrelated broker bribery scheme. He did not appear at his arraignment, and a warrant for his arrest is outstanding.

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