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SEC Works with Canadian Regulator to Halt Scam By Aaron Seward
November 15, 2006

Last week, the SEC and the British Columbia Securities Commission (BCSC) settled fraud and market manipulation charges against British Columbia residents Mervin Fiessel and Robert Doherty.

According to the Commission, the two Canadians acted through an inactive shell company called Greyfield Capital a Canadian used car dealership, called the Autorama, to mislead investors and manipulate the market.

In settling these charges Fiessel and Doherty consented to bars from acting as director or officer of a public company, and penny stock bars. Fiessel also agreed to disgorge $147,486.60 plus $7,634 in prejudgment interest. For his part, Doherty agreed to disgorge $26,125.40, but the SEC waived his obligation to pay $1,626.32 in prejudgment interest after reviewing his sworn Statement of Financial Condition.

In a simultaneous settlement with the BCSC Fiessel agreed to pay an additional monetary sanction of $144,445 Canadian. The BCSC did not impose a monetary sanction on Doherty based on his inability to pay. The Canadian regulator did impose market bans on both of the British Columbia residents.

The settlement comes at a time when the SEC has toughened its policies against microcap securities fraud. Microcap securities are stocks issued by the smallest companies. But it is often difficult to detect wrongdoings in regard to these companies, because many of them do not file financial reports with the SEC.

According to the Commission’s complaint, in the spring of 2005 Fiessel and Doherty misappropriated the company Greyfield Nevada and its trading symbol GRYF by forging a letter of resignation purportedly from the company’s president. Then they reincorporated Greyfield in Oregon as an “automobile marketing” company with Doherty as the president.

Fiessel and Doherty issued hundreds of millions of new shares in Greyfield, distributing them to brokerages across the U.S. The new shares traded over-the-counter and listed in the pink sheets.

The two Canadians also wrote and distributed false marketing materials, distributing press releases through stock promoters and posting them on their website. Those included an announcement about Greyfield’s purchase of the Autorama, which touted the used car lot as “quickly becoming the largest dealership in [western] Canada.” This information misled investors, because Autorama was not even the largest dealership in Kamloops British Columbia and Greyfield neither owned nor contracted to purchase the used car lot.

Furthermore, Fiessel and Doherty misstated the quantity of Greyfield stock available on the market. A statement posted on one investor bulletin board put the number at 65 million, while in fact Doherty had recently instructed Greyfield’s transfer agent to issue 600 million unrestricted shares of the stock.

Between May and July 2005, Fiessel himself sold approximately 76,188,184 shares of Greyfield through three U.S. brokerage accounts, his profits totaling around $112,433. Doherty did not sell any Greyfield stock, but Fiessel paid him $26,125.40 for acting as director of the company and participating in the scheme.

The scheme began to unravel when Greyfield’s original stockholders noticed a surge in the company’s trading volume inconsistent with the number of shares originally outstanding and complained to the SEC. The Commission contacted the BCSC and the Canadian regulator replied with evidence sufficient for the SEC to suspend trading in Greyfield. Currently, the Commission is investigating others involved in the scheme.