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SEC Target Wong Loses Motion to Dismiss

2010-02-10 14:34 ET - Street Wire

by Mike Caswell

Jason Wong, the Ontario man facing civil charges for helping to hijack the identities of several public companies, has lost his motion to have the case dismissed on jurisdictional grounds. At a Jan. 29, 2010, appearance before Judge Denise Cote, lawyers for the U.S. Securities and Exchange Commission successfully argued that the New York courts have jurisdiction over Mr. Wong. Judge Cote rejected Mr. Wong's argument that there was no evidence that any U.S. investors were harmed.

With the decision, Mr. Wong, 32, will either have to negotiate a settlement or see the case through to trial. The SEC claims that he and four others filed false paperwork that allowed to them to take control of 43 inactive public companies, which they then sold as shells. One of those shells became Toronto Stock Exchange listing Paramount Gold and Silver Corp., and another became Ricky Smith's former pink sheets company, World Hockey Association Corp.

Wong's motion to dismiss

On Oct. 26, 2009, Mr. Wong filed a motion to dismiss the charges, claiming that the New York federal court did not have jurisdiction over him, as all of the companies that he and the others allegedly hijacked were incorporated in states other than New York. He also claimed that there was no evidence that any U.S. residents held shares in the companies or were harmed by his actions.

He described his role in the scheme as a minor one. He said he was just a computer programmer at Select American Transfer Company (a transfer agent that the SEC claimed was central to the scheme). "My involvement ... consisted entirely of building a software system to process securities transfers. I did not ... participate in any other corporate activities for any of its clients at any time," he argued.

Mr. Wong explained that his name appeared as an officer or director of several of the shell companies named in the SEC's complaint by mistake. He said he reached that conclusion in 2006, long before the SEC's lawsuit, after he received a call from somebody who asked him if he was an officer or director of one of the hijacked companies, LeaseSmart Inc. He told the caller that he did not have any roles with that company. "Because of that phone call, I concluded that my name was being misused by someone or that someone with my same name was out there," he said. Mr. Wong claimed that he subsequently received phone calls from shareholders of companies that he knew nothing about.

SEC's response

The SEC filed a reply to Mr. Wong's motion on Nov. 10, 2009. In it, the regulator said that Mr. Wong had a far greater role that a simple computer programmer at Select American Transfer. He organized and operated the transfer agency, which was incorporated in Delaware and was registered with the SEC, the reply stated.

The reply described how Mr. Wong and the others used Select American Transfer to operate a "complex, secretive, interconnected international securities fraud ring" for at least four years. They found defunct publicly traded companies and stole their identities by making misrepresentations to government agencies and regulators, and illegally issuing new shares in unregistered offerings.

Among other things, Mr. Wong submitted false documents to the Cusip Bureau, located in Manhattan, and he submitted false transfer agent verification forms to the Nasdaq, the SEC claimed. These New York contacts are more than sufficient to support the court's jurisdiction over Mr. Wong, the reply stated.

The reply also listed Mr. Wong's actions in support of the scheme. Among other things, he and the others used aliases as well as false mailbox addresses and telephone numbers to hide their roles in hijacking the companies. These actions, combined with the misrepresentations to the Cusip Bureau and to the Nasdaq, are a "badge of fraud," the reply stated.

The SEC also responded to Mr. Wong's argument that the lawsuit mostly detailed the actions of others, and simply lumped him in with them in a "group pleading." The SEC said this is simply untrue, as the complaint identified at least 22 companies that Mr. Wong and the others hijacked together, complete with a time frame. The complaint also identified him as the recipient and seller of billions of unregistered shares illegally offered by the hijacked companies.

The SEC acknowledged that there are places in the complaint where it does not specify who did what, but this is not surprising, given that the men actively attempted to conceal their roles in the scheme. "Wong cannot now benefit from the concealment and confusion that he caused and created, particularly with respect to information that is within his knowledge and control," the reply read.

SEC's complaint

The SEC filed a complaint against Mr. Wong and four others on Sept. 29, 2009, in the Southern District of New York. The other defendants were Irwin Boock, 52, of Toronto; Stanton B.J. DeFreitas, 33, also of Toronto; Roger L. Shoss, 64, of Houston; and Nicolette D. Loisel, 52, also of Houston. In its complaint, the SEC claimed that Mr. Wong and Mr. Boock filed the paperwork to hijack the shells, while Mr. Shoss and Ms. Loisel, both lawyers, prepared bogus opinion letters that allowed the men to acquire free-trading shares in those companies.

The scheme, as described by the SEC, ran from November, 2003, through June, 2007. During that time, Mr. Wong and Mr. Boock identified suitable hijacking candidates by scanning the pink sheets website for inactive companies that were still quoted, but did not have current contact information or a transfer agent. Once they identified a suitable target, they paid the fees to bring the company up to date in its state of incorporation and represented that they were authorized to revive it, the SEC said. If the company's registration had lapsed, they would incorporate a new company with the same name, and that company would assume the identity of the defunct one.

The two Houston lawyers, Mr. Shoss and Ms. Loisel, then prepared opinion letters authorizing the issuance of hundreds of millions of free-trading shares in the companies, the complaint stated. The letters relied on Rule 504 exemptions, which are normally only available to accredited investors who do not plan to sell the stock. Once the men controlled a company's shares and its corporate identity, they then sold the stock as a shell.

The SEC sought appropriate civil penalties, disgorgement of ill-gotten gains and penny stock bans. It also sought officer and director bans against Mr. Boock and Mr. Wong.

Mr. Wong is the only one of the defendants to have answered the suit. The judge has not yet set a trial date.

Source: http://www.stockwatch.com/newsit/newsit_newsit.aspx?bid=Z-C:*SEC-1687533&symbol=*SEC&news_region=C