Bad Stock Picks

[dragon52]

Maybe closure on CSHC....

Three execs guilty in stock fraud case

Atlanta Business Chronicle
Date: Friday, May 27, 2011, 4:38pm EDT


A fugitive executive with a metro Atlanta firm, an accomplice from the area and another from Michigan were found guilty of running a multi-million-dollar stock ‘pump-and-dump’ scheme.

A jury in federal district court returned guilty verdicts against Rufus Paul Harris, 43, now a fugitive, originally from Adairsville, Ga., and Benjamin Stanley, 48, of Kennesaw, Ga.

A third defendant, Darryl Horton, 50, of Okemos, Mich., pleaded guilty to conspiracy while the jury was deliberating the case.

Harris and Stanley were convicted by the jury on federal charges of securities fraud, wire fraud, and conspiracy in connection with a scheme to defraud investors of the publicly traded company Conversion Solutions Holdings Corp., which has Kennesaw as its headquarters.

According to U.S. Attorney Sally Quillian Yates, the charges and other information presented in court: When the criminal activity began in August 2006, Harris was the founder and CEO of CSHC, Stanley was the co-founder and chief operating officer and Horton was the chief financial officer. The evidence showed the three defendants issued false press releases and financial statements about the company to inflate the stock price, while at the same time they were secretly transferring shares to family members who sold at the inflated prices.

The defendants issued a series of press releases publicly claiming CSHC’s ownership of more than $1 billion in foreign bonds issued by the Republics of Venezuela and Finland. These bonds were, on their face, worth billions of dollars and paid tens of millions in annual interest.

In at least one of the press releases, Harris was quoted saying based on CSHC’s acquisition of such large quantities of sovereign debt: “We are looking at a new justifiable reorganization release price of $25.63 [per share].”

At the time, CSHC shares generally traded at less than $1 a share.

In October 2006, CSHC issued an annual report claiming as much as $800 million in assets, $500 million of which was in the form of foreign sovereign bonds as stated in at least some of the press releases.

Also according to this report and its attachments, CSHC's income included $19,869,792 in interest revenue from those bonds.

According to the evidence presented in court, the three defendants knew these public statements were untrue, and knew that CSHC had little if any assets of any value and did not own the foreign sovereign bonds and other assets that it claimed to have. CSHC also had little if any in the way of revenue or profit from any business activity.

During the weeks that the misrepresentations were being publicly disseminated via press releases and SEC filings, CSHC's stock price on the open market more than tripled. The stock, which was a "penny-stock" trading for less than $1 a share on the Over-The-Counter Bulletin Board in August 2006, appreciated to more than $3 a share in October 2006. During this time, Harris, Stanley and Horton transferred substantial quantities of CSHC stock to family members and others, who sold the stock in the open market at artificially inflated prices of between $2 to $3 per share.

On the first day of the trial, Harris waived his right to an attorney, instead electing to represent himself. Harris had been free on a previous bond and was staying at a local hotel. Investigation by the U.S. Postal Inspectors revealed that on May 23, 2011, at approximately 6:20 p.m., Harris checked out of the motel and exited the parking lot in a dark colored minivan. Harris failed to report to court on May 24 and a warrant for his arrest was issued.

The trial proceeded against all three defendants, in Harris’ absence.

Harris and Stanley could receive a maximum sentence of 25 years in prison and a fine of up to $250,000 for the securities fraud charge, 25 years in prison and a fine of up to $250,000 for the conspiracy charge, and 20 years in prison and a fine of up to $250,000 for each count of the wire fraud charges.

The false certification of a financial statement charge, as to Harris, carries a maximum sentence of 10 years in prison and a fine of up to $1 million.

Horton by virtue of his plea will likely receive the maximum sentence of five years imprisonment for the count to which he pleaded guilty, and also faces a fine of up to $250,000.

Sentencing is scheduled for Aug. 18.

http://www.bizjournals.com/atlanta/news/2011/05/27/three-execs-guilty-in-stock-fraud-case.html?page=all