24. From 2006 to 2013, Husain and Jaclin ran a shell factory where they manufactured nine shell companies, subsequently selling seven of them in fraudulent unregistered public offerings.
25. The factory included a typical pattern of conduct repeated by Husain and Jaclin for each shell company, as alleged below. ...
2. The Sham Private Offerings
39. After incorporating the shell company, Husain organized a private offering of the shell company’s stock to approximately 35 Straw Shareholders.
40. Jaclin’s law firm prepared a private placement memorandum, based on a business plan provided by Husain.
41. The private offerings were shams because Husain gave the Straw Shareholders cash to buy the stock, and, in some instances used the names and social security numbers of deceased individuals as the purported investors.
42. Husain enlisted several acquaintances to recruit Straw Shareholders, paying the recruiters a commission of between $200 to $400 for each investor they obtained.
43. The Straw Shareholders used Husain’s cash either to write a personal check or to obtain a cashier’s check payable to the shell company. Some Straw Shareholders paid with money orders from retail outlets such as CVS or SevenEleven.
44. Jaclin advised Husain that the Straw Shareholders should submit personal or cashier’s checks, rather than money orders, to avoid raising regulators’ suspicions.
45. The Straw Shareholder signed the documents that Husain gave the recruiter, namely a subscription agreement, investor questionnaire, and a blank stock power.
46. Husain subsequently filled in the stock power when selling the shell company to a Straw Shareholder, to make it appear to the transfer agent that the Straw Shareholder was selling his or her stock.
47. Jaclin or Husain maintained possession of the stock certificates issued to the Straw Shareholders in the sham private offering.
48. When the Straw Shareholders purportedly purchased shares in the shell companies, the shell companies were controlled by Husain, and no restrictive legend appeared on the stock certificates for the shares sold to the Straw Shareholders.
49. The fact that the companies’ shares were purportedly sold to and held by the Straw Shareholders gave the appearance that third parties actually owned the companies, when, in fact, Husain retained control over them.
50. Husain and Jaclin knew, or were reckless or negligent in not knowing, that the private offerings were shams, that the Straw Shareholders were using Husain’s money to purchase the shares, and that Husain controlled the shares.
3. The False and Misleading S-1 Registration Statements
51. Husain and Jaclin then took each shell company public through a Form S-1 registration statement filed with the SEC, and when necessary, amendments thereto, offering the shares from the sham private placement.
52. For each shell company public offering, and the registration of the offering, Jaclin and his law firm served as counsel for the shell company.
53. For the registration statement for each of the nine shell companies, Husain controlled the efforts to prepare, review, file, and obtain a notice from the SEC declaring it effective, including providing to Jaclin’s firm and to the auditor information, documents, and puppet CEO signatures, as needed.
54. Husain approved documents and served as the main point of contact for the shell companies throughout the registration process.
55. Jaclin instructed his associates that Husain had the authority to approve documents for filing with the SEC.
56. Jaclin’s associates emailed each draft registration statement, including any changes or edits, to Jaclin for his approval.
57. The draft registration statement was then sent to Husain and the shell companies’ outside auditors for review, before being filed with the SEC.
58. Jaclin permitted his associates to use his electronic signature for his law firm’s opinion letters that were attached to the registration statements, which stated that the shares in the offering had been duly authorized, legally issued, fully paid and were non-assessable.
59. Each of the shell companies’ registration statements contained numerous materially false and misleading statements.
(a) Each shell company registration statement falsely claimed that the puppet CEO was the officer, director, and employee of the shell company, and often the sole one of each. These statements were false and misleading because there was no mention of Husain’s role as the control person and promoter of the shell company, or that the puppet CEO was the CEO in name only.
(b) Each shell company registration statement misrepresented the shell company’s business purpose by stating that the company would operate in accordance with its business plan. These statements were false and misleading because the actual operations of the shell companies consisted only of turning the shell company into a public shell that would then be sold.
(c) Each shell company registration statement misrepresented that the Straw Shareholders: (1) purchased their shares in a private offering; (2) were selling the shares for their own account in the registered offering; and (3) were not affiliated with any of the shell company’s officers, directors, promoters, or any beneficial owner of 10% or more of the shell company’s securities. These statements were false and misleading because: (1) some of the Straw Shareholders did not exist, much less purchase or hold shares; (2) the majority of the remaining Straw Shareholders paid for the shares with cash that Husain supplied; (3) Husain and Jaclin held the shares rather than the Straw Shareholders; (4) the shares under the offering were for Husain’s account, not the Straw Shareholders’ accounts; and (5) each Straw Shareholder was affiliated with Husain, who controlled each shell company and its securities.
60. Husain and Jaclin knew, or were reckless or negligent in not knowing, that the statements alleged above and in the registration statements for each of the nine shell companies were false and misleading.
61. The false and misleading statements appeared in the following Form S-1 registration statements filed by the shell companies: --- TABLE ---
4. False and Misleading Information Provided to Transfer Agents and Market Makers
62. Husain selected the transfer agents for each of the shell companies and supplied them with shareholder information, serving as the main point of contact for the transfer agents. Husain however disclosed neither his role nor the investors’ status as Straw Shareholders.
63. Once a shell company’s Form S-1 registration statement was declared effective, Jaclin sent the transfer agent his law firm’s Form S-1 opinion letter.
64. Husain and Jaclin then worked with a market maker to file a FINRA Form 211 application in order for the market maker to publish quotes for the shell company’s stock.
65. As part of preparing the Form 211, the market maker reviewed the shell company’s registration statement, which was incorporated into the Form 211, including the materially false and misleading statements.
66. Also as part of the Form 211 process, Husain completed an information statement and officer and director questionnaire for each shell company. These documents repeated the false and misleading statements from the shell company’s registration statement (except the statements regarding the Straw Shareholders).
67. Husain had the puppet CEO for each shell company sign the information statement and questionnaire, or forged his or her signature.
68. Jaclin provided information and documents to the market maker, such as copies of the subscription agreements and investor checks from the private placement. Jaclin also helped respond to comments from FINRA about the shell companies’ applications.
69. Once FINRA provided clearance, the market makers entered quotes for each shell company’s stock on one of the over-the-counter quotation systems.
70. Husain then worked with the market maker and its affiliated transfer agent to obtain DTC eligibility for each shell company’s stock, enhancing the value for sale.
71. Husain and Jaclin knew, or were reckless or negligent in not knowing, that the information and documents given to the market makers and transfer agents repeated the false and misleading information contained in the registration statements.
--- 05/12/2016 1 COMPLAINT No Fee Required - US Government. (Attorney Amy J Longo added to party U.S. Securities and Exchange Commission(pty:pla))(Longo, Amy) (Entered: 05/12/2016)
Market Data 
Markets 
AI
