Joshua Lankford, the former Texas stock broker facing criminal charges for a $41.8-million pump-and-dump scheme that took advantage of hurricane Katrina, has lost his bid to stay out of jail pending trial. (All figures are in U.S. dollars.) At a detention hearing in Tulsa Wednesday morning a judge ordered him detained, citing a serious flight risk. Mr. Lankford had previously fled to Costa Rica to avoid capture, and was only returned to the U.S. through an extradition process.
Mr. Lankford's detention in the U.S. comes over two years after prosecutors charged him and others, including former Calgary broker Dean Sheptycki, with 24 counts of conspiracy, fraud and money laundering. The men fraudulently touted three companies, including pink sheets listing National Storm Management Inc., with misleading faxes and e-mails, prosecutors claim. The National Storm promotion came right after hurricane Katrina, the storm that devastated New Orleans in 2005. The men touted the company as a storm reconstruction outfit.
In ordering Mr. Lankford detained, Judge Frank McCarthy said there was a serious risk he would not appear if he were released. He had already fled the U.S. once, and had even left behind a family that included young children. While in Costa Rica, he had assumed the identity of a Costa Rican citizen and had used other false names. Even after he was arrested in September, 2011, he continued to claim he was a citizen of Costa Rica.
Mr. Lankford's trial is scheduled to begin July 23, 2012. Should the former broker be convicted, he could face a substantial sentence. Two of his co-accused, Oklahoma lawyer George David Gordon and Oklahoma promoter Richard Clark, are already serving lengthy terms. After a jury trial in April, 2010, Mr. Gordon received 15 years and Mr. Clark received 12 years. Both have since appealed.
With Mr. Lankford's arrest, the only outstanding defendant in the case is Mr. Sheptycki, who remains a fugitive. He was initially arrested for the charges on Feb. 11, 2009, in the Bahamas, where he had been living. The U.S. attempted to have him extradited, but the attempt failed when government lawyers did not file necessary paperwork on time. A Bahamian judge then threw out the extradition case and released Mr. Sheptycki. It is not clear where he is now.
Pump-and-dump charges
The charges against the men are best described in a parallel civil complaint that the U.S. Securities and Exchange Commission filed on Feb. 10, 2009, in the Southern District of Oklahoma. The SEC described how the men promoted National Storm and two other companies from April, 2004, to December, 2006. They typically obtained majority control of the companies and concealed their ownership through nominees, including friends and relatives. They then dumped the stock during massive promotional campaigns.
The National Storm promotion took place in September, 2005, immediately after hurricane Katrina. According to the SEC, Mr. Gordon and Mr. Lankford had acquired millions of free-trading shares ahead of the promotion by using fraudulent legal opinion letters. They then hired Mr. Sheptycki, who sent out mass faxes and e-mails touting the stock. The messages stated that the company "is posed for a massive run up as demand to repair homes skyrockets." The stock went from 50 cents to a $2.80 high. (It was last at 0.02 cent.) At the same time, Mr. Lankford and Mr. Gordon gradually dumped their stock on the market, the SEC claimed.
The other pump-and-dumps that the SEC cited the men for were Deep Rock Oil and Gas Inc. and Global Beverage Solutions Inc. The men promoted Deep Rock as an oil and gas producer and Global Beverage as a "business development company." Potential investors received spam and glossy magazine-like publications predicting substantial price increases for the stocks. Deep Rock went from 12 cents to $1.13 during the promotion (and was last at 0.03 cent).
Although the criminal charges are still outstanding for Mr. Lankford and Mr. Sheptycki, the SEC has secured substantial penalties against them. A judge imposed a $94.3-million fine for Mr. Lankford and a $98.7-million decision against Mr. Sheptycki. Both were default judgments, as the men ignored the case. The SEC also obtained a $50-million penalty against Mr. Gordon, who unsuccessfully fought the charges.
Prior to his trouble in the U.S., Mr. Sheptycki worked at the Calgary branch of C.M. Oliver & Company Ltd. His brokerage career ended in 1998, when the Alberta Securities Commission sanctioned him for unauthorized trading. The ASC said he used a client's account to buy $95,472 worth of shares in Timbuktu Gold Corp., an Alberta Stock Exchange listing. The transaction left the client with a debt that was beyond his means. The ASC suspended Mr. Sheptycki for 18 months, and he never returned to the brokerage industry.
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