Washington, D.C., Feb. 4, 2009 (LAWFUEL) – The Securities and Exchange Commission has taken emergency action to stop a massive and ongoing international boiler room scheme that allegedly sold shares of U.S. penny stock issuers to investors located in Europe by misrepresenting that investors paid no sales commissions. The SEC alleges that, in fact, investors paid commissions exceeding 60 percent of the amount invested, and the fraudulent scheme raised at least $44.2 million from 1,400 investors since March 2007.
“This case demonstrates that the SEC will act aggressively to stop securities fraud that spans international borders and protect investors in U.S. markets,” said Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement.
“This case resulted from extensive coordination between the SEC and our counterparts in the United Kingdom.” said Merri Jo Gillette, Director of the SEC’s Chicago Regional Office. “As this case illustrates, those who attempt to use international borders to thwart the efforts of the SEC will be disappointed.”
The SEC’s complaint alleges that four Chicago residents and their entities have worked in concert with sales agents based in Europe who make fraudulent cold calls to solicit investors. The SEC charged Chicago residents Stefan H. Benger, Jason B. Meyers, Frank I. Reinschreiber, and Philip T. Powers as well as four entities through which they operated the boiler room scheme: SHB Capital Inc., International Capital Financial Resources LLC, Global Financial Management LLC, and Handler, Thayer & Duggan, LLC. Handler Thayer is a Chicago law firm that employs Powers. The SEC charged Benger, Meyers, SHB Capital and International Capital with securities fraud. The SEC charged Powers, Reinschreiber and Global Financial with aiding and abetting the securities fraud. The SEC also charged all of the defendants with failing to register with the SEC as broker-dealers.
The SEC alleges that the multi-faceted boiler room scheme victimized residents of the United Kingdom, Germany, and other European countries. According to the SEC’s complaint, Benger, Meyers, SHB Capital, and International Capital acted as distribution agents for at least eight different U.S. penny stock issuers, agreeing to solicit foreign investors in exchange for commissions that collectively exceed 60 percent of the investor proceeds. The SEC alleges that Benger, Meyers, SHB Capital, and International Capital, in turn, retained foreign sales agents to solicit investors. The foreign sales agents worked for boiler room operations and made cold calls to investors utilizing high pressure sales tactics. The SEC alleges that in connection with these sales, investors were not informed of the exorbitant commissions being collected or were told that no commissions would be charged. The SEC alleges that Powers, Reinschreiber and Global Financial provided knowing and substantial assistance to the scheme by acting as escrow agents in exchange for a share of the commissions. The escrow agents took custody of approximately $44.2 million in investor funds, disbursed nearly $29 million in investor funds as undisclosed commissions and the remainder to the stock issuers. The SEC also alleges that Handler Thayer acted as an unregistered broker-dealer in connection with its activities as an escrow agent.
The SEC filed its emergency action in the U.S. District Court for the Northern District of Illinois alleging that: Benger, Meyers, SHB Capital and International Capital violated Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder; Powers, Reinschreiber and Global Financial aided and abetted violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and violated Section 15(a) of the Exchange Act; and Handler Thayer violated Section 15(a) of the Exchange Act. The SEC seeks in its action, among other things, a temporary restraining order, preliminary and permanent injunctions, disgorgement plus prejudgment interest, penny stock bars and financial penalties.
U.S. District Judge Joan Lefkow granted all of the emergency relief requested by the SEC, including a temporary restraining order, asset freeze, repatriation order, and temporary penny stock bar.
The SEC wishes to acknowledge the assistance of the United Kingdom’s Financial Services Authority, City of London Police’s Financial Intelligence Development Team, U.S. Attorney’s Office for the Middle District of Florida, U.S. Secret Service, and U.S. Immigration and Customs Enforcement. The SEC’s investigation is continuing.