Broker-Dealer Charged In OTC Shell Factory Scheme
Broker-Dealer Charged In OTC Shell Factory Scheme
On Thursday, the U.S. Attorney’s Office for the Southern District of Florida announced that a securities broker-dealer has been charged with participating in a conspiracy to unlawfully sell unregistered securities. This conduct was part of a scheme to sell shares of fraudulently registered companies that could then be used for pump and dump and other stock manipulation schemes.
Delaney Equity Group LLC, a registered broker-dealer based in Palm Beach Gardens, was charged by a criminal information with one count of conspiracy to unlawfully sell unregistered securities. The defendant company faces a maximum statutory sentence of five years of probation and a fine up to $500,000 or double the proceeds of the offense.
According to court documents, including the charging information, from October 2009 through at least June 2013, Delaney Equity Group, through certain employees including Ian C. Kass, participated in a conspiracy to sell shares of ‘bogus’ microcap companies, knowing that the companies had been created using nominee officers and were secretly controlled by shell principals Steven Sanders, Daniel McKelvey, and Alvin S. Mirman.
According to the allegations, the shell principals would fraudulently create public companies by filing documents with the SEC that falsely described the companies and their share ownership. These documents would indicate that the companies were controlled by a nominee, or straw chief executive officer (CEO). The straw CEO would be listed as the owner of the control block, or restricted shares, but in reality the companies were controlled by the principals.
Court documents also allege that the principals would also create documents with the names of various shareholders for each company, to make it appear that these shares were owned by persons unaffiliated with the company. These shares would later be classified as unrestricted or “free trading.” Thereafter, the principals would sell the companies to criminal actors who would secretly obtain the control shares and the purported “free trading” shares, without disclosure to the U.S. Securities and Exchange Commission (SEC) or the investing public. This would allow the buyers to engage in stock manipulation schemes using the purported “free trading” shares.
According to the allegations in the information, Delaney Equity was a securities broker-dealer that was registered with the SEC and was a market maker for penny stocks in the over-the-counter securities markets. Acting at the direction of the shell principals, Delaney Equity sponsored nine fraudulent shell companies for electronic trading, and facilitated the sale of shares of these bogus entities to criminal actors.
According to court documents, Delaney Equity utilized fraudulent paperwork to deposit shares into broker accounts in the names of the fraud principals, including Steven Sanders, Daniel McKelvey, and Alvin S. Mirman. Delaney Equity also obtained authorization from the Financial Industry Regulatory Authority (FINRA) for shares of the companies to be electronically traded. Delaney Equity also opened brokerage accounts for the shell principals and deposited shares of the bogus entities into these accounts, later selling the shares to the investing public knowing that the companies were sham entities with nominee officers. These activities, according to allegations in the information, facilitated the unlawful sale of securities that should have been classified as restricted, facilitating the securities fraud scheme.
Ten other defendants have been convicted in connection with the Shell Factory Fraud investigation: John Ahearn and Andrew Wilson, Case No. 17-20883-CR-KMW; Yelena Furman, Case No. 17-20713-CR-CMA; David Lubin, Case No. 17-20508-CR-MGC; Sheldon Rose and Ian Kass, Case No. 16-20706-CR-JEM; Steven Sanders and Alvin S. Mirman, Case No. 16-20572-CR-CMA; and, Daniel McKelvey and Jeffrey Lamson, Case No. 16-20546-CR-RNS.
A criminal information is a charging instrument containing allegations. Every defendant is presumed innocent unless and until found guilty in a court of law.
Related court documents and information may be found on the website of the District Court for the Southern District of Florida at www.flsd.uscourts.gov or on http://pacer.flsd.uscourts.gov.
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