from the Securities and Exchange Commission
The Securities and Exchange Commission today announced:
- it has charged a Florida-based transfer agent and its owner with defrauding investors by using aggressive boiler room tactics to peddle worthless securities with promises of high returns or discounted prices;
- a second round of charges against individuals behind a boiler room scheme that hyped a company whose new technology was purportedly Super Bowl-bound.
SEC Charges Florida-Based Transfer Agent and Owner with Defrauding Investors
The Securities and Exchange Commission today announced it has charged a Florida-based transfer agent and its owner with defrauding investors by using aggressive boiler room tactics to peddle worthless securities with promises of high returns or discounted prices.
Transfer agents are typically used by publicly-traded companies to keep track of the individuals and entities that own their stocks and bonds. The SEC alleges that Cecil Franklin Speight, whose firm International Stock Transfer Inc. (IST) was a registered transfer agent, abused the transfer agent function by creating and issuing fake securities certificates to both U.S. and international investors. While investors collectively sent in millions of dollars thinking they were purchasing high-yield investments and discounted stock, they ended up receiving counterfeit certificates that Speight and IST fooled them into thinking were legitimate.
In a parallel action, the U.S. Attorney’s Office for the Eastern District of New York today announced criminal charges against Speight. Said Andrew M. Calamari, Director of the SEC’s New York Regional Office:
Speight brazenly misused his transfer agent authority to commit fraud by creating fake certificates and acting as if he was authorized by issuers to do so. His promise of high-yield investment returns and his use of attorneys to receive investor money were simply lures to take advantage of unsuspecting investors.
Speight and IST agreed to settle the SEC’s charges. Speight will be barred from serving as an officer or director of a public company and from participating in any penny stock offering. The court will determine monetary sanctions at a later date.
According to the SEC’s complaint filed Wednesday in U.S. District Court for the Eastern District of New York, Speight’s scheme included multiple securities, including the issuance of fake foreign bond certificates and stock certificates for a publicly-traded microcap company with no connection to IST. To bolster the appearance of the safety of the investments and conceal from investors how their money was really being spent, Speight enlisted two attorneys to receive investment funds into their own bank accounts. From there, the money was transferred to IST. Instead of making its way to any issuers, however, IST and Speight spent investors’ money almost as quickly as it came in. They used it to pay Speight’s personal expenses, and in Ponzi scheme fashion new investor money was used to fund interest payments to prior foreign bond investors. In all, Speight and IST stole more than $3.3 million from at least 70 investors.
The SEC’s complaint charges Speight and IST with violating the antifraud provisions of the securities laws, including Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5. The complaint charges IST with violating the transfer agent books and records requirements of Section 17(a)(3) of the Exchange Act, and Speight with aiding and abetting such violations. Speight and IST have consented to the entry of judgments permanently enjoining them from future securities law violations and requiring them to pay disgorgement of all ill-gotten gains plus prejudgment interest and penalties as determined by the court, which must approve the settlement.
The SEC’s investigation was conducted by Sharon Binger, Adam Grace, Justin Alfano, John Lehmann, Elzbieta Wraga, and Jordan Baker in the New York office. An examination of IST was conducted by Debra Williamson, Ileana Rodriguez, and Brian Dyer and supervised by John Mattimore and Nicholas Monaco in the Miami office. The SEC’s litigation will be handled by Alexander Vasilescu, Justin Alfano, and John Lehmann. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of New York and the Federal Bureau of Investigation.
SEC Announces Additional Charges in Football-Related Boiler Room Scheme
The Securities and Exchange Commission today announced a second round of charges against individuals behind a boiler room scheme that hyped a company whose new technology was purportedly Super Bowl-bound.
The SEC previously charged the operators of the scheme based in the South Florida and Los Angeles areas. Seniors and other investors were pressured into purchasing stock in Thought Development Inc. (TDI), an unaffiliated Miami Beach-based company that stated its signature invention is a laser-line system that generates a green line on a football field for a first-down marker visible not only on television but also to players, officials, and fans in the stadium.
The SEC today is additionally charging four executives who helped make the scheme possible and three companies they operate – DDBO Consulting, DBBG Consulting, and CalPacific Equity Group. Approximately $1.7 million was raised through these companies from more than 110 investors who were told that an initial public offering (IPO) in TDI was imminent and that their money would be used to develop the groundbreaking technology. Instead, the SEC alleges that the IPO was not forthcoming as promised, and at least 50 percent of the offering proceeds were merely retained by these companies or paid to sales agents through undisclosed commissions and fees. Certain executives, their sales agents and their companies lured investors by misrepresenting that TDI’s technology was about to be used by the National Football League (NFL). One investor even made an additional $75,000 investment on top of an initial $2,500 investment after being told that NFL Commissioner Roger Goodell purchased TDI’s technology for use in the 2013 Super Bowl. In fact, there was no such arrangement. Said Eric I. Bustillo, director of the SEC’s Miami Regional Office:
These sales agents misled investors to believe that TDI was on the brink of having its technology used in football stadiums across the country. In reality, TDI had not reached any agreements with the NFL or any team to feature its technology during any games, and certainly not at the Super Bowl.
The SEC’s complaints charge brothers Dean R. Baker of Coral Springs, Fla., and Daniel R. Baker of Valley Village, Calif., along with Bret A. Grove of Delray Beach, Fla., and Demosthenes Dritsas of Newhall, Calif.
In parallel actions, the U.S. Attorney’s Office for the Central District of California announced criminal charges against Daniel Baker and Dritsas, and the U.S. Attorney’s Office for the Southern District of Florida announced criminal charges against Dean Baker and Grove as well as Peter Kirschner and Stuart Rubens. The latter two were charged by the SEC in its initial complaint filed last year. Dean Baker was previously barred from association with any FINRA member firm in 2006.
According to the SEC’s complaint filed in federal court in Miami against Dean Baker, Grove, DDBO Consulting, and DBBG Consulting, they entered into an agreement with Kirschner to solicit investors and sell TDI stock. Baker is president of DDBO Consulting and DBBG Consulting, and Grove is vice president of DBBG. They recruited, hired, and supervised sales agents who were paid transaction-based compensation in connection with the offer and sale of TDI stock. Grove misled investors about the use of proceeds by not disclosing fees of more than 50 percent, while Baker and sales agents falsely promised investors guaranteed returns from a purportedly pending IPO. The sales agents further claimed that TDI’s laser-line technology would be used by the NFL, and Baker himself falsely told an investor in January 2012 that TDI’s technology would be used during the NFL’s upcoming preseason.
According to the SEC’s complaint filed in federal court in Los Angeles against Daniel Baker, Dritsas, and their firm CalPacific Equity Group, they similarly entered into agreements with Kirschner to act as sales agents to offer and sell TDI stock. Daniel Baker told an investor that the proceeds would go “directly to the business” and no more than “ten cents on every dollar of investor money” would be used as a commission or other fee. Dritsas told the same investor that he would not charge any commission for a trade – “not even a dime” – when in fact CalPacific received 50 percent of the investor’s proceeds as commissions or other fees. Said Glenn S. Gordon, associate director of the SEC’s Miami Regional Office:
The Bakers and others falsely claimed that an IPO was just around the corner for TDI, and they further enticed investors by saying there were extracting just minimal fees or commissions while more than half the money actually wound up in sales agents’ wallets. We will continue to bring actions against those who target seniors and other groups vulnerable to investment fraud.
The SEC’s complaints allege violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 as well as Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5.
The defendants have all agreed to settle the SEC’s charges, while Daniel Baker and Dritsas have also entered into plea agreements in criminal cases relating to matters alleged in the complaint in this action.
The SEC’s investigation has been conducted by Kevin B. Hart, Fernando Torres and Mark Dee in the Miami office, and supervised by Jason R. Berkowitz. The investigation followed an SEC examination conducted by Anson Kwong, Michael Nakis and George Franceschini under the supervision of Nicholas A. Monaco and the oversight of John C. Mattimore. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of Florida, the U.S. Attorney’s Office for the Central District of California and the Federal Bureau of Investigation.
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