In commenting on the case, United States Attorney Sally Quillian Yates said, “These significant sentences reflect the seriousness of the massive fraud these defendants committed against numerous victims who invested in the defendants’ company. By issuing false information about the company’s assets, the defendants lured victims into purchasing stock at artificially high prices. While the defendants got rich, victims lost millions. But the defendants won’t be enjoying any of the ill-gotten gains—they will be spending many years in prison. The President’s Financial Fraud Task Force will continue its work to root out fraud and restore investor confidence in our financial markets.”
“Today is a great accomplishment in the fight against fraud. Investment fraud not only victimizes individual investors, but the American public. Postal Inspectors will continue to work with its law enforcement partners to aggressively investigate and bring to justice those individuals who commit such crimes,” said Keith Morris, Postal Inspector in Charge of the Atlanta Division.
HARRIS was sentenced to 23 years in prison to be followed by five years of supervised release. STANLEY was sentenced to 16 years in prison to be followed by five years of supervised release. HORTON was sentenced to 4½ years in prison to be followed by three years of supervised release. Each defendant will be jointly and severally liable to repay $44,025,620.06 in restitution to over 5,000 investor victims.
HARRIS and STANLEY were convicted by the jury’s verdict on May 26, 2011, after a two-week jury trial. HORTON pleaded guilty to committing the offense of mail fraud while the jury was deliberating and so no jury verdict was reached as to him.
According to United States Attorney Yates, the charges, and other information presented in court: HARRIS was the founder and chief executive officer of CSHC; STANLEY was the co-founder and chief operating officer; and HORTON was the chief financial officer. The three defendants conspired to issue false press releases and financial statements about the company for the purpose of inflating the stock price, while at the same time they secretly transferred shares to family members who sold them at the inflated prices.
The defendants began issuing a series of press releases beginning in approximately July 2006, that publicly claimed CSHC’s ownership or control of entire issuances of foreign sovereign bonds issued by the Republics of Venezuela and Finland. These bonds were, on their face, worth billions of dollars and paid tens of millions in annual interest. In at least one of the press releases, HARRIS was quoted as stating that, based on CSHC’s acquisition of such large quantities of sovereign debt, “we are looking at a new justifiable reorganization release price of $25.63 [per share].” At the time, CSHC shares generally traded at less than approximately $1 per share. In October 2006, CSHC issued an annual report claiming as much as $800 million in assets, $500 million of which was in the form of foreign sovereign bonds as stated in at least some of the press releases. Also according to this report and its attachments, CSHC’s anticipated income included $19,869,792 in interest revenue from those bonds.
The evidence at trial showed that the three defendants knew these public statements were untrue, and knew that CSHC had little if any assets of any value and did not own or control the foreign sovereign bonds and other assets that it claimed to have. CSHC also had little if any in the way of revenue or profits from any business activity.
During the weeks that the defendants disseminated these misrepresentations via press releases and SEC filings, CSHC’s stock price on the open market more than tripled. The stock, which was a “penny-stock” trading for less than $1 per share in August 2006, sold for between $3-$4 per share in October 2006. During this time, HARRIS, STANLEY and HORTON transferred substantial quantities of CSHC stock to family members and others, who sold the stock in the open market at artificially inflated prices.
On May 24, 2011, before the trial concluded, HARRIS jumped his bail and fled Atlanta. The trial continued as to the other two Defendants and as to HARRIS in absentia. HARRIS was arrested by a U.S. Marshals Service task force in Utah on May 28, 2011, and he has been held in detention pending this sentence.
This case was investigated by special agents of the Federal Bureau Investigation and Postal Inspectors with the U.S. Postal Inspection Service, based on a referral from the United States Securities and Exchange Commission (“SEC”). The SEC has brought civil fraud charges against CSHD.
Assistant United States Attorney Justin S. Anand prosecuted the case.
This law enforcement action is part of President Barack Obama’s Financial Fraud Enforcement Task Force.
President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.
For further information, please contact Sally Q. Yates, United States Attorney, or Charysse L. Alexander, Executive Assistant United States Attorney, through the U.S. Attorney’s Public Affairs Office, at USAGAN.Presse-mails@usdoj.gov or (404) 581-6016. The Internet address for the HomePage for the U.S. Attorney’s Office for the Northern District of Georgia is Justice.gov/usao/gan.
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