Former Corporate Officers Sentenced to Lengthy Imprisonment for Stock Fraud Scam

ATLANTA—RUFUS PAUL HARRIS, 43, of Oklahoma City, Oklahoma, BENJAMIN STANLEY, 48, of Kennesaw, Georgia, and DARRYL HORTON, 50, of Okemos, Michigan, were sentenced today by United States District Judge Timothy C. Batten to significant terms of imprisonment on fraud charges stemming from a stock pump-and-dump scam involving their former company, Kennesaw, Georgia-based Conversion Solutions Holdings Corporation (“CSHC”).

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.

Principal of Offshore Brokerage Firm and Las Vegas Stock Promoter Convicted in Miami for $7 Million Stock Manipulation Scam

WASHINGTON—The principal of a Costa Rican brokerage firm and a Las Vegas stock promoter were each convicted yesterday in the Southern District of Florida of all charges for their roles in a stock manipulation scheme that defrauded investors, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division, U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida, Chief Postal Inspector Guy Cottrell of the U.S. Postal Inspection Service (USPIS) and James W. McJunkin, Assistant Director in Charge of the FBI’s Washington Field Office.

Jonathan Curshen, 47, the principal of Red Sea Management and Sentry Global Securities, two companies located in San Jose, Costa Rica, that provided offshore accounts and facilitated trading in penny stocks, was found guilty of conspiracy to commit securities fraud, wire fraud, and mail fraud; two counts of mail fraud; and conspiracy to commit international money laundering. Nathan Montgomery, 30, a Las Vegas stock promoter, was found guilty of conspiring to commit securities fraud and wire fraud.

The evidence at trial showed that in January and February 2007, Curshen, of Costa Rica and Sarasota, Fla., and Montgomery, of Las Vegas, were involved in a scheme to illegally manipulate the stock price of a company called CO2 Tech (ticker CTTD), which traded on the Pink Sheets, an inter-dealer electronic quotation and trading system.

Evidence at trial showed that Curshen’s and Montgomery’s co-conspirators controlled the outstanding shares of CO2 Tech, which were used in the stock manipulation scheme. Montgomery and his conspirators engaged in coordinated trades in conjunction with the issuance of false and misleading press releases that were designed to artificially inflate the price of CO2 Tech shares to make it appear that it had significant business prospects. According to these press releases, CO2 Tech purported to have a business relationship with Boeing to reduce polluting gases emitted from airplanes, when in fact CO2 Tech never had any business or relationship with Boeing.

According to the evidence at trial, Montgomery and his co-conspirators, Robert Weidenbaum, Timothy Barham Jr., Ryan Reynolds and others fraudulently “pumped” the market price and demand for CO2 Tech stock through these press releases and coordinated trades of shares of CO2 Tech stock in order to create the appearance of legitimate buying interest by legitimate investors. The evidence showed that as Montgomery and his conspirators pumped the price of the stock, Curshen and his conspirators facilitated the “dumping” of shares through the trading desk at Red Sea and Sentry Global Securities by selling the shares at the direction of their conspirators to the general investing public. The evidence showed that these shares, which became virtually worthless, were purchased by unsuspecting investors, including investors in the Southern District of Florida. The evidence showed that Montgomery, Weidenbaum, Reynolds and Barham were paid approximately $1 million in cash by their conspirators to participate in sham stock trades of CO2 Tech. The cash was delivered to Miami via a private jet from an airport outside New York.

The evidence further showed that, from approximately 2003 through 2008, Curshen operated Red Sea as a money laundering hub in Costa Rica that established bank accounts and brokerage accounts in the United States and Canada under false pretenses and through nominee owners. The evidence further showed that Curshen and his co-conspirators laundered the proceeds of the stock fraud from accounts in the United States to an account in Canada, all in an effort to conceal and disguise the nature and source of the proceeds.

At sentencing, Curshen faces a sentence of up to five years in prison on the conspiracy to defraud count, and up to 20 years on each count of mail fraud and money laundering conspiracy. Montgomery faces a sentence of up to five years for the conspiracy to defraud count. The defendants are scheduled to be sentenced by Judge Richard W. Goldberg on May 11, 2012.

Stock promoters Weidenbaum, Barham, and Reynolds, who were also charged in this case, previously pleaded guilty to conspiring to commit securities fraud, wire fraud and mail fraud. They also will be sentenced by Judge Goldberg on May 9, 2012. Michael Simon Krome, a securities attorney from New York, who participated in the conspiracy and evaded federal securities registration requirements in order to provide co-conspirators with millions of unregistered and “free trading” shares of CO2 Tech that were used to execute the stock manipulation, also pleaded guilty to conspiring to commit securities fraud, mail fraud, and wire fraud.

The case was investigated by the FBI’s Washington Field Office and the USPIS. The case is being prosecuted by Trial Attorneys N. Nathan Dimock and Rina Tucker Harris of the Fraud Section in the Justice Department’s Criminal Division. The U.S. Attorney’s Office for the Southern District of Florida provided significant assistance in this case. The Department of Justice acknowledges the significant assistance of the Financial Industry Regulatory Authority (FINRA) and the U.S. Securities and Exchange Commission (SEC) in its investigation. The SEC has a pending parallel civil case. The Criminal Division’s Office of International Affairs and Costa Rican authorities also provided assistance.

This prosecution is part of efforts under way by the 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.

Northern Virginia Insurance Agent Sentenced to 36 Months in Prison

Fairfax Station Man Ordered to Forfeit $1.6 Million

ALEXANDRIA, VA—Mark Stopchinski, 52 of Fairfax Station, Va., was sentenced today to 36 months in prison, followed by two years of supervised release, for his fraudulently misleading policy holders into purchasing life insurance policies in an effort to generate additional commissions. Stopchinski was also ordered to forfeit $1.6 million.

Neil H. MacBride, United States Attorney for the Eastern District of Virginia; James W. McJunkin, Assistant Director in Charge of the FBI’s Washington Field Office; and Daniel Cortez, Inspector in Charge of the Washington Division of the United States Postal Inspection Service, made the announcement after sentencing by United States District Judge Anthony Trenga. Stopchinski pleaded guilty on Oct. 21, 2010, to one count of wire fraud and one count of aggravated identity theft.

According to court documents, Stopchinski caused insurance agents working for him and companies he owned to advertise the sale of health insurance through illegal “fax blasts” and to misrepresent the nature of the insurance policies offered for sale so that the individuals believed that they were purchasing health insurance policies when in fact they were purchasing two separate unrelated policies: one health insurance policy and one life insurance policy, each provided by separate insurance companies, each requiring separate premiums, and each paying commissions to the defendant.

In furtherance of the scheme, Stopchinski falsified and caused the falsification of signatures of applicants on paperwork and correspondence to the insurance companies and falsified and caused to be falsified the signatures of his agents on the life insurance policy applications and supporting documents. Stopchinski also caused the fraudulent life insurance applications to be sent to the life insurance companies. In connection with these policies, Stopchinski received commissions that were typically in excess of 100 percent of the total value of the first year’s premiums. Stopchinski’s multi-year scheme resulted in his receiving over $2 million in life insurance commissions from approximately 10 different insurance companies.

This case was investigated by the FBI’s Washington Field Office and the United States Postal Inspection Service. Assistant United States Attorney Charles Connolly prosecuted the case on behalf of the United States. The United States Attorney’s Office recognizes the substantial assistance of the Virginia State Corporation Commission, Bureau of Insurance.

A copy of this press release may be found on the website of the United States Attorney’s Office for the Eastern District of Virginia at http://www.justice.gov/usao/vae. Related court documents and information may be found on the website of the District Court for the Eastern District of Virginia at http://www.vaed.uscourts.gov or on https://pcl.uscourts.gov.

Stock Promoters Indicted for Conspiracy in Stock Manipulation Scheme

WASHINGTON—Three stock promoters have been indicted for their roles in a stock manipulation scheme that defrauded investors, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division, U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida, Chief Postal Inspector Guy Cottrell of the U.S. Postal Inspection Service (USPIS) and James W. McJunkin, Assistant Director in Charge of the FBI’s Washington Field Office.

Timothy Barham Jr., 43, of Henderson, Tenn.; Nathan Montgomery, 30, of Henderson, Nev.; and Ryan Reynolds, 39, of Dallas, were each charged in a superseding indictment filed on April 28, 2011, in U.S. District Court for the Southern District of Florida. On April 29, 2011, Barham was arrested in Henderson, Tenn., and Montgomery was arrested in Las Vegas. Reynolds, who was in custody on previously filed civil charges, made his initial appearance today in U.S. District Court in Dallas.

The superseding indictment charges Barham, Montgomery, and Reynolds each with one count of conspiracy to commit securities fraud, wire fraud, and mail fraud. The superseding indictment also charges six individuals who were originally indicted in February 2010 for their roles in the fraud scheme: Jonathan Randall Curshen, 46, of Sarasota, Fla.; Michael Simon Krome, 49, Long Island, N.Y.; Ronald Salazar Morales, aka “Ronny Salazar,” 39, of Costa Rica; Robert Lloyd Weidenbaum, 44, of Miami; and Eric Ariav Weinbaum, 37, and Izhack Zigdon, 47, both of Israel.

According to the superseding indictment, Curshen was the principal behind Red Sea Management and Sentry Global Securities, two companies located in San Jose, Costa Rica, that provided offshore accounts and facilitated trading in penny stocks. The superseding indictment alleges that Weinbaum and Zigdon took control of the outstanding shares of a company called CO2 Tech (ticker CTTD), which traded in the over-the-counter market through listings on Pink Sheets, an inter-dealer electronic quotation and trading system. Weinbaum and Zigdon allegedly obtained the shares by retaining Krome, a securities attorney. Krome allegedly evaded federal securities registration requirements in order to provide co-conspirators with millions of unregistered and “free-trading” shares of CO2 Tech that the co-conspirators could not have otherwise legally obtained.

The superseding indictment alleges that the shares were subsequently sold to the general investing public by Weinbaum, Zigdon, Curshen, and Salazar, a Sentry Global stock trader, through Sentry Global’s stock trading floor. According to court documents, the defendants concealed from the investing public the actual financial condition and business operations of CO2 Tech by evading the registration requirements. The superseding indictment also alleges that Weidenbaum, Reynolds, Montgomery, and Barham coordinated trades by purchasing shares of CO2 Tech on the open market from Curshen, Weinbaum, and Salazar. Weidenbaum was allegedly paid approximately $1 million by Weinbaum and Zigdon to participate in sham stock trades of CO2 Tech to make it appear that there were genuine investors in the market that were buying the shares.

As alleged in the superseding indictment, coordinated trades were often made between the co-conspirators in conjunction with the issuance of false and misleading press releases that were designed to make CO2 Tech appear that it had significant business prospects. According to these press releases, CO2 Tech purported to have a business relationship with Boeing to reduce polluting gases emitted from airplanes. The superseding indictment alleges that these relationships never existed.

After fraudulently “pumping” the market price and demand for CO2 Tech stock through these press releases and coordinated trades, Weinbaum, Curshen, Salazar, Reynolds, Montgomery and Barham allegedly “dumped” shares by selling them for large profits to the general investing public in the over-the-counter market through listings on Pink Sheets. These shares were allegedly purchased by unsuspecting investors, including in the Southern District of Florida, and were often rendered virtually worthless.

The superseding indictment further alleges that Curshen and Salazar engaged in a conspiracy to commit money laundering. Curshen, through Red Sea and Sentry Global, allegedly established domestic and offshore bank accounts through which the proceeds of stock manipulation schemes flowed. The superseding indictment alleges that Curshen and Salazar used these accounts to conceal the origin and ownership of the ill-gotten gains from these schemes.

The defendants are all charged with one count of conspiracy to commit securities, mail, and wire fraud. Additionally, as in the original indictment, the superseding indictment charges Krome with one count of securities registration violation, one count of obstruction of justice and one count of wire fraud. Weinbaum and Zigdon also continue to be charged with three counts of wire fraud. In addition, Curshen and Salazar each are charged with two counts of mail fraud, and Weidenbaum and Weinbaum each are charged with one count of mail fraud. The superseding indictment also charges Curshen and Salazar with one count of conspiracy to commit money laundering. The superseding indictment seeks forfeiture in the amount of $7 million.

The fraud conspiracy charge carries a maximum penalty of five years in prison and a $250,000 fine. Each count of wire fraud and mail fraud carries a maximum penalty of 20 years in prison and a $250,000 fine. The securities registration violation carries a maximum penalty of five years in prison and a $10,000 fine and the obstruction count carries a maximum penalty of 20 years in prison and a $250,000 fine. The money laundering conspiracy charge carries a maximum penalty of 20 years in prison.

Curshen, Krome, Salazar, Weinbaum, Zigdon, and Weidenbaum were also charged by the Securities and Exchange Commission in February 2010 in a related civil matter.

An indictment is merely a charge and defendants are presumed innocent until proven guilty.

The case was investigated by the FBI’s Washington Field Office and the USPIS. The case is being prosecuted by Trial Attorneys N. Nathan Dimock and Rina Tucker Harris of the Criminal Division’s Fraud Section. The U.S. Attorney’s Office for the Southern District of Florida provided significant assistance in this case. The Department of Justice acknowledges the significant assistance of the Financial Industry Regulatory Authority (FINRA) and the SEC in its investigation. The Criminal Division’s Office of International Affairs and Costa Rican authorities also provided assistance.

Today’s charges are part of efforts underway by the Financial Fraud Enforcement Task Force. President Obama established the interagency 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.

Stock Promoters Indicted for Conspiracy in Stock Manipulation Scheme

WASHINGTON – Three stock promoters have been indicted for their roles in a stock manipulation scheme that defrauded investors, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division, U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida, Chief Postal Inspector Guy Cottrell of the U.S. Postal Inspection Service (USPIS) and James W. McJunkin, Assistant Director in Charge of the FBI’s Washington Field Office.  

Timothy Barham Jr., 43, of Henderson, Tenn.; Nathan Montgomery, 30, of Henderson, Nev.; and Ryan Reynolds, 39, of Dallas, were each charged in a superseding indictment filed on April 28, 2011, in U.S. District Court for the Southern District of Florida.   On April 29, 2011, Barham was arrested in Henderson, Tenn., and Montgomery was arrested in Las Vegas.   Reynolds, who was in custody on previously filed civil charges, made his initial appearance today in U.S. District Court in Dallas.

The superseding indictment charges Barham, Montgomery and Reynolds each with one count of conspiracy to commit securities fraud, wire fraud and mail fraud.   The superseding indictment also charges six individuals who were originally indicted in February 2010 for their roles in the fraud scheme: Jonathan Randall Curshen, 46, of Sarasota, Fla.; Michael Simon Krome, 49, Long Island, N.Y.; Ronald Salazar Morales, aka “Ronny Salazar,” 39, of Costa Rica; Robert Lloyd Weidenbaum, 44, of Miami; and Eric Ariav Weinbaum, 37, and Izhack Zigdon, 47, both of Israel.

According to the superseding indictment, Curshen was the principal behind Red Sea Management and Sentry Global Securities, two companies located in San Jose, Costa Rica, that provided offshore accounts and facilitated trading in penny stocks.   The superseding indictment alleges that Weinbaum and Zigdon took control of the outstanding shares of a company called CO2 Tech (ticker CTTD), which traded in the over-the-counter market through listings on Pink Sheets, an inter-dealer electronic quotation and trading system.   Weinbaum and Zigdon allegedly obtained the shares by retaining Krome, a securities attorney.   Krome allegedly evaded federal securities registration requirements in order to provide co-conspirators with millions of unregistered and “free-trading” shares of CO2 Tech that the co-conspirators could not have otherwise legally obtained.

The superseding indictment alleges that the shares were subsequently sold to the general investing public by Weinbaum, Zigdon, Curshen and Salazar, a Sentry Global stock trader, through Sentry Global’s stock trading floor.   According to court documents, the defendants concealed from the investing public the actual financial condition and business operations of CO2 Tech by evading the registration requirements.   The superseding indictment also alleges that Weidenbaum, Reynolds, Montgomery and Barham coordinated trades by purchasing shares of CO2 Tech on the open market from Curshen, Weinbaum, and Salazar.    Weidenbaum was allegedly paid approximately $1 million by Weinbaum and Zigdon to participate in sham stock trades of CO2 Tech to make it appear that there were genuine investors in the market that were buying the shares.   

As alleged in the superseding indictment, coordinated trades were often made between the co-conspirators in conjunction with the issuance of false and misleading press releases that were designed to make CO2 Tech appear that it had significant business prospects.   According to these press releases, CO2 Tech purported to have a business relationship with Boeing to reduce polluting gases emitted from airplanes.   The superseding indictment alleges that these relationships never existed.  

After fraudulently “pumping” the market price and demand for CO2 Tech stock through these press releases and coordinated trades, Weinbaum, Curshen, Salazar, Reynolds, Montgomery and Barham allegedly “dumped” shares by selling them for large profits to the general investing public in the over-the-counter market through listings on Pink Sheets.    These shares were allegedly purchased by unsuspecting investors, including in the Southern District of Florida, and were often rendered virtually worthless.  

The superseding indictment further alleges that Curshen and Salazar engaged in a conspiracy to commit money laundering.   Curshen, through Red Sea and Sentry Global, allegedly established domestic and offshore bank accounts through which the proceeds of stock manipulation schemes flowed.   The superseding indictment alleges that Curshen and Salazar used these accounts to conceal the origin and ownership of the ill-gotten gains from these schemes.   

The defendants are all charged with one count of conspiracy to commit securities, mail and wire fraud.   Additionally, as in the original indictment, the superseding indictment charges Krome with one count of securities registration violation, one count of obstruction of justice and one count of wire fraud.   Weinbaum and Zigdon also continue to be charged with three counts of wire fraud.    In addition, Curshen and Salazar each are charged with two counts of mail fraud, and Weidenbaum and Weinbaum each are charged with one count of mail fraud.   The superseding indictment also charges Curshen and Salazar with one count of conspiracy to commit money laundering.   The superseding indictment seeks forfeiture in the amount of $7 million.  

The fraud conspiracy charge carries a maximum penalty of five years in prison and a $250,000 fine.   Each count of wire fraud and mail fraud carries a maximum penalty of 20 years in prison and a $250,000 fine.   The securities registration violation carries a maximum penalty of five years in prison and a $10,000 fine and the obstruction count carries a maximum penalty of 20 years in prison and a $250,000 fine.   The money laundering conspiracy charge carries a maximum penalty of 20 years in prison.  

Curshen, Krome, Salazar, Weinbaum, Zigdon and Weidenbaum were also charged by the Securities and Exchange Commission in February 2010 in a related civil matter.

An indictment is merely a charge and defendants are presumed innocent until proven guilty.

The case was investigated by the FBI’s Washington Field Office and the USPIS.   The case is being prosecuted by Trial Attorneys N. Nathan Dimock and Rina Tucker Harris of the Criminal Division’s Fraud Section.   The U.S. Attorney’s Office for the Southern District of Florida provided significant assistance in this case.   The Department of Justice acknowledges the significant assistance of the Financial Industry Regulatory Authority (FINRA) and the SEC in its investigation.  The Criminal Division’s Office of International Affairs and Costa Rican authorities also provided assistance.

Today’s charges are part of efforts underway by the Financial Fraud Enforcement Task Force.   President Obama established the interagency 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.

Gahanna Couple Pleads Guilty to $20 Million Fraud Involving Stock-Based Loan Scheme

COLUMBUS—Michael Spillan, 43, of Gahanna, and his wife, Melissa Spillan, 41, pleaded guilty in U.S. District Court today to running a fraudulent stock-based loan scheme that caused at least 38 victims to lose $19,695,580.

Carter M. Stewart, United States Attorney for the Southern District of Ohio; Keith Bennett, Special Agent in Charge, Federal Bureau of Investigation (FBI); and Daniel M. McDermott, U.S. Trustee for Region 9, announced the pleas entered before U.S. District Judge Edmund A. Sargus, Jr.

Each defendant pleaded guilty to one count of conspiracy to commit securities fraud, mail fraud, and wire fraud. Michael Spillan also pleaded guilty to one count of securities fraud, one count of wire fraud, and one count of mail fraud.

The plea agreement includes a 140-month sentence followed by five years of supervised release for Michael Spillan and a 36-month sentence followed by three years of supervised release for Melissa Spillan. Judge Sargus will determine a final sentence following a pre-sentence investigation. No date for sentencing has been scheduled.

The plea agreement also calls for them to make full restitution to their victims.

According to a statement of facts read during their hearing, the Spillans owned several companies including One Equity Corporation, Triangle Equities Group, Inc., Victory Management Group, Inc., and Dafcan Finance, Inc.

The Spillans made low-interest loans to their victims who transferred shares of stock to the Spillans as collateral. The Spillans promised to return the stock to the borrowers once the loans were repaid. The Spillans sold the stock without the borrowers’ knowledge instead of holding the shares and used the proceeds to fund other loans or for their own personal gain.

Stewart commended the investigation conducted by FBI agents. Stewart also commended Financial Crimes Chief Brenda Shoemaker and Special Assistant U.S. Attorney Dean P. Wyman with the U.S. Trustees Office, who are prosecuting the case.

Two Executives of Publicly Traded Company Sentenced to 30 Months in Federal Prison for Illegal Stock Sales

LOS ANGELES—Two former executives of a publicly traded corporation have each been sentenced to 30 months in federal prison for illegally selling unregistered stock in their company.

Richard A. Bailey, 55, and Florian R. Ternes, 62, both of Las Vegas, Nevada, who respectively were the chief executive officer and the chief operating officer of Gateway Distributors, Inc., were sentenced Monday by United States District Judge Otis D. Wright II.

Bailey and Ternes were convicted in October of two counts of issuing and selling unregistered stock. During a week-long trial in United States District Court, prosecutors presented evidence that Bailey and Ternes issued more than $600,000 worth of Gateway stock in an effort to circumvent federal securities registration laws. At the time of the issuance in 2004, Bailey and Ternes claimed that the stock issuance represented payment of fees to a purported Gateway consultant, and they filed false stock registration statements with the Securities and Exchange Commission.

In reality, the stock was issued to a friend of Bailey and Ternes who provided no legitimate services for Gateway. In return, the friend sold the illegally issued shares, and the proceeds of the transaction were then covertly returned to Gateway. Bailey and Ternes used the proceeds of the stock sales to finance acquisition of a fishing lodge in Utah and a commercial office building/warehouse in Las Vegas.

Bailey and Ternes have been in jail since Judge Wright remanded them into custody following their trial in October.

Gateway was a Nevada-based company involved in the sale of nutritional supplements. Gateway's stock was publicly traded on the Over-the-Counter Bulletin Board.

The investigation into Bailey and Ternes was conducted by the Federal Bureau of Investigation and IRS - Criminal Investigation, which received the assistance of the Chicago Regional Office of the Securities and Exchange Commission.

Stock Fraud

Defendants Sentenced for Telemarketing Stock Fraud Scheme Defendants Ran Boiler Room Operation that Targeted Foreign Investors


April 7, 2010 - ATLANTA, GA—JOHN A. REECE, 57, of St. Augustine, Florida, and PATRICK J. SOLTIS, 47, of Hoschton, Georgia were sentenced today by United States District Judge Clarence Cooper to federal prison for operating a telemarketing scheme in Marietta, Georgia, that defrauded dozens of foreign individuals into investing hundreds of thousands of dollars in fraudulent companies.

United States Attorney Sally Quillian Yates said of the case, “These defendants ran an investment boiler room operation using telemarketers to pressure their unsuspecting victims into investing thousands of dollars in a variety of phony ventures. The defendants have now been sentenced to federal prison and ordered to pay restitution to their innocent victims.”

REECE was sentenced to six years and six months in prison to be followed by three years of supervised release, and ordered to pay restitution in the amount of $582,639. SOLTIS, who cooperated with the government and received a sentence reduction as a result, was sentenced to three years and five months in prison to be followed by three years of supervised release, and ordered to pay restitution in the amount of $301,601. REECE was convicted of these charges after pleading guilty on January 11, 2010. SOLTIS was convicted after pleading guilty on October 15, 2008.

According to United States Attorney Yates, the charges and other information presented in court: REECE and SOLTIS lied to investors in 2002 to entice them to invest in a shell company, Wolf & Soltis Holdings, LLC. Through telemarketers they hired to sell the stock in unsolicited transactions, the defendants falsely claimed that Wolf & Soltis had substantial business operations and plans to expand in a number of areas. In fact the company was bogus, had no operations, assets, revenues, or even employees, other than the hired telemarketers.

As part of the scheme, the defendants claimed that they owned a private bottled water company, were involved with the University of Minnesota to develop a tree species that grew more quickly, and owned a cosmetics company for which entertainment personality Raquel Welch was the spokesperson. All of these claims were false. In truth, the defendants pocketed the lion’s share of the money they received from investors and used the rest to pay their telemarketers, telephone bills, and related expenses. After a disagreement with SOLTIS, REECE began to operate a second fraudulent telemarketing scheme through an entity he operated known as “Wellington Group,” purportedly selling shares in “Australian Biofund Investments, Ltd.” (ABIL), based on material misrepresentations and omissions. REECE retained the vast majority of the money invested in Wellington, but failed to disclose that fact and even falsely informed investors that there was no commission associated with their investments.

To execute their fraud, REECE and SOLTIS ran a boiler room with high-pressure telemarketers they hired to call hundreds of potentially vulnerable victims each day from call lists they had purchased. In addition to providing call lists to the telemarketers, REECE developed scripts for them to use in selling the fraudulent investments. The call lists targeted foreign investors in English speaking countries. The defendants intentionally targeted foreign investors in part to avoid, or at least delay, the scrutiny of U.S. law enforcement. As a result, the overwhelming majority of the victims live in foreign countries, primarily Australia and Canada. The defendants’ schemes resulted in a loss of over $600,000 to the victims.

This case was investigated by Special Agents of the Federal Bureau of Investigation.

Assistant United States Attorneys Stephen H. McClain and Justin S. Anand prosecuted the case. The United States was originally represented by Assistant United States Attorney Lawrence R. Sommerfeld.