The Securities and Exchange Commission today charged two lawyers it alleges helped facilitate a microcap fraud scheme involving undisclosed “blank check” companies secretly bound for reverse mergers.
In complaints filed in the U.S. District Court for the Southern District of Florida, the SEC alleges that James M. Schneider of Hillsboro Beach, Florida, and Andrew H. Wilson of Nevada City, California, contributed to a fraud involving at least 22 undisclosed blank check companies. Such companies have no operations, making them attractive targets for those seeking reverse mergers for use in pump-and-dump schemes. Despite claims of legitimate business plans, separate management, and independent shareholders, the 22 companies and their securities were secretly controlled by Steven Sanders, along with Daniel P. McKelvey or Alvin S. Mirman, and sold in reverse mergers. The SEC previously filed an enforcement action against Sanders, McKelvey, and Mirman, who were separately convicted of related criminal charges and sentenced to prison.
The U.S. Attorney’s Office for the Southern District of Florida today filed related criminal charges against Schneider.
“Lawyers are critical gatekeepers when it comes to protecting the integrity of our capital markets,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “Schneider and Wilson failed as gatekeepers and as our complaints allege, played a crucial role in facilitating a wide-ranging microcap fraud.”
According to the SEC’s complaints, the scheme required the blank check companies to have shares available for sale in the open market. Schneider and Wilson allegedly provided legal opinion letters falsely stating that the companies’ shares were validly issued or free to be resold publicly. The SEC alleges that Schneider knowingly prepared at least 40 false opinion letters and referred numerous buyers to the shell companies’ secret owners. The SEC alleges that Wilson provided at least five opinion letters that unlawfully allowed restricted securities of at least three issuers to be sold to the public. The SEC alleges that Wilson opined that the shares were unrestricted when he knew or should have known that Sanders and McKelvey secretly controlled them.
The SEC alleges that Schneider violated the registration and antifraud provisions of federal securities laws and related SEC rules, and that he aided and abetted the antifraud violations by Sanders, McKelvey, and Mirman. The SEC charged Wilson with registration violations. It is seeking to have the defendants return their allegedly ill-gotten gains, pay civil penalties, be barred from the penny-stock business, and other relief.
The SEC’s investigation, which is continuing, has been conducted by Jeffrey T. Cook in the Miami Regional Office. The case is being supervised by Eric R. Busto, and the SEC’s litigation will be led by Christine Nestor. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of Florida and the Federal Bureau of Investigation’s Miami Field Office.