The Securities and Exchange Commission has quietly expanded its fraud case against financier Izak Zirk De Maison, adding seven more people as codefendants and identifying five more stocks he used in his schemes.
According to the SEC’s amended complaint, one of the companies that De Maison used as a fraud vehicle was Lenco Mobile Inc. (formerly Pink Sheets: LNCM), which was the subject of a Sharesleuth investigation in early 2010.
Lenco Mobile gained a stock market listing through a reverse merger with a shell company controlled by De Maison, known at the time as Zirk Engelbrecht. Our investigation focused on the issuance of millions of Lenco Mobile shares to questionable individuals, including recidivist securities offender Michael W. Crow.
The SEC said in its amended complaint that De Maison and his alter egos sold at least $6.2 million of Lenco Mobile shares directly to investors in private transactions. The SEC said he also paid commissions to stockbrokers to induce them to sell additional shares to clients.
The SEC said De Maison and other defendants inflated the share prices of Lenco Mobile and the other companies before dumping their shares on unsuspecting investors.
The Justice Department brought a parallel criminal case last year against De Maison and Stephen J. Wilshinsky, an ex-stock broker. Like the SEC, it later expanded its allegations to include violations related to Lenco Mobile and other stocks.
De Maison pleaded guilty in April to seven counts, including securities fraud and wire fraud. His sentencing is set for December. Wilshinsky also has pleaded guilty.
A document in the criminal case alleged that the fraud schemes De Maison orchestrated at Lenco Mobile, Casablancas Mining Ltd. (Pink Sheets: CUAU) and the other companies caused investors to buy more than $54 million in shares and suffer $27 million in losses.
The SEC did not publicize its amended complaint, which was filed in June. It added a number of stock brokers, former stock brokers and stock promoters as defendants.
The latest defendants in the case are:
–Gregory Goldstein, former owner of a California-based brokerage called Marquis Financial Sevices Inc.
–Talman Harris, a former stock broker who worked for a several firms during the period covered by the complaint
–William Scholander, another former stock broker who worked alongside Harris at those same firms.
–Jack Tagliaferro, also a former stocker broker.
–Victor Alfaya, who worked for a New York-based stock promotion service called Small Cap Resource Corp.
–Kona Jones Barbera, who also worked for Small Cap Resource and later set up a second firm called Quantum Financial Investments
– Justin Esposito, an employee of Small Cap Resource and Quantum Financial.
Another of the defendants in the original SEC case, a previously barred broker and recidivist securities offender named Justin Cope, was charged criminally in September in connection with the scheme.
The SEC said all of the brokers and promoters were involved in either the sale or manipulation of shares in the companies used in the fraud schemes.
Tagliaferro agreed last week to settle the charges against him. Although he neither admitted nor denied guilt, the judgment requires him to disgorge the profits he collected from his activities, and pay a civil penalty.
Harris and Scholander were barred from the brokerage industry last year in connection with a separate case. The Financial Industry Regulatory Authority found that Harris and Scholander had recommended shares of a Chinese reverse-merger company, Deer Consumer Products Inc. (Pink Sheets: DEER) without disclosing that they had received $350,000 from the company, purportedly for consulting services.
The SEC brought fraud charges in September against Benjamin Wey, one of the architects of the Deer Consumer Products deal. It alleged that he concealed his ownership stake in that company, manipulated the stock price and then dumped his shares.
MULTIPLE SCHEMES, SIMILAR METHODS
The SEC said in its amended complaint that De Maison was involved in fraudulent “pump-and-dump” schemes involving six stocks from 2008 to 2014. In addition to Lenco Mobile and Casablancas Mining, those companies were Kensington Leasing Ltd. (formerly Pink Sheets: KNSL); Wikifamilies Inc. (formerly Pink Sheets: WFAM); Gepco Ltd. (formerly Pink Sheets: GEPC) and Lustros Inc. (Pink Sheets: LSTS).
Wikifamilies and Gepco were successors to Kensington Leasing. In other words, De Maison and his associates used a single company for three separate schemes.
The SEC said that De Maison caused each of the companies listed in the complaint to issue tens of millions of shares of stock to himself and his nominees, including his wife, former beauty queen Angelique De Maison.
It said he disposed of those shares through two types of illegal distributions. According to the SEC, De Maison used unregistered individuals – including people who had been barred from the brokerage industry for previous transgressions – to sell shares to investors in purported private placements.
It said De Maison also induced registered representatives at brokerage firms to buy shares in the companies for their clients’ accounts for the purpose of matching those trades with his public share sales.
The SEC said that De Maison and some of the other defendants manipulated the shares prices and trading volumes of the companies to create the appearance of genuine investor interest.
According to court filings, Cope received more than $6 million for his efforts in helping De Maison move stock.
The SEC said Goldstein and his nominees got $2.3 million for the Lenco scheme alone. It said that Wilshinsky got more than $1.2 million, while Harris and Scholander got more than $1 million.
SHARESLEUTH’S LENCO MOBILE INVESTIGATION
Neither the SEC’s original complaint nor its amended complaint makes any mention of Lenco Mobile’s involvement with Michael Crow, who previously was ordered to pay more than $7 million in penalties in connection with an earlier case.
Our investigation found that Lenco Mobile bought at least two companies linked to Crow, paying for the acquisitions with millions of shares of stock.
Crow had filed for personal bankruptcy in early 2010, listing debts of more than $11 million. The trustee in the case later brought fraudulent conveyance proceedings against Crow and a number of entities he created, alleging among other things that he used some of them to sell Lenco Mobile shares without disclosing the income.
The SEC brought another case against Crow last year, alleging that he and a co-defendant made false and misleading statements while raising $3.9 million for a dubious gold-mining venture in South America.
Our Lenco Mobile story also noted De Maison’s ties to Thomas Ronk, a former broker who runs Buyins.net, a web site that purports to identify stocks poised for big increases because of developments that are likely to trigger so-called “short squeezes.’’
Our investigation found that Ronk was connected to a privately held company that Lenco Mobile acquired for millions of shares of stock.
A transcript of a court hearing in De Maison’s criminal case shows that Ronk paid some of De Maison’s initial legal fees. It also shows that Ronk offered to help cover the expenses for De Maison’s proposed stay at a halfway house in Ohio, as an alternative to jailing him while he awaited trial.
A prosecutor representing the Justice Department at the hearing said the government had objected to the arrangement, adding that Ronk “was involved in the conspiracy.’’
The prosecutor noted that Ronk had been a senior executive at Casablancas Mining, one of the companies used in De Maison’s schemes. The prosecutor added that Ronk had received money and other things of value from De Maison, “either directly or indirectly, for purposes of doing things like touting the stock….”
Ronk has not been charged in either the civil or criminal case.