CIMA helps SEC uncover $194 million fraud scheme with Cayman link | Loop Cayman Islands

The content originally appeared on: Cayman Compass

The US Securities and Exchange Commission (SEC) said that they have now uncovered a $194 million securities fraud scheme involving fifteen individuals and one company. To carry out the fraud, the parties allegedly formed companies in Nevada, California and Delaware, disguised their ownership through a complex network, caused misleading statements to be made about the performance of the companies so that investors would invest and when the share prices rose following investor interest, the alleged fraudsters sold their shares at a massive profit. These alleged activities breached US Securities and Exchange Acts, some of which were facilitated via a Cayman link.

The Cayman link

According to the SEC complaint, 47-year-old Adam Christopher Kambeitz is a Canadian citizen who is believed to be residing in the Cayman Islands who the SEC alleges was a member of a ring that facilitated securities fraud, garnering more than $145 million (of the total $194 million uncovered by the SEC) in illicit proceeds from 2006 to 2020.

As a part of the fraudulent ring, Kambeitz allegedly arranged materially misleading promotional campaigns for various issuers that were the subject of pump-and-dump schemes. To that end, Kambeitz (allegedly) routinely established and retired various different offshore front companies that each served as the purported paying party for promotional campaigns.

Kambeitz also allegedly engaged in inherently deceptive conduct in furtherance of the scheme that included routing payments to media companies through two different offshore accounts he controlled and making material misrepresentations to foreign banks.

Other alleged fraudsters involved in the massive scheme were identified by the SEC as Craig James Auringer (Canadian citizen), Ronald Bauer (Canadian and UK citizen), Domenic Calabrigo (Canadian citizen), Henry Clarke (U.K. citizen), Julius Csurgo (Canadian and Hungarian citizen), Daniel Mark Ferris (UK citizen), Alon Friedlander (German citizen), Curtis Lehner (Canadian citizen), Petar Dmitrov Mihaylov (Bulgarian citizen), Massimiliano Pozzoni (Italian and Chilean citizen), Hasan Sario (resides in Turkey), Dean Shah (Canadian and U.K. citizen), David Sidoo (Canadian citizen), Courtney Vasseur (Canadian citizen), Antevorta Capital Partners, Ltd. (incorporated by Julius Csurgo in Canada and the British Virgin Islands).

Why the SEC got involved

The alleged fraud falls within the jurisdiction of the SEC because the parties amassed controlling interests in companies, concealed their collective control of the stock of the companies, funded misleading promotional campaigns to increase investor interest in purchasing the issuer’s stock and then exploited the buy-side demand they had created by collectively unloading their shares of the stock on unsuspecting retail investors and did some or all of the foregoing without complying with SEC registration, disclosure and other rules.

For example, according to the SEC complaint, stock of a public company, held by control persons of that company, cannot generally be offered or sold to the public without being first registered with the SEC or without complying with various public disclosure requirements and limits on the amount of stock that can be sold. These legal requirements create market transparency by giving investors access to material information, including information identifying: from whom the investors would be buying stock, the control persons of the company, and what those control persons are doing with their own stock.

In addition, for companies whose securities are registered under Section 12 of the Exchange Act, investors owning 5 per cent or more of the company’s publicly traded stock are required to publicly disclose their ownership interest, while investors owning 10 per cent or more are required to publicly disclose all of their trading in that stock, regardless of quantity. Such registration requirements, sale restrictions, and disclosure obligations are safeguards designed to protect the market for purchases and sales of stock, to inform investors about the nature of the stock they are holding or considering buying, and to alert investors when control groups, affiliates, or major shareholders sell their shares.

It is alleged that the alleged fraudsters broke these rules and concealed their ownership of various companies while pumping up share prices using false promotional campaigns.

Commenting on the alleged breaches of the Securities Act and the Exchange Act, Gurbir S. Grewal, Director of the SEC’s Division of Enforcement said:

We allege that the defendants in these actions orchestrated some of the most complex microcap stock fraud schemes ever charged by the SEC.

By locating their operations overseas, using encrypted messaging and operating through a convoluted network of offshore accounts, the defendants hoped to avoid detection of the massive frauds we allege they perpetrated on US markets and investors. However, investigative teams from three SEC offices doggedly kept on their trail, working across borders, and ended this alleged global scheme.

Map showing location of foreign citizens while operating fraudulent scheme

SEC’s actions

The SEC has asked the US court to enter a judgment that permanently bars the parties, including Kambeitz, from participating in an offering of penny stock and serving as an officer or director of any public company.

The SEC is also seeking orders for the parties, including Kambeitz, to pay civil monetary penalties pursuant to the Securities Act and the Exchange Act.

Lastly, the SEC is seeking orders for the parties, including Kambeitz, to disgorge, with prejudgment interest, any and all ill-gotten gains each received, or may be liable for jointly and severally, as a result of the conduct.

The SEC said that it appreciated the assistance of the US Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation and the Financial Industry Regulatory Authority. The investigations also involved assistance from securities regulators and other government authorities, including the Cayman Islands Monetary Authority.