Two San Diego attorneys were among 14 individuals and entities charged March 15 by the Securities and Exchange Commission over their alleged roles in an international pump-and-dump scheme involving two publicly traded U.S. entities (SEC v. Carillo Huettel LLP, S.D.N.Y., No. 13 cv. 1735, 3/15/13).
The lawsuit, filed in the U.S. District Court for the Southern District of New York, also named four Canadian stock promoters and a Bahamas brokerage, among other defendants.
According to the SEC, Canadian stock promoters John Kirk, Benjamin Kirk, Dylan Boyle, and James Hinton pumped up trading in the stock of two microcap companies, Pacific Blue Energy Corp. and Tradeshow Marketing Co. Ltd., via false and misleading representations. The four made millions when they secretly disposed of their own shares, the SEC said.
Allegedly, the four promoters sent investors false and misleading e-mail regarding the companies through two websites they controlled. They also allegedly used boiler-room sales tactics to tout the securities, “falsely claiming that the recommendations were based on independent research by Skymark and Emerging Stock Report.”
Meanwhile, the SEC contended, San Diego attorneys Luis Carrillo and Wade Huettel “were central participants in the scheme who helped the promoters conceal their ownership interests in the companies, drafted misleading public filings, and provided misleading legal opinions.”
Carrillo and Huettel's law firm, Carrillo Huettel LLP, also allegedly played a role in the scheme by secretly receiving stock sales proceeds in the form of a phony “loan.”
Gibraltar Global Securities, a Bahamian broker-dealer, allegedly provided fake affidavits and other misleading materials that enabled Benjamin Kirk secretly to sell shares of the companies he was promoting. Gibraltar's president Warren Davis allegedly signed misleading representations on the firm's behalf.
“Microcap fraud is a scourge on our markets,” NYRO director Andrew Calamari said.
In the SEC's release, Andrew Calamari, director of the agency's New York Regional Office, said, “Microcap fraud is a scourge on our markets and we will continue to aggressively pursue individuals who engage in it, whether they are unscrupulous stock promoters who prey on investors or unethical attorneys who enable these pernicious schemes.”
“Moreover,” he added. “as this action demonstrates, the SEC is working closely with foreign authorities to root out this conduct in the international arena.”
Other defendants included Luniel de Beer, Tradeshow's president, who served as chairman of Pacific Blue. De Beer allegedly received more than $330,000 in secret kickbacks for his role in the controversy. In addition, de Beer and Pacific Blue president Joel Franklin allegedly made misleading representations and facilitated the promoters' sales.
The final defendant, Carrillo's father Dr. Luis Carrillo, allegedly distributed unregistered securities in violation of U.S. law.
The SEC said Franklin settled the allegations, agreeing without admitting or denying misconduct to be barred from future violations.
The agency said it is asking the court to order the remaining defendants return their unlawful gains, with interest; and to bar Carrillo, Huettel, de Beer, John Kirk, Benjamin Kirk, Boyle, and Hinton from participating in penny stock offerings and from serving as officers or directors of a public company.
In addition, the commission is seeking civil money penalties from the attorneys, their law firm, and de Beer.
“It's all spin and purple prose,” New York lawyer David Gourevitch said on de Beer's behalf. “There are no facts.” He said his client will be vindicated at trial.
On behalf of Gibraltar, Nicholas De Feis , De Feis O'Connell & Rose P.C., New York, said he is still reviewing the complaint. However, he noted, “the 50-page pleading alleges only limited involvement by Gibraltar in transactions organized by others.”
Juan Marcel Marcelino, Nelson Mullins Riley & Scarborough LLP, Boston, said his client Dr. Luis Carrillo “intends to vigorously contest the technical allegations that he participated in the sale of unregistered securities.”
Thomas Curran, Peckar & Abramson LLP, Washington--counsel to defendant Luis Carillo--declined to comment. The remaining defendants either are not represented or their attorneys could not be reached immediately for comment.
To see the SEC's complaint, go to http://www.sec.gov/litigation/complaints/2013/comp-pr2013-39.pdf.
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