The Securities and Exchange Commission today announced it charged three Canadian citizens with carrying out a fraudulent scheme involving penny stocks which generated tens of millions of dollars in proceeds but left investors with nearly worthless shares of various public companies.
According to the SEC’s complaint, between at least 2011 and 2016, Jay Scott Kirk Lee, Geoffrey Allen Wall, and Benjamin Thompson Kirk allegedly were able to utilize a network of offshore front companies to conceal their control of shares in penny stocks, unload those shares on unsuspecting retail investors, and disburse the proceeds of their fraud to various bank accounts throughout the world.
The SEC also alleges that Lee, Wall and Kirk hid their control from brokers and transfer agents who serve as “gatekeepers” to assure that shares controlled by company affiliates (including those who control 5% or more of a company’s shares) were not sold to the public without proper disclosure in a registration statement.
The defendants charged in this case were some of the more prolific clients of Frederick L. Sharp and his offshore platform, which was essentially a complete service provider for all the illicit needs of those dedicated to committing penny stock fraud. The SEC filed an action against Sharp and his associates in August 2021 for violations of the anti-fraud and registration provisions of the federal securities laws arising from their creation, maintenance and profiting from this platform.
"The defendants apparently believed that by joining Sharp’s network of clandestine accounts and cloak-and-dagger communications they would have the tools at their disposal to commit fraud without accountability," said Melissa Hodgman, Associate Director of the Enforcement Division. "Our action today has demonstrated that even the most sophisticated scheme is not beyond our enforcement efforts."
The SEC’s complaint, which was filed in federal district court in Boston, charges Lee, Wall and Kirk with violating the antifraud and registration provisions of the federal securities laws. The SEC is seeking permanent injunctions, conduct based injunctions, disgorgement of allegedly ill-gotten gains plus interest, civil penalties, and penny stock bars.
The SEC’s investigation has been led by Edward Gerard, Steve Susswein, and Shipra Wells of the SEC’s Washington, DC Office, with the assistance of Trevor Donelan of the SEC’s Boston Regional Office, and supervised by J. Lee Buck, II. Senior Trial Counsel James E. Smith will lead the SEC’s litigation of this matter. The SEC appreciates the assistance of the Financial Industry Regulatory Authority, the British Columbia Securities Commission, the Mauritius Financial Services Commission, and the Curaçao Korps Landelijke Politiediensten.
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