Six Charged in Alleged Offshore Stock Scheme
Indictment Says Operation Laundered $500 Million and Involved More Than 100 U.S. Investors
By
Christopher M. Matthews
connect
Updated Sept. 9, 2014 7:00 p.m. ET
U.S. authorities disclosed civil and criminal charges against what they said was a big offshore operation that allowed more than 100 U.S. investors to manipulate penny stocks and then launder hundreds of millions of dollars back into the country.
Federal prosecutors charged six men and related companies controlled by them in an indictment unsealed Tuesday in federal court in Brooklyn with running the alleged scheme, which they said was largely based in Belize. The Securities and Exchange Commission also filed related civil charges against two of the men, accusing them of violating federal securities laws.
The indictment alleged the men laundered some $500 million in proceeds from fraudulent securities transactions over five years for more than 100 U.S. citizens and helped them commit tax fraud.
The charges are part of a wider investigation, according to people familiar with the matter. Charges against some of the 100 U.S. citizens, who weren't named in the indictment or civil complaint, are also likely, one of the people said. The amount of allegedly laundered money and the number of U.S. investors involved could be much larger, the people said.
By creating a "pyramid of [limited liability corporations] and companies formed under the laws of Nevis and Belize," the scheme allowed U.S. clients of the defendants' companies to hide ownership in microcap securities allowing them to manipulate the stocks, according to court documents.
The defendants then helped the clients to transfer proceeds back into the U.S., avoiding U.S. taxes and laws against money laundering, the documents said.
The defendants— Robert Bandfield, Andrew Godfrey, Kelvin Leach, Rohn Knowles, Brian De Wit and Cem Can —were each charged with one count of conspiracy to commit securities fraud and conspiracy to launder money. Messrs. Bandfield, Godfrey and Can are also charged with conspiracy to defraud the U.S. government. All of the men reside in Belize, according to the court documents.
The SEC accused Messrs. Bandfield and Godfrey, who ran IPC Corporate Services, of violating disclosure rules in breach of U.S. securities laws.
Mr. Bandfield is expected to appear in court in Miami on Wednesday and will be subsequently transferred to Brooklyn, one of the people familiar with matter said, while the other defendants remain outside the U.S. Mr. Bandfield was the primary architect of the alleged scheme, the person said. His lawyer couldn't be immediately identified.
Jacob Frankel, an attorney for Messrs. Leach and Knowles as well as their company, Titan TWI -1.34% International Securities Inc., said he was confident his clients would be exonerated.
"The Department of Justice returned an indictment without even the slightest of advance notice to Titan, Mr. Leach or Mr. Knowles of an investigation, or an invitation to speak with prosecutors or regulators to resolve any concerns or inquiries," he said in an email.
Lawyers for the other defendants couldn't immediately be identified, and the men couldn't be reached.
The indictment came after a two-year undercover investigation by the Federal Bureau of Investigation during which an undercover agent posing as a stock promoter traveled to Belize to meet with some of the alleged conspirators and set up offshore entities, according to court documents.
During subsequent recorded conversations, Mr. Bandfield explained to the agent that he had incorporated some 5,000 sham companies allowing clients to manipulate penny stock markets by concealing the client's ownership of the stocks, the documents said.
Messrs. Bandfield and Godfrey also explained that they would offer clients prepaid credit cards on which they could load up to $50,000 a month to launder the fraudulent proceeds, according to the documents. "We can make it so it's not attached to you," the men said in one recorded conversation, according to the court documents.
The agents subsequently obtained court-approved wiretaps, which led them to the U.S. clients, according to court documents.
In one instance uncovered by the wiretaps, prosecutors alleged the defendants manipulated the stock of Cannabis-Rx Inc., CANA +5.26% a penny-stock company that catered to the real-estate needs of the regulated cannabis industry in the U.S.
One U.S. client used the offshore entities to orchestrate a series of transactions that resulted in the company's stock plummeting from $13.77 a share to 50 cents this past spring, according to court documents.
Investigators are looking into the manipulation of other publicly traded companies, a person familiar with the matter said.
Write to Christopher M. Matthews at christopher.matthews@wsj.com
Indictment Says Operation Laundered $500 Million and Involved More Than 100 U.S. Investors
By
Christopher M. Matthews
connect
Updated Sept. 9, 2014 7:00 p.m. ET
U.S. authorities disclosed civil and criminal charges against what they said was a big offshore operation that allowed more than 100 U.S. investors to manipulate penny stocks and then launder hundreds of millions of dollars back into the country.
Federal prosecutors charged six men and related companies controlled by them in an indictment unsealed Tuesday in federal court in Brooklyn with running the alleged scheme, which they said was largely based in Belize. The Securities and Exchange Commission also filed related civil charges against two of the men, accusing them of violating federal securities laws.
The indictment alleged the men laundered some $500 million in proceeds from fraudulent securities transactions over five years for more than 100 U.S. citizens and helped them commit tax fraud.
The charges are part of a wider investigation, according to people familiar with the matter. Charges against some of the 100 U.S. citizens, who weren't named in the indictment or civil complaint, are also likely, one of the people said. The amount of allegedly laundered money and the number of U.S. investors involved could be much larger, the people said.
By creating a "pyramid of [limited liability corporations] and companies formed under the laws of Nevis and Belize," the scheme allowed U.S. clients of the defendants' companies to hide ownership in microcap securities allowing them to manipulate the stocks, according to court documents.
The defendants then helped the clients to transfer proceeds back into the U.S., avoiding U.S. taxes and laws against money laundering, the documents said.
The defendants— Robert Bandfield, Andrew Godfrey, Kelvin Leach, Rohn Knowles, Brian De Wit and Cem Can —were each charged with one count of conspiracy to commit securities fraud and conspiracy to launder money. Messrs. Bandfield, Godfrey and Can are also charged with conspiracy to defraud the U.S. government. All of the men reside in Belize, according to the court documents.
The SEC accused Messrs. Bandfield and Godfrey, who ran IPC Corporate Services, of violating disclosure rules in breach of U.S. securities laws.
Mr. Bandfield is expected to appear in court in Miami on Wednesday and will be subsequently transferred to Brooklyn, one of the people familiar with matter said, while the other defendants remain outside the U.S. Mr. Bandfield was the primary architect of the alleged scheme, the person said. His lawyer couldn't be immediately identified.
Jacob Frankel, an attorney for Messrs. Leach and Knowles as well as their company, Titan TWI -1.34% International Securities Inc., said he was confident his clients would be exonerated.
"The Department of Justice returned an indictment without even the slightest of advance notice to Titan, Mr. Leach or Mr. Knowles of an investigation, or an invitation to speak with prosecutors or regulators to resolve any concerns or inquiries," he said in an email.
Lawyers for the other defendants couldn't immediately be identified, and the men couldn't be reached.
The indictment came after a two-year undercover investigation by the Federal Bureau of Investigation during which an undercover agent posing as a stock promoter traveled to Belize to meet with some of the alleged conspirators and set up offshore entities, according to court documents.
During subsequent recorded conversations, Mr. Bandfield explained to the agent that he had incorporated some 5,000 sham companies allowing clients to manipulate penny stock markets by concealing the client's ownership of the stocks, the documents said.
Messrs. Bandfield and Godfrey also explained that they would offer clients prepaid credit cards on which they could load up to $50,000 a month to launder the fraudulent proceeds, according to the documents. "We can make it so it's not attached to you," the men said in one recorded conversation, according to the court documents.
The agents subsequently obtained court-approved wiretaps, which led them to the U.S. clients, according to court documents.
In one instance uncovered by the wiretaps, prosecutors alleged the defendants manipulated the stock of Cannabis-Rx Inc., CANA +5.26% a penny-stock company that catered to the real-estate needs of the regulated cannabis industry in the U.S.
One U.S. client used the offshore entities to orchestrate a series of transactions that resulted in the company's stock plummeting from $13.77 a share to 50 cents this past spring, according to court documents.
Investigators are looking into the manipulation of other publicly traded companies, a person familiar with the matter said.
Write to Christopher M. Matthews at christopher.matthews@wsj.com
