SEC wins $11.2-million (U.S.) penalty for Boock 2

The U.S. Securities and Exchange Commission has won $11.2-million in civil penalties against Toronto's Irwin Boock, a recidivist securities violator, for hijacking the identities of 43 inactive companies and selling them as shells. (All figures are in U.S. dollars.) In handing down the fine, New York Judge Denise Cote found that there was no doubt Mr. Boock violated the securities laws in a "knowing and intentional" way. In addition to ordering the substantial monetary penalty, she permanently barred him from penny stocks and from serving as an officer or director of a public company.

The SEC claimed that Mr. Boock and others were behind a four-year scheme in which they reactivated inactive companies through bogus resolutions and false regulatory filings. The stocks produced from the scheme included a shell that became Paramount Gold and Silver Corp., a Toronto Stock Exchange listing. The SEC listed one of the scheme's substantial customers as Quebec resident Jean-Francois Amyot, who paid $1-million for 10 or 12 shells. (The SEC did not accuse Mr. Amyot or Paramount Gold of any wrongdoing.)

The judge also on Thursday entered penalties against two other Toronto area men for the scheme, Jason Wong and Stanton DeFreitas. She found both men were jointly liable with Mr. Boock for disgorgement of $8.2-million in ill-gotten gains. She also ordered Mr. Wong to pay a $1.56-million civil penalty and Mr. DeFreitas to pay $130,000. In addition, she permanently banned both men from penny stocks and banned Mr. Wong from serving as an officer or director of a public company.

SEC's case

The SEC launched the case on Sept. 29, 2009, when it filed a civil suit in the Southern District of New York against the men. It claimed that they ran a four-year scheme, starting in November, 2003, in which they hijacked the identities of inactive pink sheets companies. They typically sought stocks that still traded, but lacked a current transfer agent or contact person. Once they located a suitable target, they reactivated the company through the appropriate secretary of state, providing false names and addresses for contact information, the complaint stated.

With some of the companies, the men discovered that the secretary of state had declared the company void, the SEC said. When that happened, they simply incorporated a new entity with the same name, and used it to assume the identity of the old company. They would then roll back the stock, change the company's name and obtain a new Cusip number, the SEC claimed.

The complaint also named as defendants two Houston lawyers who allegedly wrote bogus opinion letters that authorized the issuance of millions of shares. The lawyers, Roger Schoss and Nicolette Loisel, helped the men obtain 223 million free-trading shares in 19 of the companies, the SEC said. The complaint cited Ms. Loisel for preparing fraudulent transfer agent verification forms.

The SEC sought disgorgement of profits, civil penalties and penny stock bans against all of the defendants.

None of the defendants had a trial, as the SEC won summary judgments against Mr. Wong and Mr. DeFreitas and a default judgement against Mr. Boock. (Mr. Boock tried to have the default judgment overturned, claiming that a confession he made during a videotaped interview with the SEC was obtained under duress. He said his wife had been in the hospital at the time of the confession and he was not sleeping properly. The judge rejected his request.)

Mr. Wong, for his part, argued that he knew nothing about the hijackings, and said somebody else must have used his name. The judge, however, said it was obvious he participated in every step of the scheme. She found the evidence was so overwhelming that there was no need for a trial against him.

The SEC's case against the two Houston lawyers has been on hold since they were criminally charged for a separate hijacking scheme. According to Florida prosecutors, they were part of a group that hijacked 54 companies and sold shares in those companies to residents in the United Kingdom, taking over $100-million from investors. Mr. Schoss and Ms. Loisel pleaded not guilty, but a jury convicted both on May 22, 2012. They await sentencing.

Boock, the recidivist

For Mr. Boock, the penalty is not the first he has received from the SEC. In November, 2002, he agreed to pay $429,619 to settle an SEC case stemming from reporting violations at Leah Industries Inc., an OTC Bulletin Board listing. The SEC said he had the company report earnings that were purportedly audited by Deloitte & Touche when there had been no such audit. He then sold 537,500 shares, for proceeds of $319,050. He settled the case without admitting any wrongdoing, but never paid the fine.

He was also the subject of an Ontario Securities Commission case in January, 1991, in which the regulator said he filed forged documents with the commission and a transfer agent. He paid $15,000 and was banned from trading and from serving as an officer or director of a public company for 10 years. Just two years later, in May, 1993, he was convicted on fraud and forgery charges in Ontario, and received three years in jail. He was charged with fraud in Ontario yet again in September, 1998, and received two years of probation.

At the time of those offences, his name was Irwin Krakowsky.