Men charged with shell company stock fraud used SEC documents
Three men engaged in a blatant ploy to “surreptitiously hijack” and take over dormant shell companies, whose shares they then fraudulently inflated to cede them to unwitting investors, according to charges in an indictment that was unsealed Friday.
The men from 2017 to 2019 allegedly used bogus resignation letters to take control of four shell companies, then used the Securities and Exchange Commission’s public ranking system EDGAR and bogus press releases to fraudulently ‘inflate’ the price of their actions by claiming new business opportunities, says the indictment.
Millions of shares of these stocks, which the defendants had bought in many cases for less than 1 cent per share, were then sold in the over-the-counter market by the men and others for profits of up to 900%, depending on the court record.
The defendants – Mark Allen Miller, Christopher James Rajkaran and Saeid Jaberian, also known as Andre Jaberian – are charged with 15 counts of securities fraud, conspiracy to commit securities fraud and electronic fraud.
The indictment says Minnesota residents Miller and Jaberian, along with an unidentified third person who is a relative of Miller, in fact became the nominal CEOs and chairmen of the companies targeted by the scam.
Prosecutors believe the men made hundreds of thousands of dollars in illicit profit solely from the conduct detailed in the indictment, according to a spokeswoman for the United States Attorney’s Office in Minnesota.
The indictment, which was filed in U.S. District Court in Minnesota, was first reported on Friday by the Twitter account of Seamus Hughes, deputy director of the extremism program at George Washington University. .
Hughes regularly searches the Federal Court’s PACER online filing system for interesting documents on criminal and civil matters that have not been previously reported.
The Securities and Exchange Commission did not immediately respond when CNBC asked whether the agency had taken action against the defendants and whether it had made changes to the EDGAR filing system to prevent its manipulation by suspected fraudsters.
None of the defendants could be reached for comment.
Rajkaran, a resident of Queens, New York and Guyana, was taken into custody as a flight risk after appearing in court in Brooklyn, New York on Friday.
The other two defendants, Miller and Jaberian, are scheduled to appear in federal court in Minnesota on July 2.
While the companies had purported business operations – online data protection services, computer software, debt collection and aerospace, respectively – all were in reality shell companies “with no significant transactions or income,” the company said. ‘indictment.
The companies had all stopped filing the required documents with the SEC and the Secretary of State, but their shares were listed on the over-the-counter market.
After identifying the quartet of companies, “the conspirators then bought shares of dormant public shell companies at low prices on the over-the-counter market,” the indictment reads.
“The conspirators were able to obtain hundreds of thousands if not millions of shares because the shares were trading at only a fraction of a dime a share.”
In the case of Digitiliti, according to the indictment, Miller wrote in September 2017 a fake resignation letter and board report falsely stating that the former CEO of the company had resigned and that Miller had been appointed president and CEO.
Miller then submitted documents to the SEC that mistakenly identified himself as the new boss of the company and requested “filing codes to access the company’s EDGAR SEC filing account.”
This in turn “allowed Miller to file public documents with the SEC on behalf of the company.”
The EDGAR system is used by public companies to disclose important events, including quarterly and annual financial results, changes in management, sales and purchases of significant amounts of company shares by insiders and others.
The indictment indicates that Miller bought 50,000 shares of Digitiliti in November 2017.
“After hijacking Digitiliti, the accused Miller used his control over the company to issue a false and misleading press release on behalf of the company,” the indictment reads.
On or about July 9, 2018, Miller issued a press release falsely claiming that Digitiliti had ‘entered into negotiations with a private company seeking to’ buy out ‘Digitiliti. “
The statement also falsely claimed that the private company “has a proven track record of generating income and being successful in a highly desirable market sector,” according to the indictment.
Miller sold his 50,000 shares of Digitiliti three weeks later.
In the alleged hijacking of Encompass Holdings from June to November 2017, Miller and Rajkaran together bought more than 40 million shares of the company at a low price, according to the indictment.
Miller, as he did with Digitiliti, claimed in a bogus resignation letter and board report that he had become chairman and CEO, according to the indictment.
Rajkaran then began posting articles on the company surinvestorshub.com with the aim of “promoting and inflating the price of ECMH stock,” the indictment reads.
“For example, he posted that the new CEO was’ probably worth nearly 20 million real estate[s] and construction machinery. . . I heard that he had several stripmalls in mn ”, indicates the indictment.
Miller then issued a press release falsely claiming that Encompass “signed a letter of intent to acquire the assets of DDG Properties worth approximately $ 6.4 million.” according to the indictment.
“None of this was true.”
The share price rose in response to the allegations and Miller soon after sold 12 million shares of the company at fraudulently inflated prices, making a profit of more than 300%, according to the indictment. .
Rajkaran made a return of about 150% of his profits after giving up more than 34 million shares, according to the indictment.