Wednesday, February 4, 2009
The SEC took emergency action to stop what it describes as "a massive and ongoing international boiler room scheme" that allegedly sold penny stocks to investors located in Europe by misrepresenting that investors paid no sales commissions. The SEC alleges that, in fact, investors paid commissions exceeding 60 percent of the amount invested, and the fraudulent scheme raised at least $44.2 million from 1,400 investors since March 2007.
The SEC's complaint alleges that four Chicago residents and their entities have worked in concert with sales agents based in Europe who make fraudulent cold calls to solicit investors. The SEC charged Chicago residents Stefan H. Benger, Jason B. Meyers, Frank I. Reinschreiber, and Philip T. Powers as well as four entities through which they operated the boiler room scheme: SHB Capital Inc., International Capital Financial Resources LLC, Global Financial Management LLC, and Handler, Thayer & Duggan, LLC. Handler Thayer is a Chicago law firm that employs Powers.
The SEC alleges that the multi-faceted boiler room scheme victimized residents of the United Kingdom, Germany, and other European countries. According to the SEC's complaint, Benger, Meyers, SHB Capital, and International Capital acted as distribution agents for at least eight different U.S. penny stock issuers, agreeing to solicit foreign investors in exchange for commissions that collectively exceed 60 percent of the investor proceeds. The SEC alleges that Benger, Meyers, SHB Capital, and International Capital, in turn, retained foreign sales agents to solicit investors. The foreign sales agents worked for boiler room operations and made cold calls to investors utilizing high pressure sales tactics. The SEC alleges that in connection with these sales, investors were not informed of the exorbitant commissions being collected or were told that no commissions would be charged. The SEC further alleges that Powers, Reinschreiber and Global Financial provided knowing and substantial assistance to the scheme by acting as escrow agents in exchange for a share of the commissions. The escrow agents took custody of approximately $44.2 million in investor funds, disbursed nearly $29 million in investor funds as undisclosed commissions and the remainder to the stock issuers. The SEC also alleges that Handler Thayer acted as an unregistered broker-dealer in connection with its activities as an escrow agent.
The SEC filed its emergency action in the U.S. District Court for the Northern District of Illinois, seeking a temporary restraining order, preliminary and permanent injunctions, disgorgement plus prejudgment interest, penny stock bars and civil money penalties. On February 3, the court granted, on an ex parte basis, all of the emergency relief requested by the SEC and scheduled a preliminary injunction hearing for February 13, 2009.