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Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Wednesday, July 8, 2009

SEC Charges New York Broker-Dealer with $61 Million Boiler Room Fraud

On July 8, 2009, the SEC filed a civil injunctive action in the United States District Court for the Southern District of New York alleging that a New York based broker-dealer, Sky Capital LLC a/k/a Granta Capital LLC (Sky Capital) used fraudulent boiler room tactics between September 2002 and November 2006 to raise more than $61 million from investors in two related companies — Sky Capital Holdings Ltd. and Sky Capital Enterprises, Inc. (the Sky Entities). The Commission also charged Sky Capital's founder, former President and CEO, Ross Mandell, the firm's former COO, Stephen Shea, and four registered representatives, Adam Harrington Ruckdeschel, Arn Wilson, Michael Passaro, and Robert Grabowski, for orchestrating and participating in the fraudulent scheme designed to fraudulently induce numerous individuals to invest in the Sky Entities.

According to the Commission's complaint, Mandell orchestrated the fraudulent scheme with the assistance of Shea and the other defendants. According to the complaint, Mandell directed Sky Capital brokers to make material misrepresentations, and fail to disclose material information, to induce their Sky Capital customers to purchase stock in the Sky Entities. Mandell also personally made material misrepresentations to his customers. Additionally, the defendants implemented and enforced a "no-net sales" policy, which had the effect of preventing investors from selling their Sky Entities' stocks that were otherwise publicly traded on the Alternative Investment Market of the London Stock Exchange. The no-net sales policy had the effect of artificially inflating the price of the Sky Entities' stocks. Moreover, as a result of the "no-net sales" policy, which the defendants did not disclose to their customers, numerous Sky Capital investors were unable to sell their shares in the Sky Entities before trading in those stocks was suspended thereby rendering the investments worthless.

The SEC's complaint charges each of the defendants with violations of the antifraud provisions and seeks a final judgment permanently enjoining the defendants from future violations of the above provisions of the federal securities laws, ordering them to disgorge their ill-gotten gains plus prejudgment interest, and ordering them to pay civil penalties. The complaint also seeks to permanently prohibit Mandell from acting as an officer or director of any registered public company.

http://lawprofessors.typepad.com/securities/2009/07/sec-charges-new-york-brokerdealer-with-61-million-boiler-room-fraud.html

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