Securities Law Prof Blog

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

Monday, December 12, 2011

SEC Charges "Shell Packaging Firm" with Fraud in Disseminating Unregistered Shares to Public

The SEC today charged a "shell packaging firm" and several others allegedly involved in a penny stock scheme to issue purportedly unrestricted shares in the public markets.  According to the SEC, Joseph Meuse and his firm Belmont Partners LLC – which is in the business of identifying and selling public shell companies for use in reverse mergers – fabricated and backdated documents used to convince a transfer agent and an attorney writing an opinion letter to issue free-trading shares of Alternative Green Technologies Inc. (AGTI). The SEC also charged AGTI and its CEO Mitchell Segal as well as Segal’s business partner Howard Borg and stock promoters David Ryan, Vikram Khanna, and Panascope Capital Inc. for their roles in the scheme that resulted in unknowing investors purchasing fraudulently issued AGTI shares without the protections afforded by the securities laws.

The SEC’s complaint charges all defendants with violating Section 5 of the Securities Act of 1933, and AGTI and Segal with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c) thereunder. Segal, Meuse and Belmont Partners are charged with aiding and abetting the fraud by AGTI. The SEC’s complaint seeks permanent injunctions and disgorgement against all defendants; a financial penalty against AGTI, Segal, Belmont Partners, Meuse, and Ryan; and officer and director and penny stock bars against Segal and Meuse. The SEC’s complaint also names several relief defendants for the purposes of recovering proceeds they received from the illicit stock sales.

Borg, Khanna and Panascope Capital have consented to the entry of a final judgment enjoining them from further violations of Section 5 of the Securities Act without admitting or denying the allegations in the SEC’s complaint. Khanna and Panascope Capital agreed to pay $81,477.10 to settle the charges, and Borg agreed to pay $35,264.05 and surrender to the transfer agent for cancellation more than four million shares of AGTI stock that were illegally issued. The settlements are subject to court approval.

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It is ironic that the SEC still finds time to go after small-fry shell packagers for FORGERY, of all things, while assiduously ignoring exactly the same sort of forgery--though far more egregious--when committed by major banks in connection with mortgage-backed securities (in the form of forged underwriting docs, origination docs, assignments and securitization docs). The latter forgeries have affected and rendered fraudulent literally a trillion dollars in securities, but apparently that doesn't warrant presence on the SEC's list of priorities. Backdated assignments anyone?

Meanwhile, as this case demonstrates, what apparently does warrant immediate presence on the SEC's list of priorities is being a "shell packager" who has the temerity to provide small companies a competitive alternative to paying Goldman Sachs or Morgan Stanley $1 million in fees in order to go public.

Posted by: James | Dec 15, 2011 10:30:08 AM

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