International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Tuesday, September 9, 2014

Six Corporate Executives / Six Corporate Entities Indicted For $500 Million FATCA Avoidance Scheme, Securities Fraud, Money Laundering for 100 US Clients

Defendants Created Three Brokerage Firms in Belize to Assist U.S. Citizens in Fraudulent Manipulation Schemes of Publicly Traded Companies, Including Cannabis-Rx, Inc. (CANA)

Justice logoA multi-count indictment was unsealed this morning in federal court in Brooklyn, New York, against six individual defendants: Robert Bandfield, a U.S. citizen; Andrew Godfrey, a citizen of Belize; Kelvin Leach, a citizen of the Bahamas; Rohn Knowles, a citizen of the Bahamas; Brian De Wit, a citizen of Canada; and Cem Can, a citizen of Canada; and six corporate defendants: IPC Management Services, LLC; IPC Corporate Services Inc.; IPC Corporate Services LLC (collectively, IPC Corp); Titan International Securities, Inc. (Titan); Legacy Global Markets S.A. (Legacy); and Unicorn International Securities LLC (Unicorn).  The charges include conspiracy to commit securities fraud, tax fraud, and money laundering. Bandfield’s initial appearance for removal proceedings to the Eastern District of New York is scheduled for tomorrow at the Wilkie D. Ferguson Jr. United States Courthouse, 400 North Miami Avenue, Miami, Florida. The government will seek extradition for the other individual defendants.

As alleged in the indictment, between January 2009 and September 2014, this group of conspirators, masquerading as financial professionals, concocted three interrelated schemes to:

(a) defraud new investors in various U.S. publicly traded companies through, among other things, fraudulent concealment of the defendants’ corrupt clients’ ownership interests in the U.S. publicly traded companies and their fraudulent manipulation of artificial price movements and trading volume in the stocks of those companies;

(b) aid the corrupt clients to circumvent the IRS’s reporting requirements under, among other statutes, the Foreign Account Tax Compliance Act (FATCA); and

(c) launder money for the corrupt clients through financial transactions to and from the United States involving proceeds of fraud in the sale of securities.  As part of this fraudulent offshore scheme, the defendants laundered approximately $500 million for the corrupt clients – who included more than 100 U.S. citizens and residents.

To facilitate these interrelated schemes, the defendants created shell companies in Belize and Nevis, West Indies, for the corrupt clients and placed nominees at the helm of these companies. This structure was designed to conceal the corrupt clients’ ownership interest in the stock of U.S. public companies, in violation of U.S. securities laws, and enable the corrupt investors to engage in trading under the nominee’s names through brokerage firms also set up in Belize. For example, this structure enabled the defendant De Wit and a U.S. corrupt client to manipulate the stock of Cannabis-Rx, Inc., a microcap or penny stock company which traded under the ticker symbol CANA, through a series of orchestrated transactions between March 27, 2014 and April 16, 2014. On March 28, 2014 alone, De Wit received at least five telephone calls from the corrupt client with specific instructions to fraudulently orchestrate the trading of CANA’s stock. That day, CANA’s stock, which had not traded since July 2, 2013, had a trading volume of 189,800 shares. Ultimately, CANA’s stock price plummeted from $13.77 per share on March 27, 2014 to $0.50 per share on April 16, 2014.

Irs_logoThe defendants’ scheme also enabled the U.S. corrupt clients evade reporting requirements to the IRS by concealing the proceeds generated by the manipulated stock transactions through the shell companies and their nominees. For example, in response to a request received by a U.S. corrupt client from a U.S. transfer agent who had to determine whether the proceeds from manipulative stock trading transaction were taxable under U.S. law, the defendant Bandfield forwarded an IRS Form signed by co-defendant Godfrey as the nominee for the shell company which had been set up at the request of the client.  At one point during the government’s investigation, Bandfield boasted to an undercover law enforcement agent that he had specifically designed this “slick” corporate structure to counter President Barack Obama’s new laws, a reference to FATCA.

An example of how the defendants’ scheme enabled U.S. corrupt clients to launder the proceeds from their fraudulent trading in U.S. public companies was the production of unidentifiable debit cards for the clients allowing them to freely transfer their proceeds back into the United States.

SECThe Securities and Exchange Commission today charged two of these individuals with managing an offshore business intended to help clients evade U.S. securities laws with concealing the ownership of certain microcap stocks as part of a larger money laundering scheme alleged by the criminal authorities.

Under the federal securities laws, beneficial owners of more than 5 percent of certain stocks are required to report their acquisition and ownership of those stocks to the SEC and the investing public.  The SEC alleges that Belize residents Robert Bandfield and Andrew Godfrey through a company called IPC Corporate Services have helped clients who own significant amounts of thinly-traded microcap stocks avoid these reporting requirements. 

They created associated companies through which the clients could hide their ownership and spread the shares so that none of them contained more than 5 percent of the stock of any particular microcap issuer.  They stressed to their clients the importance of staying below the 5 percent reporting threshold for each associated entity.  However, because Bandfield and IPC owned the associated entities used in this arrangement, they assumed beneficial ownership of all the clients’ shares of these microcap stocks.  Therefore, IPC and Bandfield were themselves required to report their beneficial ownership of more than 5 percent in each stock.

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